The English economist John Maynard Keynes (1883–1946) became widely known in connection with his work “The General Theory of Employment, Interest and Money” (1936), in which he raised the question of the need for government intervention in the economy in order to correct its shortcomings.
Keynes brought to the fore the problem of “effective demand,” consumption and accumulation. He put forward a macroeconomic research method, i.e. study of dependencies and proportions between macroeconomic quantities - national income, savings and savings.
Keynes uses the psychological characteristics of human nature as the basis for economic processes. Keynes considered the cause of economic crises to be changes in the mood of capitalists - a transition from optimism to pessimism. He attached decisive importance to the “propensity to consume” and the “propensity to save.”
Keynes argued that as employment increases, national income increases and therefore consumption increases. But consumption grows more slowly than income, because as income rises, people's desire to save increases. “The basic psychological law,” writes Keynes, “is that people tend, as a rule, to increase their consumption as income increases, but not to the extent that income increases.” The latter is expressed in a decrease in aggregate demand, and demand affects the size of production and the level of employment.
Insufficient consumer demand can be compensated by increased costs of new investments, i.e. growing demand for means of production. The total volume of investment plays a decisive role in determining the size of employment. The volume of investment depends on the propensity to invest. The entrepreneur expands investments until the rate of return falls to the level of interest. The difficulty is that the rate of profit decreases, but the level of interest remains stable. This creates narrow boundaries for new investment and employment growth. Keynes explained the decline in the rate of profit (“marginal efficiency of capital”) by an increase in the mass of capital and the tendency of entrepreneurs to lose faith in future income.
The main tenet of Keynes's general theory is the thesis about the decisive role of investment in determining the total volume of employment. Increased investment means more workers are brought into production, which leads to increased employment, national income and consumption. The initial increase in employment caused by new investment leads to an additional increase in employment caused by the need to meet the demand of additional workers. Keynes called this coefficient of additional employment growth cartoonist, which shows the relationship between investment growth on the one hand and income growth on the other. The greater the marginal propensity to consume, the greater the multiplier.
In his economic program, Keynes maintained that “the state should exert its guiding influence on the propensity to consume, partly through a system of taxes, partly by fixing the rate of interest, and in other ways.”
The most extensive exposition of the American version of Keynesianism is contained in the works of Alvin Hansen (1887–1975) and Stanley Harris (1897–1974). Hansen supplemented the explanations of the causes of crises with the theory of stagnation, which spread in the United States in the late 30s and during the Second World War. According to this theory, by the beginning of the Second World War, the rapid development of capitalism had ceased due to the following factors: a slowdown in population growth, a lack of free land, and a slowdown in technological progress. Some Keynesians proposed making huge government orders and purchases, others - increasing taxes (up to 60% of wages), government loans, and others - using additional issue of paper money in circulation to cover government spending. American Keynesians declared the state budget the main mechanism for regulating the capitalist economy.
E. Hansen, John Maurice Clark (1884–1963) and other American Keynesians supplemented the concept of the multiplier with the accelerator principle. “The numerical factor by which each dollar of incremental income increases investment is called the acceleration factor, or simply the accelerator.* The accelerator, or acceleration factor, is equal to the ratio of the increase in investment to the increase in income. Due to the long lead time for equipment production, unsatisfied demand for it accumulates, which stimulates excessive expansion of equipment production. Accelerator refers to the upward impact of income growth (through increased demand) on capital investment. Based on the principles of the multiplier and accelerator, American Keynesians developed a scheme for continuous economic growth, the starting point of which is public investment.
They called the state budget a “built-in stabilizer” designed to automatically respond to cyclical fluctuations and mitigate them. “Built-in stabilizers” also include income tax, social insurance payments, unemployment benefits, etc.
E. Hansen, Evsey Domar (born 1914) and Roy Harrod (born 1900) created theories of economic growth. According to these theories, the economy will be in a state of dynamic equilibrium if the movement of demand contributes to the full use of productive resources. The growth of national income, on which demand depends, is, in their opinion, only a function of capital accumulation, and the demand for capital is determined only by the growth rate of national income.
An important place in neo-Keynesian models of economic growth is occupied by the consideration of quantitative relationships between accumulation and consumption, the “multiplier-accelerator” system. The main factors of economic growth are considered to be investment (the rate of capital accumulation) and capital intensity of production (the ratio of capital to output).
