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The General Theory of Employment, Interest and Money: With the Economic Consequences of the Peace

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John Maynard Keynes (1883-1946) is perhaps the foremost economic thinker of the twentieth century. On economic theory, he ranks with Adam Smith and Karl Marx; and his impact on how economics was practiced, from the Great Depression to the 1970s, was unmatched. The General Theory of Employment, Interest and Money was first published in 1936. But its ideas had been forming fo John Maynard Keynes (1883-1946) is perhaps the foremost economic thinker of the twentieth century. On economic theory, he ranks with Adam Smith and Karl Marx; and his impact on how economics was practiced, from the Great Depression to the 1970s, was unmatched. The General Theory of Employment, Interest and Money was first published in 1936. But its ideas had been forming for decades - as a student at Cambridge, Keynes had written to a friend of his love for 'Free Trade and free thought'. Keynes's limpid style, concise prose, and vivid descriptions have helped to keep his ideas alive - as have the novelty and clarity, at times even the ambiguity, of his macroeconomic vision. He was troubled, above all, by high unemployment rates and large disparities in wealth and income. Only by curbing both, he thought, could individualism, 'the most powerful instrument to better the future', be safeguarded. The twenty-first century may yet prove him right. In The Economic Consequences of the Peace (1919), Keynes elegantly and acutely exposes the folly of imposing austerity on a defeated and struggling nation.


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John Maynard Keynes (1883-1946) is perhaps the foremost economic thinker of the twentieth century. On economic theory, he ranks with Adam Smith and Karl Marx; and his impact on how economics was practiced, from the Great Depression to the 1970s, was unmatched. The General Theory of Employment, Interest and Money was first published in 1936. But its ideas had been forming fo John Maynard Keynes (1883-1946) is perhaps the foremost economic thinker of the twentieth century. On economic theory, he ranks with Adam Smith and Karl Marx; and his impact on how economics was practiced, from the Great Depression to the 1970s, was unmatched. The General Theory of Employment, Interest and Money was first published in 1936. But its ideas had been forming for decades - as a student at Cambridge, Keynes had written to a friend of his love for 'Free Trade and free thought'. Keynes's limpid style, concise prose, and vivid descriptions have helped to keep his ideas alive - as have the novelty and clarity, at times even the ambiguity, of his macroeconomic vision. He was troubled, above all, by high unemployment rates and large disparities in wealth and income. Only by curbing both, he thought, could individualism, 'the most powerful instrument to better the future', be safeguarded. The twenty-first century may yet prove him right. In The Economic Consequences of the Peace (1919), Keynes elegantly and acutely exposes the folly of imposing austerity on a defeated and struggling nation.

30 review for The General Theory of Employment, Interest and Money: With the Economic Consequences of the Peace

