General TheoryEmployment InterestMoney

The General TheoryEmployment InterestMoneygenerally consideredbemasterwork ofEnglish economist John Maynard Keynes. Togreat extentcreatedterminologymodern macro-economics. It was publishedFebruary 1936. The book ushered inrevolution, referredas"Keynesian Revolution", inway economistsmenpublic affairs thought abouteconomy,especially howthought aboutfeasibilitywisdompublic sector management ofaggregate leveldemand ineconomy.

In Keynes' book EssaysPersuasion he looked back on his frustrating attemptsinfluence public opinion duringGreat Depression ofearly 1930s. The "General Theory" represented Keynes's attemptshift opinion by altering (the frameworkthought by revolutionising) macro-economics.

Briefly,"General Theory" argued thatlevelaggregate demand inmodern economy was determined byrangefactors includingpropensityconsume (the percentagetheir income that people chosespend on goodsservices),propensitysave (the percentagetheir incomes thatchosesave),attractivenesscapital investment (dependent on anticipated ratesreturn) andlevelinterest rates. Keynes's key arguments included thatan economy bedevilled by weak demand (e.g.depression), wherehis terminology there was an ignition problem (a difficultygettingeconomymove forward more vigorously), thengovernment (more broadlypublic sector) could increase aggregate demand by increasing its expenditures, including by borrowingfinanceexpenditures,thatpublic sector borrowing would not increase interest rates sufficientlyunderminewisdomsuchpolicy.

Keynes forecast in"General Theory" that his book was likelylead torevolution inway menaffairs thought about public policy,Keynesianism (using government tax, expenditureborrowing policytryaffect demand) was enormously influential inpost-Second World War period. More recently, especially in1990s, Keynesianism fell from favour. In most economiescamebe believed that Keynesian demand management was difficult,thathad subtle damaging effects including underminingadvantagessound finance (government expenditures being financed by current income)encouraging inflation. To some extent Keynesianism suffered from its own successthatpost-war period largely avoided periodsdevastating unemploymentlost production.

At his best Keynes waswonderful craftsman ofEnglish languagehis wonderful fluencyusagein evidence at times inGeneral Theory, e.g. Chapter 12 dealing"The StateLong Term Expectation"one ofbest single chapters aboutstock market ever written.