Neo-Keynesians developed measures of indirect and direct regulation of the economy. Methods of indirect influence include tax policy, budget financing, credit policy, and accelerated depreciation. These methods are called automatic stabilizers, credit stabilizers, institutional stabilizers, etc.
In 1929, an unprecedented global economic crisis broke out, which dealt a powerful blow to the foundations of the ideology of “free enterprise”, undermining faith in the “invisible hand” of market regulation. Under the influence of this crisis, a famous book appears "The General Theory of Employment, Interest and Money"(1936) by the English economist John Maynard Keynes, which marked the beginning of the “Keynesian revolution” in economic theory. The main conclusion of Keynes's theory is that the total volume of production and employment in a capitalist economy depends on unstable psychological factors (people's expectations, the level of optimism-pessimism), and therefore is subject to serious fluctuations. Leaving aside for now the question of analyzing the depth of this provision, we note that we can find it in almost any macroeconomics textbook, but it is difficult to find in it the economic policy that Keynes proposed. There is an opinion that Keynes proposed a countercyclical fiscal and monetary policy, but studying the original source leads us to another, somewhat unexpected answer to the question posed in the title of the article.
"The State will have to exercise its guiding influence on the propensity to consume, partly by a suitable system of taxes, partly by fixing the rate of interest, and perhaps in other ways. Moreover, it seems unlikely that the influence of banking policy on the rate of interest would in itself be sufficient to ensure the optimal size of investment. I imagine therefore that Sufficiently broad socialization of investment will be the only means to ensure an approach to full employment, although this should not exclude all kinds of compromises and ways of cooperation between the state and private initiative. But beyond this, there is no obvious basis for a system of state socialism that would cover most of the economic life of society. Ownership of the instruments of production is not essential for the state. If the state could determine the total volume of resources intended for increasing the instruments of production and the basic rates of remuneration for the owners of these resources, this would achieve everything that is necessary. In addition, the necessary socialization measures can be introduced gradually, without breaking the established traditions of society."(J.M. Keynes. General theory of employment, interest and money. - M.: Progress, 1978. - P. 452-453).
Thus, John Maynard Keynes, in addition to proposing fiscal and monetary policies, understood that without public control over the investment process, the economy cannot develop without a crisis. However, he proposed social control for a capitalist economy, so the policies he proposed are, in my opinion, somewhat utopian. Naturally, the “orthodox Keynesians” (representatives of the main trend in Keynesianism) rejected the idea of “socialization of investments”, limiting themselves only to fiscal and monetary policy. The result of this policy is known - in 1949, 1957, 1960, 1969 and 1973 new world economic crises broke out, which led to a conservative counter-revolution in economic science and politics, that is, in many ways to a return to the discredited classical principles of government non-intervention in the economy. The outcome of the conservative counter-revolution and deregulation of markets is also known: the world faces the threat of a new Great Depression and, possibly, a world war (or many local wars).
From all this we can conclude that Keynes’s idea of “socialization of investment” was not, and could not be, realized in a capitalist economy, but could be realized in an economy in which public ownership of the means of production would prevail, but would not be excessive centralization and bureaucratization of management, in an economy in which there would be developed self-government of labor collectives.
UPD Continuing the theme of Keynes' theory -
John Maynard Keynes (1883-1946) - a prominent English economist and public figure. He was born into the family of a professor of logic and economic theory at Cambridge University. After graduating from the university, he became a professor there.
It would seem that all the circumstances should make Keynes an academic theorist, but he was attracted not only by science, but also by practical activities (stock exchange expert, chairman of a large insurance company, manager of an investment company), as well as a political career (throughout his life he combined scientific work with government work). service) and social activities (owner and editor of a number of well-known magazines). Keynes's reputation as an expert in stock exchange fraud and as a businessman, as well as his academic knowledge, allowed him to rise to the highest level of the financial oligarchy and become one of the directors of the Bank of England. Successfully playing on the stock exchange, he acquired a substantial fortune, and being appointed treasurer of King's College, Cambridge, strengthened his financial position. Over time, Keynes became a major collector of paintings and published many elegant essays of a memoir and bibliographic nature. Having married the Diaghilev Ballet principal Lydia Lopukhova, he began to subsidize the ballet, and in 1935 he built a theater building in Cambridge.
