Ch. 1 · The 1936 Publication

The General Theory of Employment, Interest and Money.

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John Maynard Keynes released The General Theory of Employment, Interest and Money in February 1936. This book caused a profound shift in economic thought. It gave macroeconomics a central place in economic theory. The work contributed much of its terminology to the field. Critics later called this change the "Keynesian Revolution". The text had equally powerful consequences for economic policy. It provided theoretical support for government spending in general. It also supported budgetary deficits and monetary intervention. Counter-cyclical policies found new justification within these pages. An air of mistrust pervaded the entire volume regarding free-market decision-making. Keynes denied that an economy would automatically adapt to provide full employment. He believed volatile market psychology would lead to periodic booms and crises. The book served as a sustained attack on classical economics orthodoxy.

Effective Demand And Liquidity

Chapter 8 introduced the propensity to consume as a function of income Y. Saving equals income minus consumption C(Y). Keynes regarded interest rates as complex and uncertain parameters. Chapter 10 presented the famous multiplier through specific examples. If the marginal propensity to consume is 90%, then k equals 10. Total employment from public works becomes ten times the initial jobs created. Richard Kahn introduced a similar mechanism in 1931 involving infinite series transactions. Keynes used his digging holes metaphor against laissez-faire principles. He argued filling old bottles with banknotes and burying them could create real income. The schedule of the marginal efficiency of capital determines investment levels. This schedule depends solely on the rate of interest r. Investment demand curves shift based on expectations of future returns. Liquidity preference functions mainly on income and interest rates. The quantity of money enters the economic scheme through this relationship. M equals L(r) fixes the amount of cash held by the public.

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Keynesian economics 1936 in economic history 1936 non-fiction books Books by John Maynard Keynes Palgrave Macmillan books

Common questions

When was The General Theory of Employment Interest and Money released by John Maynard Keynes?

John Maynard Keynes released The General Theory of Employment, Interest and Money in February 1936. This book caused a profound shift in economic thought.

What specific economic concepts did Chapter 8 introduce regarding income and consumption in The General Theory of Employment Interest and Money?

Chapter 8 introduced the propensity to consume as a function of income Y where saving equals income minus consumption C(Y). Keynes regarded interest rates as complex and uncertain parameters within this framework.

How did Richard Kahn contribute to the multiplier mechanism described in The General Theory of Employment Interest and Money?

Richard Kahn introduced a similar mechanism in 1931 involving infinite series transactions that influenced Keynes work. If the marginal propensity to consume is 90% then k equals 10 and total employment from public works becomes ten times the initial jobs created.

Which economists helped develop ideas for The General Theory of Employment Interest and Money before its publication?

Keynes drew significant help from students during his progress from the Treatise on Money including members of the Cambridge Circus discussion group. Austin and Joan Robinson forwarded comments to Keynes while Roy Harrod also provided feedback during drafts submitted between 1934 and 1935.

Why was The General Theory of Employment Interest and Money considered difficult to read by many early economists?

Many economists found the book difficult to read during its early years because Étienne Mantoux called it obscure and Frank Knight deemed it hard to follow. Michel DeVroey noted many passages were almost indecipherable while Paul Samuelson called the analysis unpalatable and incomprehensible.

What modern economic consensus emerged regarding The General Theory of Employment Interest and Money after the 2007 financial crises?

The majority new consensus view before 2007 financial crises was New Keynesian economics which accepts neoclassical concept of long-run equilibrium but allows aggregate demand role. Modern macroeconomics continues to center ideas introduced by The General Theory today as almost 400 universities now teach a revised curriculum taking instability seriously.

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