The General Theory of Employment, Interest and Money, first published in 1936, is often regarded as the most influential economics book to have been written in the twentieth century It begins with an attack on the postulates of CLASSICAL ECONOMICS and an assertion of the principle of EFFECTIVE DEMAND, lists definitions and ideas, and then discusses the propensity to consume, the inducement to invest, money wages and prices before an epilogue relating the General Theory to the TRADE CYCLE, MERCANTILISM and future social philosophy Keynes accepted the summary of the General Theory made by Harrod in a letter of 30 August 1935: ‘Your view, as I understand it is broadly this:—Volume of investment determined by marginal efficiency of capital schedule and the rate of interest. Rate of interest determined by the liquidity preference schedule and the quantity of money Volume of employment determined by the volume of investment and the multiplier.
Value of the multiplier determined by the propensity to save.’
Admirers of Keynes have seen a development of the theory of the rate of interest and the crucial use of expectations in this grand theory, but critics, including LUCAS, have disliked the tone of the book and the decision of Keynes to work in units of money and labour alone to discuss economic aggregates; also, it has often been stated that the theory is not as ‘general’ as Keynes declared, that it is crippled by the use of the COMPARATIVE STATICS method and that it needed later growth theory to complement it.
References
Clarke, P. (1988) The Keynesian Revolution in the Making, 1924–36, Oxford: Clarendon Press.
Keynes, J.M. (1936) The General Theory of Employment, Interest and Money, London: Macmillan.
Vicarelli, F. (ed.) (1985) Keynes’s Relevance Today, London: Macmillan.
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