  1. 4 out of 5

    This part of the review is dedicated exclusively to The General Theory; for Consequences of the Peace, please see below, later. Keynes has always occupied an ambivalent space in my (limited) understanding of political economy. On the one hand, he was an avowed anti-marxist, a member of the British Liberal Party and proudly bourgeois. On the other hand, his framework set the stage for redistributive policies that Western bourgeois governments implemented in spite of themselves and which contempora This part of the review is dedicated exclusively to The General Theory; for Consequences of the Peace, please see below, later. Keynes has always occupied an ambivalent space in my (limited) understanding of political economy. On the one hand, he was an avowed anti-marxist, a member of the British Liberal Party and proudly bourgeois. On the other hand, his framework set the stage for redistributive policies that Western bourgeois governments implemented in spite of themselves and which contemporary neoliberals are still very apprehensive towards. The least you could say is that the ruling class itself doesn’t quite know what to do with Keynes. Radhika Desai, one of the sharpest marxist politicologists active, a decade ago wrote an article reappraising his radical credentials, and so here we are now. As opposed to Marx, who built Capital as a self-contained logical construction where each new argument rests on the previous, Keynes works with the tools his contemporaries were used to. This immediately proves to be a barrier to amateurs like me, but I’ll try to reconstruct his argument anyway. Keynes’ view of capitalism is inherently radical, in the sense that he believes it to be naturally crisis-prone. There are no “natural” equilibriums, the market is not a neutral arena but a force-field that plays by its own rules, not those of society, and the great majority of the people suffer. Keynes is before all else concerned with guaranteeing full employment: anything else exposes capitalism to social upheaval that might bury it. The economic hegemony which he arose in dictated that the free market will itself balance supply, demand and interest to find the optimal rate of employment, but Keynes doesn’t buy this. If, in such circumstances, we start from a position of full employment, entrepreneurs will necessarily make losses if they continue to offer employment on a scale which will utilise the whole of the existing stock of capital. Hence the stock of capital and the level of employment will have to shrink until the community becomes so impoverished that the aggregate of saving has become zero, the positive saving of some individuals or groups being offset by the negative saving of others. Thus for a society such as we have supposed, the position of equilibrium, under conditions of laissez-faire, will be one in which employment is low enough and the standard of life sufficiently miserable to bring savings to zero. (p 188) He opposes Say’s Law, which basically holds that every commodity produced will generate funds for a consumer to buy it: the economy as a perfect closed loop. Within this universe, all that would be needed is to unburden entrepreneurs and allow them to create wealth and consumers. Not so for Keynes: production will only be expanded if a profit can be guaranteed and hence effective demand must be high enough. Effective demand consists of two parts: consumption demand (purchases by anyone, to consume a product) and investment demand (purchases of capital goods to expand capital). The trouble is that even though enough wealth exists to increase effective demand to levels where full employment is guaranteed, the private control over this wealth means some of it will not be recycled into consumption or investment but hoarded. The greater the wealth per person, the smaller the proportion of it will be spent on necessities, and hence the smaller the percentage of this will go towards consumption. In other words, simply raising the consumption demand (ie personal income) would not (efficiently) realize enough demand to fuel full employment: investment demand itself must be raised. Keynes doesn’t want to ditch the market. Or at least, not necessarily. In his most probably best-known anecdote, he proposes to bury bottles of cash money and allow the free market to dig them out (112-113). Perfectly sensible, seen from a market POV. Raising investment demand can be as simple as limiting the interest rates: after all, the decision to invest (and hence to borrow money to invest with) is contingent on the price of this borrowing being lower than the expected return on investment. This would amount to a frontal attack on the world of finance capital: getting this parasitical layer out of the equation would, to Keynes, allow for full employment and continuously increasing investment. Indeed, the entire problem of economic development can be traced back to hoarding “That the world after several millennia of steady individual saving, is so poor as it is in accumulated capital-assets, is to be explained, in my opinion, neither by the improvident propensities of mankind, nor even by the destruction of war, but by the high liquidity-premiums [ie. preference for hoarding money as money, instead of investing it as capital] formerly attaching to the ownership of land and now attaching to money.” (208). In other words, money hoards and the power of finance and debt restrain the productive capacities of capital. What would Keynes’ ideal economic system look like? “The most sensible way of gradually getting rid of many of the objectionable features of capitalism” would go through the “gradual disappearance of a rate of return on accumulated wealth” by making “capital-goods so abundant that the marginal efficiency of capital is zero” (191), ie, the “euthanasia of the rentier […] Interest today rewards no genuine sacrifice, any more than does the rent of land.” (326). In other words, Keynes wants to save the entrepreneurs by culling the rentiers. This view goes back to Adam Smith; that’s not to say that it is a conservative position, quite the opposite – the classical economists, and Keynes along with them, were aware of fundamental problems of capitalism (the failure to correctly reinvest accumulated profit), a trait they shared with Marx. Generations of Keynesian bastardization have, however, erased this. In a sense, Keynes betrayed his own vision by his political blindness. He clearly understands the contradictory nature of capitalism on a technical level, yet does not connect this to a political agency or programme. His analysis being moved by both concern for the plight of the working class and admiration for the creativity of the entrepreneur, he sought to save the latter by placating the former and eliminating the rentier. Given that he calls for a “somewhat comprehensive socialization of investment” (328), one could wonder what remains that makes this system capitalist. Private property would be left intact, only its use would be socialized – forcing rentiers to take on the mantle of the entrepreneur. But the political unity of the rentier class with the “entrepreneurial” class (which simply comes down to two poles of the capitalist axis) is fundamental, while a unity of the working class with the industrial capitalists can only be achieved under working-class hegemony. There is hence no subject to appeal to for this programme, outside the working class. But Keynes only mentions it politically in a trade-union context: workers will push back when wages are cut and unite to increase their wages in a situation of full employment; they would not form a party and become their own autonomous political agent. All in all, useful stuff that I’d need to take some economics classes for to fully “get”. But an interesting reminder of how even bourgeois social scientists can can arrive at radical observations and solutions. It is their fundamental class position that bars them from actually putting it into practice. In our days, “Keynesianism” in common parlance means state intervention and bail-outs. Reading the General Theory cures you of this misconception.

