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| Author | John Maynard Keynes |
|---|---|
| Country | United Kingdom |
| Language | English |
| Genre | Nonfiction |
Publication date | 1930 |
| ISBN | 978-0-404-15000-6 |
A Treatise on Money is a two-volume book by English economist John Maynard Keynes published in 1930.
| | |
| Author | John Maynard Keynes |
|---|---|
| Country | United Kingdom |
| Language | English |
| Genre | Nonfiction |
Publication date | 1930 |
| ISBN | 978-0-404-15000-6 |
A Treatise on Money is a two-volume book by English economist John Maynard Keynes published in 1930.
In the Treatise Keynes drew a distinction between savings and investment, arguing that where saving exceeded investment, recession would occur. Thus, Keynes reasoned that during a depression the best course of action would be to promote spending and to discourage saving. [1] Keynes most notably clarified his Theory of Money in catty dialogue [2] with other famous economists of the day, such as Friedrich Hayek and Dennis Robertson. Keynes described his rejoinder as such “in my Rejoinder to Mr. D. H. Robertson, Published in the Economic Journal for September, 1931, I have endeavoured to re-state in a clearer way what my own theory actually is.” [3]
In Keynes’ Treatise, he does not agree that booms and busts happen solely because of extrinsic random variables such as “sunspots”. Instead, he believes that economic events emerge when there are discrepancies between savings and investments. According to Keynes, a true measure of a nation's prosperity is not anything of physical value such as gold or silver, but by national income. To him, the most important characteristic of national income is consumption. [4]
In Keynes's Treatise, he explained how recessions could happen, but not long-term depressions. He was able to address this further in The General Theory of Employment, Interest and Money . In his General Theory, Keynes argued against the seesaw theory and said that the economy was more like an elevator that can stop at any level. This is because once the economy reaches the bottom, individuals would have no excess income to save. No savings results in no investment so the economy cannot save itself. Without the savings, there is no pressure to lower interest rates, so there is no incentive for businesses to invest. In his theory on money he asserts that investment is an "undependable drive wheel for the economy," and when no new investment can be found, the economy will begin to falter. [5]
Keynes and Hayek debated the former's theory of money. Keynes felt that Hayek was splitting hairs with him terminologically and published a public response to the Austrian's criticisms, writing, “Dr Hayek has seriously misapprehended the character of my conclusions. He thinks that my central contention is something different from what it really is”; “It is essential to that theory to deny these propositions which Dr Hayek puts in my mouth.” The meat of their disagreement from Keynes's perspective concerned ancillary points, and semantic differences in definition, leading him to conclude that Hayek was nit-picking: “So long as a problem of this major magnitude is not cleared up between us, what is the use of discussing 'irritating' terminology, which might not bother Dr Hayek at all if he were not, for these excellent other reasons, looking for trouble? Dr Hayek has missed, or at least does not discuss, the critical point at which our arguments part company. Having passed this by, but finding himself being led down strange and distasteful paths, he tries to prevent himself from being dragged along any further by representing the molehills in the pathway as mountains”
John Hicks stated that the A Treatise on Money was the first economics publication to use the term liquidity, because he had not been able to find the term used in earlier works. [6]
Keynesian economics are the various macroeconomic theories and models of how aggregate demand strongly influences economic output and inflation. In the Keynesian view, aggregate demand does not necessarily equal the productive capacity of the economy. It is influenced by a host of factors that sometimes behave erratically and impact production, employment, and inflation.
The IS–LM model, or Hicks–Hansen model, is a two-dimensional macroeconomic model which is used as a pedagogical tool in macroeconomic teaching. The IS–LM model shows the relationship between interest rates and output in the short run in a closed economy. The intersection of the "investment–saving" (IS) and "liquidity preference–money supply" (LM) curves illustrates a "general equilibrium" where supposed simultaneous equilibria occur in both the goods and the money markets. The IS–LM model shows the importance of various demand shocks on output and consequently offers an explanation of changes in national income in the short run when prices are fixed or sticky. Hence, the model can be used as a tool to suggest potential levels for appropriate stabilisation policies. It is also used as a building block for the demand side of the economy in more comprehensive models like the AD–AS model.
Nicholas Kaldor, Baron Kaldor, born Káldor Miklós, was a Cambridge economist in the post-war period. He developed the "compensation" criteria called Kaldor–Hicks efficiency for welfare comparisons (1939), derived the cobweb model, and argued for certain regularities observable in economic growth, which are called Kaldor's growth laws. Kaldor worked alongside Gunnar Myrdal to develop the key concept Circular Cumulative Causation, a multicausal approach where the core variables and their linkages are delineated. Both Myrdal and Kaldor examine circular relationships, where the interdependencies between factors are relatively strong, and where variables interlink in the determination of major processes. Gunnar Myrdal got the concept from Knut Wicksell and developed it alongside Nicholas Kaldor when they worked together at the United Nations Economic Commission for Europe. Myrdal concentrated on the social provisioning aspect of development, while Kaldor concentrated on demand-supply relationships to the manufacturing sector. Kaldor also coined the term "convenience yield" related to commodity markets and the so-called theory of storage, which was initially developed by Holbrook Working.
Sir John Richard Hicks was a British economist. He is considered one of the most important and influential economists of the twentieth century. The most familiar of his many contributions in the field of economics were his statement of consumer demand theory in microeconomics, and the IS–LM model (1937), which summarised a Keynesian view of macroeconomics. His book Value and Capital (1939) significantly extended general-equilibrium and value theory. The compensated demand function is named the Hicksian demand function in memory of him.
Sir Dennis Holme Robertson was an English economist who taught at Cambridge and London Universities.