Keynes showed extraordinary mathematical abilities while still at school. At the university, he listened to lectures by the famous English economist A. Marshall, the founder of the so-called Cambridge School. At Marshall's invitation, he lectured on economic sciences. During this time, he developed as a scientist-economist. Keynes's first scientific work, The Index Method (1909), won the Adam Smith Prize.
In 1915-1919 he served in the British Treasury. He focused his work on the regulation of money circulation and the problems of international payments. During this period, Keynes participated in all the most important financial negotiations in Great Britain,
accompanied the Prime Minister and the Chancellor of the Exchequer as an expert.
During the First World War, as an economic adviser to the Ministry of Finance, he participated in the Paris Peace Conference, where the Treaty of Versailles was signed. Keynes very sharply criticized this treaty: huge reparations could, in his opinion, completely ruin Germany, and a ruined country is dangerous for its neighbors. As a sign of protest, he resigned as adviser to the British delegation. Further developments of events, as we know, confirmed that he was right. In 1919, Keynes’s book “The Economic Consequences of the Treaty of Versailles” was published, which became a bestseller and caused displeasure in British government circles. Keynes wrote: “If we deliberately strive to impoverish Central Europe, then retribution will not be long in coming.” He advocated the provision of American loans to Germany. His ideas anticipated the concepts of later programs, and to a certain extent the Marshall Plan after World War II.
Keynes's next major work was A Treatise on Monetary Reform (1923), which argued that Britain's return to the gold standard was unjustified. Here, for the first time, the problem of employment is put forward as a key one and it is indicated that inflation, which stimulates the economically active elements of society, is a lesser evil, since in an impoverished world it is much more dangerous to provoke unemployment than the displeasure of the rentier.
Keynes also developed these ideas in the pamphlets “The Economic Consequences of Mr. Churchill’s Monetary Policy” and “The End of Laisser Faire,” where he criticized the state’s policy of non-intervention in the economy.
In the mid-20s. Keynes came to the Soviet Union and outlined his impressions of the economy of the NEP period in the article “A Quick Look at Russia,” where he expressed doubts about the effectiveness of the socialist system.
It should be noted that Keynes had a negative attitude towards Marxism. In one of his letters, he wrote that he hoped to refute Marx’s theory with the help of his theory. Keynes expressed his attitude towards Marxism as follows: “How can I accept a faith that praises the boring proletariat, puts it above the bourgeois and the intellectual. Whatever the shortcomings of the latter, aren’t they the salt of the earth, aren’t they the seeds of progress? ".
In November 1929, when the crash on the American stock exchange had already heralded the beginning of the world economic crisis, Keynes became
a member of the British government committee on finance and industry and headed the government's economic council on unemployment issues. By this time, he already had sufficient authority to attract the attention of not only scientists, but also the government to his doctrine of economic policy.
In 1930, the two-volume Treatise on Money was published. In addition to issues of monetary circulation, Keynes here develops the foundations of the theory of employment and national income, highlighting the problem of economic instability and outlines a fundamentally new approach to it by analyzing the relationship between investment and savings. The concept of “effective demand”, which originated here, became the supporting pillar of Keynesian theory.
At the beginning of the Second World War, Keynes was invited as an expert to the Ministry of Finance. His work How to Pay for War (1940) outlined a radically new plan for solving the problem of international finance. Subsequently, he took an active part in the preparation of the Bretton Woods Conference. Keynes' ideas about the international monetary system were embodied in the creation of the International Monetary Fund.
Keynes's main work, “The General Theory of Employment, Interest and Money,” appeared in 1936. It formulated the main provisions of that system of views, which was called Keynesianism.
Although the neoclassical theory that dominated Cambridge did not satisfy Keynes from the very beginning, the crisis of 1929-1933 forced him to finally reconsider his previous theoretical views. Neoclassical economic theory was based on the belief that the economy of Western countries develops in conditions of completely free competition and is guided by the equally free play of prices, that the market mechanism ensures a state of stable equilibrium, and the less the state interferes in economic life, the more rationally resources will be used. But at the beginning of the century the situation clearly changed. Prices for goods, services, and any products were largely dictated by monopolies. Powerful trade unions dictated wage levels. There was no longer a free market in its pure form; price inflexibility gave rise to a slow response of the economy to changing conditions.
Great Depression 1929-1933 It especially clearly showed that the crisis does not resolve naturally, that the unprecedented severity of the social problems it has generated requires the intervention of the state and its active actions. However, to fully comprehend the situation
was possible only within the framework of a new theoretical approach. Keynes proposed it.
