Critical Analysis of The General Theory of Employment by J. M. Keynes - Article Example

Outline and critical analysis of “The General Theory of Employment” by J. M. Keynes Number] OutlineThesis: General Theory of Employment determines the factors, which affect the level of employment in any nation. 1) Competency of macroeconomic theory and its principles in employment, income of industrial economics and the reasons of vacillation. 2) Principle of Effective demands 3) Uncertainty of future wealth and neo-classical micro-economics 4) Psychology of society is based on conventional judgement regarding perceptions of present, past or future investment. 5) Consumption and expenditure is the main objective of economics. 6) Re-analysis of rate of interest 7) Equilibrium of proposed saving and investment 8) Investigation of saving and expenditure 9) Purpose of savings 10) Conventional levels inappropriate to defuse lack of aggregate demand 11) Proposed an aggregated equilibrium: income primary variable and it is of extreme vacillation in nature. Critical Analysis: In the respective article “The General Theory of Employment” published in The Quarterly Journal of Economics 1937, author discuses the following debatable topics in regard to his proposed theory discussions on the comments by critiques on the validity of theory for critiques; explanation and viewpoint on specific concepts on which they disagree reaffirmation of theory of interest, capital vacillation and ambiguity discussion on the system of supply and demand mechanism, the result of capital good and expenditure 1936, the time of depression and recession, when Government feared a monetary collapse many came forward with their fundamental theories of economic stability, but John Maynard Keynes presented the most influential theory of money, interest and employment. It was a complete macro economical structure based on various principles, to deal factors like increase in prices, imbursement equilibrium, unemployment, nation’s sum income and output. His work is under criticism due to the fact that his academic qualifications and areas of experience differ. His contribution in economics is considered as a by-product of his observation of monetary position of India. General theory is fundamentally about the factors which determine level of employment. His theory integrated the concepts revolution of economy and public policy. It insisted on making probable changes in the structure of payment, investment and profit to bring a long term difference in the economy, especially, the budget policy to prevent repetition of depression and to stabilise national economy. Keynes was accustomed of international environment of economy. Therefore, he proposed general theory by assuming a closed economy. His theory was easily adaptable and realistic in approach. The theory offered flexibility to the diverse economic cases of foreign trade and in case of transactions of capital. Points of Disagreement: 1. Individuals who are responsible for circulation of cash are much identical to the concept of multiplier. 2. Increase in interest rate is a part of liquidity theory not a part of orthodox theory. 3. General theory as a denial of rational events in demand and supply in regard to loanable funds 4. Criticism on definition and management of unintentional unemployment. 5. The modern monetary theory has the core concept of tendency to save, which is inspired by factors operation theory to decrease pace of money. Points of Agreement: 1. Increased demand is due to increased activity. The backwash of it has resulted in increase in interest rate. 2. Orthodox theory which is called as homogeneity postulate is rather based on high assumptions than practical approaches. 3. Unintentional employment is open to criticism. 4. Diverse resources gratify the wish for liquidity at different levels. 5. False rationalisation of orthodox theory Suggestions: 1. Incentive on saved money should not increase in terms of interest rate. 2. Monetary theorists are on the wrong track to deal with the Propensity to hoard. 3. In liquidity preferences, the minor probable savers need to be satisfied with the rate of interest to increase the aspiration of saving in a narrow zone. Thus, it in turn shifts the profit in all status of people when one wants liquidity; the ample hoarders provide a mean of increase in satisfied liquidity. 4. Of a given asset the level of liquidity is equal to the rate of interest. It leads to the rise in market price of an asset which is less than the cost of production. Explanation of controversial concepts of the General Theory: Wealth is the reason for remoter preoccupation. Thus, it is acquired to produce potential results in an indefinite time. Therefore, it is an unsuitable subject for classical economical method. It would have worked, if the conventional structure of economy had a rapid system of consumption in the shortest possible time after the production. Modification in the economical plan is must, if growth of wealth for an indefinite delayed period is a vital factor for sustenance. However, Keynes has emphasized that the modification becomes necessary when the quantity of participation of wealth accumulation increases (Keynes, 1937). Opinion on Keynes theory: Keynes also proposed that high incomes tend to generate savings in ample amount. If one attains full employment objective consequently, level of savings will be on a satisfactory level then. Thus, aggregated demand enables substantial employment opportunities, but demand is interdependent on tendency of consumption and the quantity of investment at the time of assessment. Generally, consumption is less than the income of an individual. Therefore, he has further proposed that level of consumption changes when income increases. The term is known as Marginal Propensity to consume, which is stable and is a primary part of the theory. Keynes has determined investment and consumption two basic factors of his theory. His view against liquidity and speculation is weak. Theoretical expectations and risk is highly involve when one tends to invest in new business, therefore, government or none other authority can invest on their behalf without their consent. Keynes suggested remedying unemployment through less spending and low interest rate. He also stated that it could only be possible for the government if they print more money i.e by purposeful inflation. The marginal efficiency collapse of capital is a confusing term. Its cure was described by him as continuous low interest rates, but to implement it would lead to consistent inflation. His suggestion would lead to a constant chase between the money supply and trade unions and would not direct to long term employment plan. Conclusion: Keynes theory of unemployment was appealing in the time of depression. Therefore, government and other capitalist adopted his proposed policies to control inflation and unemployment after the war. His theory is basically criticized by conservatives who didn’t agree to the idea that government can be advantageous for the economy. Although, revolutionary realized that his suggested theory was an economic analysis and the necessary characteristics of capitalist system could be maintained through it. Work Cited: Top of Form KEYNES, J. M. (1937). The General Theory of Employment. The Quarterly Journal of Economics. 51, 209-223. Bottom of Form Read More