The General Theory of Employment, Interest and Money is a book by English economist John Maynard Keynes published in February 1936. It caused a profound shift in economic thought, giving macroeconomics a central place in economic theory and contributing much of its terminology – the "Keynesian Revolution". It had equally powerful consequences in economic policy, being interpreted as providing theoretical support for government spending in general, and for budgetary deficits, monetary intervention and counter-cyclical policies in particular. It is pervaded with an air of mistrust for the rationality of free-market decision making.
In classical economics, Say's law, or the law of markets, is the claim that the production of a product creates demand for another product by providing something of value which can be exchanged for that other product. So, production is the source of demand. In his principal work, A Treatise on Political Economy, Jean-Baptiste Say wrote: "A product is no sooner created, than it, from that instant, affords a market for other products to the full extent of its own value." And also, "As each of us can only purchase the productions of others with his/her own productions – as the value we can buy is equal to the value we can produce, the more men can produce, the more they will purchase."
Johan Gustaf Knut Wicksell was a Swedish economist of the Stockholm school. His economic contributions would influence both the Keynesian and Austrian schools of economic thought. He was married to the noted feminist Anna Bugge.
Fritz Machlup was an Austrian-American economist. He was president of the International Economic Association from 1971 to 1974. He was one of the first economists to examine knowledge as an economic resource, and is credited with popularising the concept of the information society.
The paradox of thrift is a paradox of economics. The paradox states that an increase in autonomous saving leads to a decrease in aggregate demand and thus a decrease in gross output which will in turn lower total saving. The paradox is, narrowly speaking, that total saving may fall because of individuals' attempts to increase their saving, and, broadly speaking, that increase in saving may be harmful to an economy. The paradox of thrift is an example of the fallacy of composition, the idea that what is true of the parts must always be true of the whole. The narrow claim transparently contradicts the fallacy, and the broad one does so by implication, because while individual thrift is generally averred to be good for the individual, the paradox of thrift holds that collective thrift may be bad for the economy.
The Austrian business cycle theory (ABCT) is an economic theory developed by the Austrian School of economics about how business cycles occur. The theory views business cycles as the consequence of excessive growth in bank credit due to artificially low interest rates set by a central bank or fractional reserve banks. The Austrian business cycle theory originated in the work of Austrian School economists Ludwig von Mises and Friedrich Hayek. Hayek won the Nobel Prize in Economics in 1974 in part for his work on this theory.
In macroeconomic theory, liquidity preference is the demand for money, considered as liquidity. The concept was first developed by John Maynard Keynes in his book The General Theory of Employment, Interest and Money (1936) to explain determination of the interest rate by the supply and demand for money. The demand for money as an asset was theorized to depend on the interest foregone by not holding bonds. Interest rates, he argues, cannot be a reward for saving as such because, if a person hoards his savings in cash, keeping it under his mattress say, he will receive no interest, although he has nevertheless refrained from consuming all his current income. Instead of a reward for saving, interest, in the Keynesian analysis, is a reward for parting with liquidity. According to Keynes, money is the most liquid asset. Liquidity is an attribute to an asset. The more quickly an asset is converted into money the more liquid it is said to be.
George Lennox Sharman Shackle was an English economist. He made a practical attempt to challenge classical rational choice theory and has been characterised as a "post-Keynesian", though he is influenced as well by Austrian economics. Much of his work is associated with the Dempster–Shafer theory of evidence.
David Ernest William Laidler is an English/Canadian economist who has been one of the foremost scholars of monetarism. He published major economics journal articles on the topic in the late 1960s and early 1970s. His book, The Demand for Money, was published in four editions from 1969 through 1993, initially setting forth the stability of the relationship between income and the demand for money and later taking into consideration the effects of legal, technological, and institutional changes on the demand for money. The book has been translated into French, Spanish, Italian, Japanese, and Chinese.
Sir Ralph George Hawtrey was a British economist, and a close friend of John Maynard Keynes. He was a member of the Cambridge Apostles, the University of Cambridge intellectual secret society.
Paul Davidson is an American macroeconomist who has been one of the leading spokesmen of the American branch of the post-Keynesian school in economics. He has actively intervened in important debates on economic policy from a position critical of mainstream economics.
In economics, the loanable funds doctrine is a theory of the market interest rate. According to this approach, the interest rate is determined by the demand for and supply of loanable funds. The term loanable funds includes all forms of credit, such as loans, bonds, or savings deposits.
Macroeconomic theory has its origins in the study of business cycles and monetary theory. In general, early theorists believed monetary factors could not affect real factors such as real output. John Maynard Keynes attacked some of these "classical" theories and produced a general theory that described the whole economy in terms of aggregates rather than individual, microeconomic parts. Attempting to explain unemployment and recessions, he noticed the tendency for people and businesses to hoard cash and avoid investment during a recession. He argued that this invalidated the assumptions of classical economists who thought that markets always clear, leaving no surplus of goods and no willing labor left idle.
The Sraffa–Hayek debate is debate between Piero Sraffa and Friedrich Hayek in the 1930s. In 1931, Hayek critiqued John Maynard Keynes's Treatise on Money (1930) in his "Reflections on the pure theory of Mr. J. M. Keynes" and published his lectures at the LSE in book form as Prices and Production. Keynes replied to Hayek.
John Hicks's 1937 paper Mr. Keynes and the "Classics"; a suggested interpretation is the most influential study of the views presented by J. M. Keynes in his General Theory of Employment, Interest, and Money of February 1936. It gives "a potted version of the central argument of the General Theory" as an equilibrium specified by two equations which dominated Keynesian teaching until Axel Leijonhufvud published a critique in 1968. Leijonhufvud's view that Hicks misrepresented Keynes's theory by reducing it to a static system was in turn rejected by many economists who considered much of the General Theory to be as static as Hicks portrayed it.