Note 1
John Maynard Keynes (1883 - 1946) - English economist, founder of the Keynesian direction in economic theory (Keynesianism), one of the founders of macroeconomics as an independent science.
Keynes was born into the famous family of economist John Neville Keynes, lecturer in economics and philosophy at Cambridge University, and writer and social activist Florence Ada Brown. Keynes's younger brother, Geoffrey Keynes, was a surgeon, and his younger sister Margaret was the wife of Nobel laureate in physiology or medicine Archibald Hill. Keynes's niece, Polly Hill, was also a famous economist. Thus, Keynes grew up in an intelligent environment, which was a prerequisite for his future scientific success at Cambridge University.
Keynes was a successful student of A. Marshall and G. Sidgwick. In addition to economics, Keynes was also interested in politics. During his student years, he was president of the Cambridge Students' Union and participated in scientific circles, clubs, etc. From 1915 to 1919 Keynes served in the Treasury. Since 1919, he managed several financial companies, and also edited a number of magazines (Nation, Economic Journal), while also consulting for the government. In 1942 Keynes became a member of Parliament.
In 1925, Keynes married Russian ballerina Lydia Lopukhova. In the same year, he visited the USSR for the first time to celebrate the 200th anniversary of the Academy of Sciences. In addition, Keynes became a ballet patron and author of ballet librettos. The marriage of Lydia Lopukhova and Keynes was happy, but childless.
It is worth noting that Keynes was a successful investor and was able to create a good fortune. During the Great Depression, he was on the verge of bankruptcy, but soon regained his financial position. By the end of the economist's life, his fortune and the value of his many collectible books and art objects (Keynes was a keen collector) were estimated at almost half a million pounds sterling.
Keynes showed interest in literature and drama, and was a sponsor of the Cambridge Art Theater, which helped it become one of the most significant cultural institutions located outside London.
Contribution to economic development
Note 2
Keynes is one of the most famous economists of the 20th century. It is he who is considered the founder of modern macroeconomic theory, which to this day serves as the basis for the budgetary and monetary policy of the state.
In the 1920s, Keynes dealt with global problems of economics and finance. The crisis of the early 1920s and the subsequent Great Depression drew the economist's attention to the problem of price stability and the level of production and employment.
In 1930, " Treatise on Money", where Keynes explored exchange rates and the gold standard. This paper was the first to propose the idea that there is no automatic balance between expected savings and investments.
In his works, Keynes largely criticized capitalism and argued for the need for significant adjustments to the capitalist system, since the market economy could not regulate itself.
Note 3
Sometimes Keynes showed interest in the Russian economy. In 1925 he published the article " A quick look at Russia“, where he expressed sympathy for the economic transformations being carried out in the USSR at that time.
John Maynard Keynes 1st Baron Keynes CB (eng. John Maynard Keynes, 1st Baron Keynes, June 5, 1883, Cambridge - April 21, 1946, Tilton estate, Sussex) - English economist, founder of the Keynesian trend in economic theory. Knight of the Order of the Bath.
In addition, Keynes created an original theory of probability, not related to the axiomatics of Laplace, von Mises or Kolmogorov, based on the assumption that probability is a logical and not a numerical relation.
The economic movement that emerged under the influence of the ideas of John Maynard Keynes later became known as Keynesianism. He is considered one of the founders of macroeconomics as an independent science.
Keynes was born into the family of the famous economist, teacher of economics and philosophy at the University of Cambridge, John Neville Keynes, and Florence Ada Brown, a successful writer who was also involved in social activities. His younger brother, Geoffrey Keynes (1887-1982), was a surgeon and bibliophile, and his younger sister Margaret (1890-1974) was married to Nobel Prize-winning psychologist Archibald Hill. The economist's niece, Polly Hill, is also a famous economist.
Keynes was very tall, approximately 198 cm tall. Biographers report his homosexuality. He had a serious relationship with the artist Duncan Grant from 1908 to 1915.
Keynes, John Maynard
Keynes continued to help Grant financially throughout his life. In October 1918, Keynes met the Russian ballerina of the Diaghilev enterprise Lydia Lopukhova, who became his wife in 1925. In the same year, he made his first trip to the USSR to celebrate the 200th anniversary of the Academy of Sciences, and also became a ballet patron and even composed ballet librettos. In addition, Keynes was in the USSR back in 1928 and 1936 on private visits. Keynes' marriage appears to have been a happy one, although medical problems prevented the couple from having children.