  2. 4 out of 5

    Kit

    Who am I to judge one of the most important text of the 20th century? In all honesty, GTEIM is one of the most difficult books I've ever read, and it is a frustrating read because I am a layman and not an economist, the target audience of this book. My proper education in economics is a couple of units in business school and my year 10 class with Mr Oeding, who preached that wars help economies (I find out later that this isn't really the case). What happened in 2008 triggered an interest in me t Who am I to judge one of the most important text of the 20th century? In all honesty, GTEIM is one of the most difficult books I've ever read, and it is a frustrating read because I am a layman and not an economist, the target audience of this book. My proper education in economics is a couple of units in business school and my year 10 class with Mr Oeding, who preached that wars help economies (I find out later that this isn't really the case). What happened in 2008 triggered an interest in me to find out how money works, but the deeper you dive into the idea of money, the more subjective the idea becomes. The concept of money becomes in effect, more abstract. The idea of money is still abstract back in the 1920s when Keynes were still developing his ideas, sparring with the Austrians and dealing with the Great Depression that took countries down in the late 20s. By 1933, Keynes ideas have crystallised and his thoughts are transposed in GTEMI. It is an academic text for academics, but his hopes are that eventually, the text will be accessible for a wider audience. It is hard to pin down ideas that strike me in the book - the ideas are familiar from my economics courses, although the terminology may be different. Over the years, Keynesian ideas are better represented in graphs digestible in courses and even YouTube videos, but it is challenging to imagine to conceptualise his ideas in your head. The question for the layman becomes then, is it worth reading when there are other resources available that can summarise this for you in 30 minutes or less? That depends. In my case, I love to read and I do put the classics in a pedestal. In my extreme, the only way to respect the classics and influential ideas is to go back to the original text. Nevertheless, I still loved reading Keynes - it took me almost three weeks to finish GTMEI and the CotP, I had to reread and re-explore ideas that confused me. I'm still not sure how savings equal investment, and the implications of the schedule of marginal efficiency of investment on employment. But when I grasped a concept, and held on to it, my brain was in euphorics. Keynes was way ahead of his time. Although he didn't take down the classical concepts of economics, he managed to poke holes in Ricardo and Pigou's ideas - blokes who won prizes in economics. Keynes is still relevant today, his ideas are still contested by his successors in Stiglitz and Krugman against the followers of the Boston School. The ideas of increased fiscal spending to stimulate growth has perhaps saved America from the Great Depression via the New Deal, but those ideas are still being played out in how much governments are borrowing and pumping money by quantitative easing in the past dozen years. Equally interesting in the book is Consequences of the Peace, which read more as a historical text than an academic text. Keynes pulled no punches in criticising the Allies infringing on the economic freedom of the defeated German empire. Where an economic cooperation was needed more than ever, European greed eventually cornered Germany to give birth to something desperate in fascism. Keynes was right all along. No, GTMEI is not for everybody, but if you like your economics and this part of history fascinates you then it is worth reading.

  3. 4 out of 5

    Radu

    As far as economic theory is concerned, John Maynard-Keynes' The General Theory was both controversial and influential for many reasons at the time of its first edition being published and remains so in the current year for its radical avocation of government intervention in national economies. Although in many ways an oversimplified description it is easy to see that John Maynard-Keynes believed that to reduce human suffering and mass unemployment it was necessary for a national government to pr As far as economic theory is concerned, John Maynard-Keynes' The General Theory was both controversial and influential for many reasons at the time of its first edition being published and remains so in the current year for its radical avocation of government intervention in national economies. Although in many ways an oversimplified description it is easy to see that John Maynard-Keynes believed that to reduce human suffering and mass unemployment it was necessary for a national government to promote massive investment in public works whilst at the same time introducing a system of tax and loan schemes designed to artificially sustain the boom period of the business cycle. As with Marxist economics, however, modern developments in economic theory have highlighted the gaps in Keynes' theory; the general inefficiencies of massive government intervention in larger economies, the sudden need for increase in the money supply that gives rise to inflation, and other issues that go beyond the scope of a simple book review but are worth reading into for people interested in the subject. I gave this book as high a rating as I did firstly for its historical significance in how it helped me understand the economic theories popular during the 1930s, WWII and post-WWII era economies of both the Allied and Axis nations across the world, and secondly for understanding the root of the ideas advocated by modern Neo-Keynsian economists (such as Paul Krugman or George Soros).

  4. 5 out of 5

    Becky Snow

    I enjoyed this, but it was definitely a thick read at points. There is a lot of math in here and you have to keep the formulas in your head in order to understand the chapters. I ended up having formula notes on my bedside table to refer back to so I didn't have to keep flipping pages. I loved the break down of psychological factors and incentives to liquidity and that math. That section made a ton of sense to me. The lead up was very boring and difficult, but I get why I needed that information I enjoyed this, but it was definitely a thick read at points. There is a lot of math in here and you have to keep the formulas in your head in order to understand the chapters. I ended up having formula notes on my bedside table to refer back to so I didn't have to keep flipping pages. I loved the break down of psychological factors and incentives to liquidity and that math. That section made a ton of sense to me. The lead up was very boring and difficult, but I get why I needed that information to read the later chapters on unemployment function and stuff. I really loved "The Economic Consequences of Peace" what a fabulous little essay!! I was laughing a little to myself that it included a full five pages on dissing President Wilson. I know it's cool to hate on Wilson right now, but there was no mention of race or whatever in here, just general diss. It made me chuckle. Keynes, like many of the contemporary economists of the era of armistice, understood exactly what they were accomplishing with the Treaty of Paris, and that makes looking back so much more difficult, knowing what the situation precipitated. I appreciated Keynes bringing it into focus for me that the Treaty of Paris was such a huge win for post war France because it gave them that final kick in Germany's butt, especially after 1871. I never really looked at it in that way before. All in all, a long and difficult one that I'm glad I read but even more glad to be done with.

