JOHN MAYNARD KEYNES

John Maynard Keynes

John Maynard Keynes

Question

To what extent did Keynes' critique of the classical model form the basis of British macroeconomic policy in the second half of the twentieth century?

Introduction

John Maynard Keynes (1883-1946) is undoubtedly the most famous economist and most influential of the twentieth century. He gave his name to a revolution, theories and policies. So-called “Keynesian” view has become dominant economies and ways to manage them in the thirty years after the war, before being challenged and undermined by the various incarnations of Neoliberalism: monetarism, supply-side economics, and new classical macroeconomics. As this latter term, it comes back to the theoretical approach that Keynes had criticized and fought with his time and he had called “classical economics” (Arestis & Sawyer, 2002, 529-546).

The effectiveness of the invisible hand illusion

This classical economics, in the spirit of Keynes, was characterized mainly by its belief in market self-regulation. Its proponents believed in the intrinsic stability of capitalist economies. Of course, market imperfections, accidents and other external shocks could throw them off their normal course. But the theory distilled in orthodox textbooks taught that in an economy characterized by full employment of resources and price stability, the maximum well-being for all emerging from the rational pursuit by each individual's material interest. The chronic stagnation of the British economy of the 20s and the massive unemployment that hit all economies after the shock of 1929 were attributed to too high wages (Davidson, 1994, 254-261).

By the early 20's, Keynes was convinced that this view was erroneous. He believed that only a dictatorial political regime, as in Russia and Italy, was able to impose pay cuts. He was looking more toward the state intervention, in particular the implementation of important public works, the solution to the problem of unemployment. In 1926, he wrote, in The end of laissez-faire, that belief in the effectiveness of the invisible hand of market self-regulation was, and always had been, a myth. He did not yet, however, an alternative theory to adequately oppose the instruments of the classical theory, particularly the quantity theory of money and Say's Law whereby supply creates its request to the scale of the overall economy (Snowdon & Vane, 2005, 97-105).

The importance of uncertainty in economics

He compares the development of his theory to the clearing of a painful journey in a thick jungle at the exit of a tunnel, to the gradual release of the errors of orthodox economics, or a catharsis which will culminate for his publication in 1936 of his General Theory of Employment, Interest and Monnai e. Three years ago, in a radio broadcast, he said the side of the heterodox who do not believe in the intrinsic stability of capitalist economies, announcing the development of what he calls a monetary economy of production. He believes that one of the major errors of the classical theory is to consider that money is neutral in the economy of the country, while irrational and pathological love of money is precisely the engine of ...