Keynes was a successful investor and managed to amass a good fortune. After the stock market crash of 1929, Keynes was on the verge of bankruptcy, but soon managed to restore his wealth.
He was fond of collecting books and managed to acquire many of the original works of Isaac Newton (Keynes called him “the last alchemist”) and dedicated his lecture “Newton, the Man” to him. The preface to Hideki Yukawa’s “Lectures on Physics” also mentions a biographical Keynes's book on Newton, but whether this is a printed edition of this lecture or a more extensive work is not clear from the context.
He was interested in literature and drama, and provided financial assistance to the Cambridge Art Theater, which allowed this theater to become, although only for a while, the most significant British theater located outside of London.
Keynes studied at Eton, at King's College in Cambridge, and at the university he studied with Alfred Marshall, who had a high opinion of the student's abilities. In Cambridge, Keynes took an active part in the work of the scientific circle, led by the popular philosopher George Moore among young people, and was a member of the philosophical club "Apostles", where he made acquaintance with many of his future friends, who later became members of the Bloomsbury Circle of Intellectuals, created in 1905-1906 . For example, members of this circle were the philosopher Bertrand Russell, the literary critic and publisher Cleve Bell and his wife Vanessa, the writer Leonard Woolf and his wife, the writer Virginia Woolf, and the writer Lighton Strachey.
From 1906 to 1914, Keynes worked in the India Department, on the Royal Commission on Indian Finance and Currency. During this period, he wrote his first book, “Monetary Circulation and Finance of India” (1913), as well as a dissertation on the problems of probability, the main results of which were published in 1921 in the work “Treatise on Probability.” After defending his dissertation, Keynes began teaching at King's College.
Between 1915 and 1919, Keynes served in the Ministry of Finance. In 1919, as a representative of the Treasury, Keynes participated in the Paris peace negotiations and proposed his plan for the post-war reconstruction of the European economy, which was not adopted, but served as the basis for the work “The Economic Consequences of the Peace.” In this work, he, in particular, objected to the economic oppression of Germany: the imposition of huge indemnities, which ultimately, according to Keynes, could lead (and, as is known, led) to strengthening revanchist sentiments. On the contrary, Keynes proposed a number of measures to restore the German economy, understanding that the country is one of the most important links in the world economic system.
In 1919, Keynes returned to Cambridge, but spent most of his time in London, serving on the board of several financial companies, the editorial board of a number of magazines (he was the owner of the weekly Nation, and also the editor (from 1911 to 1945) of the Economic Journal, advising the government Keynes is also known as a successful stock market player.
In the 1920s, Keynes deals with the future of the world economy and finance. The crisis of 1921 and the subsequent depression attracted the scientist’s attention to the problem of price stability and the level of production and employment. In 1923, Keynes published his “Treatise on Monetary Reform,” where he analyzes the causes and consequences of changes in the value of money, while paying attention to such important points as the impact of inflation on the distribution of income, the role of expectations, the relationship between expectations of price changes and interest rates, etc. . d. Correct monetary policy, according to Keynes, should be based on the priority of maintaining the stability of domestic prices, and not aim at maintaining an overvalued currency, as the British government did at that time. Keynes criticized the policies in his pamphlet The Economic Consequences of Mr. Churchill (1925).
In the second half of the 1920s, Keynes devoted himself to A Treatise on Money (1930), where he continued to explore issues relating to exchange rates and the gold standard. This work is the first to introduce the idea that there is no automatic balancing between expected savings and expected investment, that is, their equality at the full employment level.
In the late 1920s - early 1930s, the US economy was struck by a deep crisis - the “Great Depression”, which affected not only the American economy - European countries were also subject to the crisis, and in Europe this crisis began even earlier than in the United States. Leaders and economists of the world's leading countries were feverishly looking for ways to overcome the crisis.
As a prophet, Keynes was a colossal failure. Two weeks before the start of the Great Depression, he makes a prediction that the world economy has entered a trend of sustainable growth and that there will never be recessions. As you know, the Great Depression was predicted by Friedrich Hayek and Ludwig Mises one month before it began. Not understanding the essence of economic cycles, Keynes loses all his savings during a depression.
