Thoughts on Keynes
By Benjamin Bowman
I find it interesting that author
highlighted the great success and large fortune amassed by Keynes. Although
many other men and women we have read about have had successful careers, and I
assume became wealthy, the author never really has made it a point to describe
their fortunes. Maybe, the reason for this is the method by which Keynes
amassed such a larges fortune. He did so by successful securities speculation
to a level that is quite impressive. During the years he lived there were wild
swings in the markets, and someone good at analyzing markets could have made a
lot of money, and he did.
It is no surprise then that Keynes
was fairly accurate at imagining the economic for his grandchildren as he wrote
“Economics Possibilities for our Grandchildren” in 1930. He wrote at a time
where many people believe that the rapid increase of quality of life, and rapid
economic development was coming to an end. Many people believed that things
were going to get worse, and not better. Keynes however, saw a bright future. He
felt we were merely adjusting to a new economic climate. That the rapid changes
in technology had simply led to some maladjustment that needed to be worked
out, but the future was going to be great. He was right.
Keynes was
obviously successful as an economist. I find it interesting that again we see
an example of scientific thought being influenced by the events of the time. We
have seen this time and time again, that multiple people are discussing and
developing similar principles of economics. My conclusion was that scientific
thought is molded by current scientific and social conditions. In this case
Keynes wrote and developed much of his monetary policy during the great
depression. I wonder how his theories would have differed if he developed them
without the influence of the great depression. Likely, he would be influenced
by some other factor that helped to direct his thought.
I also find
it interesting that Keynes is an excellent example of how someone can be
educated on the status quo and venture away from group thought. Though it is
very difficult, it is possible. Keynes himself describes it as a “long struggle
of escape.” Most notably was his inability to accept Say’s law. This was not
without good reason. It seems that this dissent is what led him to his new
theory. While trying to articulate why he thought that Say’s law was wrong, he
ended up formulating his own solutions to aggregate demand.
To me,
Keynes drift from group thought not only demonstrates vision, but courage. A
part of “Economics Possabilties for our Grandchildren” makes me think that
Keynes, as many great men and women, really wanted to make the world a better
place. He believed that within 100 years from 1930, all the economic problems
of the world would be solved. Of course he realized that this was more of a
wish than a prediction, but it also demonstrates his vision. Especially in a
time of depression, he believed that greater days were to come. I believe that
one day we may reach a solution, not to eliminate all woes from society because
society has a way of self inflicting them, but a solution that helps self
regulate economies so that they cannot get to far out of control. Of course
politicians, wars, and evil will most assuredly screw up any perfect system.
Maybe it’s just a dream, but I believe it is a good goal.
Another way
that Keynes differed from classical economist is in money theory. Classical
economists believed that people held money for transactions and that the
transaction demand for money was directly related to income. Keynes believed
this as well, but said that people also held cash because of a preference for
liquidity. He also said that the main determinant of investment was the
interest rate, not the income. The higher the interest rate, the more likely
people are to hold bonds instead of cash.
A unique
part of Keynes’ money theory is his liquidity trap. He argued that the interest rate might fall
so low that everyone would withdrawal from bonds. This would imply that there
is a floor to interest rates, and that at some point lower interest rates would
not induce further investments. The significance of this is that it means the
affect of monetary policy was not so simple and predicable as the classics
thought. Keynes concluded that monetary policy designed to work through
interest rates is useless in the face of depression and widespread
unemployment. For this reason Keynes recommended strong fiscal policy instead
of interest rate manipulation only in order to stimulate the economy.
Keynes did
not accept that the private sector was a fail-safe guard against long-term
unemployment. He argued that government should tax and spend in order to
influence the business cycle. He believed that the government should stand
ready to execute a planned effort to use all it’s tools available to stimulate
the economy. This idea of government intervention eventually became a way of
orthodox thought. It spread into almost all institutions of higher learning.
Keynes is a very interesting
subject to study because it is the first economist that we have read about
who’s thought and theories have not completely settled down into its place in
economic thought. Most of the other economist have either been discredited or
been accepted for their usefulness. Although there may be some persisting
debate, I don’t think to the degree of the debate that lies around Keynes
philosophies.
Keynes’
conclusions rely heavily on empirical estimations of elasticity of his own
theoretical functions. These estimations are extremely difficult to obtain, and
some would argue impossible. There are a lot of difficulties involved in the
price declines required for some of Keynes’ theories. One of the first arguments that Keynes make
in “Economic Possibilities for our Grandchildren” is that prices had not fallen
enough. Nevertheless, my point is that many parts of Keynes philosophies are
still debated to this day. Only time will tell how Keynes fairs in the history
of economics.
Economics Possibilities for our Grandchildren – John Maynard
Keynes
http://www.aspeninstitute.org/sites/default/files/content/upload/Intro_Session1.pdf
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Economical trends are not easy to be discussed openly. You need to have a good research and open to criticism and i liked your confidence in yourself. Which made you discuss this topic here.
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