JOHN MAYNARD KEYNES

John Maynard Keynes

John Maynard Keynes

Introduction

The world has seen many great economists and economic revolutionists in history. The era between 18th and 20th century has marked the arrival of some of the greatest economic reformers in the world. All of them have been responsible for introducing one or the other policies and reforms in this subject.

John Maynard Keynes was one such economist, whose theories and ideas have put profound effects on the practices theories and of modern macroeconomics. Maynard was a British economist, who even overlooked the governments' economic policies. The use of monetary and fiscal measures to alleviate the unfavorable effects of economic depressions and recessions were his major works. The Keynesian economics is formed by his ideas and included in basis for the school of thought. (Hyman, 2008)

Keynes is extensively considered as the father of macroeconomics and the most significant economist of the 20th century. In the year 1999, the Time magazine incorporated Keynes in the list of their 100 most important and high-ranking people of the 20th century.

Economic Views

The Neo-classical theory prevailing during the 19th and 20th century held the view that the two types of major costs which move supply and demand are labor and money. The forces of demand and supply can be adjusted by distributing the monetary policy. The wages would fall until hiring, if it is the case of more labor than demand. If there was the savings exceeded than consumption, there would be a decline in interest rates until people either reduce their rates of savings or borrow.

Besides the other views, it is difficult to determine the wages. The 20th century advocates the abolition of unions, minimum wages, long-term contracts, and increasing the flexibility of labor-market. Moreover, the Keynes also argued that, in order to boost the employment, it is essential to lower the real wages: moreover, nominal wages should be made to decline more than prices. However, the aggregate demand for goods would drop as it would reduce consumer demand too. The ultimate would be a reduction in expected profits and business sales revenues.(John, 2011)

Furthermore, the fall in prices could create a downward spiral in the economy as those who had money would simply wait as falling prices made it more valuable—rather than spending. According to the Irving Fisher of 1933, in his Debt-Deflation Theory of Great Depressions, deflation (falling prices) can cause depression more severe ...