  5. 4 out of 5

    Reza Fajar

    Keynes said in his Introduction to his General Theory that this book was for his economist fellow. And he's right, because this book is full of many economy concept that was to catch up if you want to grasp fully the argument from Keynes. At the start, I think that I can catch up with the argument that Keynes want to propose, since I knew a little bit about what is the main argument about Keynesian Economy. But in the reading process, the book was hard to read for the person like me who doesn't Keynes said in his Introduction to his General Theory that this book was for his economist fellow. And he's right, because this book is full of many economy concept that was to catch up if you want to grasp fully the argument from Keynes. At the start, I think that I can catch up with the argument that Keynes want to propose, since I knew a little bit about what is the main argument about Keynesian Economy. But in the reading process, the book was hard to read for the person like me who doesn't too acquainted with many economic concept. I search many explanation about Keynesian Economics to help myself to understand this book, and I think this is so helpful for me for understanding this book's main line argument. I seems quite agree with his argument for the economy in the recession, that free market sometimes doesn't equilibriate itself; if it equilibriate itself, it takes long time, and "in the long run, we're all dead." His argument about liquidity-preference, propensity to consume, sticky wages and prices, and inducement to invest seems to be robust foundation for the main argument that government must breach the demand by spending if the recession happen, since recession is due to lack of aggregate demand, not supply.

  6. 4 out of 5

    Julius

    Das 30-seitige Vorwort des Herausgebers war sehr hilfreich, um die Schrift in den historischen Hintergrund einordnen zu können. Insbesondere wird auch noch einmal das zweite Buch in dieser Gesamtausgabe "The Economic Consequences of the Peace" kapitelweise zusammengefasst, in dem sich Keynes mit dem Friedensvertrag nach dem 1. Weltkrieg und den Reparationszahlungen auseinandersetzt, die Deutschland auferlegt wurden. Das erste Buch, "The General Theory" ist praktisch ein Lehrbuch, das sich - so sc Das 30-seitige Vorwort des Herausgebers war sehr hilfreich, um die Schrift in den historischen Hintergrund einordnen zu können. Insbesondere wird auch noch einmal das zweite Buch in dieser Gesamtausgabe "The Economic Consequences of the Peace" kapitelweise zusammengefasst, in dem sich Keynes mit dem Friedensvertrag nach dem 1. Weltkrieg und den Reparationszahlungen auseinandersetzt, die Deutschland auferlegt wurden. Das erste Buch, "The General Theory" ist praktisch ein Lehrbuch, das sich - so schreibt der Autor - vor allem an Professoren des Feldes und erst in zweiter Linie an die breite Öffentlichkeit richtet. So ist es auch geschrieben. Es war zwar interessant zu lesen, vor allem wie, aber inhaltlich wäre Sekundärliteratur für mich sinnvoller gewesen. Seine Eingangsankündigung war offensichtlich zutreffend.

  7. 5 out of 5

    brandon yoon

  8. 4 out of 5

    Salpi

  9. 5 out of 5

    Fabio Tuninetti

  10. 5 out of 5

    Douglas Hill

  11. 4 out of 5

    Ben

  12. 4 out of 5

    Vladislav

  13. 5 out of 5

    Janec Wisniewski

  14. 5 out of 5

    Munum

  15. 5 out of 5

    Paul Vittay

  16. 5 out of 5

    Ranieri Omenetto Arcella

  17. 4 out of 5

    Mikkel Nielsen

  18. 5 out of 5

    James Forder

  19. 4 out of 5

    Peter

  20. 5 out of 5

    Marcus

  21. 4 out of 5

    Angus Kottler

  22. 5 out of 5

    George

  23. 4 out of 5

    Emil

  24. 5 out of 5

    Aru Bhardwaj

  25. 4 out of 5

    Денис Глига

  26. 5 out of 5

    Will Collins

  27. 5 out of 5

    Hamdi

  28. 5 out of 5

    Don

  29. 5 out of 5

    Chloe Coulson

  30. 4 out of 5

    Angelo Dineen

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