Keynes was appointed to the Royal Commission on Finance and Industry and the Economic Advisory Council. In February 1936, the scientist published his main work, “The General Theory of Employment, Interest and Money,” in which, for example, he introduced the concept of the accumulation multiplier (Keynes’s multiplier), and also formulated the basic psychological law. After “The General Theory of Employment, Interest and Money,” Keynes established his status as a leader in economic science and economic policy of his time.
In 1940, Keynes became a member of the Treasury Advisory Committee on War Problems, then an adviser to the minister. In the same year, he published the work “How to Pay for War?” The plan outlined in it involves the forced deposit of all funds remaining with people after paying taxes and exceeding a certain level into special accounts in the Postal Savings Bank with their subsequent unblocking. Such a plan made it possible to solve two problems at once: to weaken demand inflation and reduce the post-war recession.
In 1942, Keynes was granted the hereditary peerage (baron). He was president of the Econometric Society (1944-1945).
During World War II, Keynes devoted himself to issues of international finance and the post-war structure of the global financial system. He took part in developing the concept of the Bretton Woods system, and in 1945 he negotiated American loans to Great Britain. Keynes came up with the idea of creating a system for regulating exchange rates, which would be combined with the principle of their de facto stability in the long term. His plan included the creation of a Clearing Union, the mechanism of which would allow countries with a passive balance of payments to access the reserves accumulated by other countries.
In March 1946, Keynes participated in the opening of the International Monetary Fund.
Scientific achievements
Keynes gained a reputation as a talented debater of various kinds, and Friedrich von Hayek several times refused to discuss economic issues with him. Hayek at one time sharply criticized the ideas of Keynes; the disputes between them reflected the confrontation between the Anglo-Saxon and Austrian traditions in economic theory. After the publication of A Treatise on Money (1930), Hayek accused Keynes of lacking a theory of capital and interest and of misdiagnosing the causes of crises. It must be said that to some extent Keynes was forced to admit the justice of the reproaches.
Also widely known is the discussion (often called the Discussion on Method) between Keynes and the future Nobel Prize winner in economics Jan Tinbergen, who introduced regression methods into economics. This debate began with Keynes's article "Professor Tinbergen's Method" in the Economic Journal and continued in a series of articles by various authors (by the way, a young Milton Friedman took part in it). However, many believe that a more interesting account of this debate (due to its greater frankness) was in the private correspondence between Keynes and Tinbergen, now published in the Cambridge Edition of Keynes' Works. The point of the discussion was to discuss the philosophy and methodology of econometrics, as well as economics in general. In his letters, Keynes views economics not so much as “the science of thinking in terms of models” but as “the art of choosing appropriate models” (models that fit an ever-changing world). This discussion largely determined the development of econometrics.
Scientific works
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12.1. The essence and contradictions of the financial concept of J. M. Keynes
The theory of the English bourgeois economist J.M. Keynes (1883 - 1946) had a huge influence on the formation of the financial concept and the development of fiscal policy in almost all capitalist countries during the 40s - the first half of the 70s. In his book “The General Theory of Employment, Interest and Money” there is no term “public finance”, only a few pages are devoted to tax policy, so-called “social investment” and “debt-financed spending”. But his main idea about the need for government intervention to achieve “effective demand” is directly related to public finance and fiscal policy. This direction of research into the capitalist economy determined the development of bourgeois financial science for many years.
The financial concept of J.M. Keynes is based on the following basic provisions of his general theory:
1. All the most important problems of capitalist expanded reproduction should be solved not from the standpoint of studying the supply of resources, as its predecessors did, but from the standpoint of demand, which ensures the realization of resources.
2. A capitalist economy cannot self-regulate. In conditions of enormous socialization of capital and labor, state intervention is inevitable. State regulation should replace (or significantly supplement) the mechanism of automatic regulation of the economy through prices.
3. Crises of overproduction appear on the surface of phenomena as a lack of consumer demand, therefore the problem of equilibrium in the economy should be solved from the point of view of demand. For this purpose, J. Keynes introduces the term “effective demand”, which expresses the balance between consumption and production, income and employment.
4. The introduction of the term “effective demand” into economic circulation made it possible to return to the analysis of macroeconomic indicators (total social product and national income), which, in essence, were abandoned by all post-Ricardian schools. A return to macroeconomic indicators made it possible to find out how the economic system functions as a whole and to set a number of tasks related to the movement of the entire flow of produced, distributed and consumed value.
5. The main instrument for regulating the economy is budget policy. The state budget and financial policy in general were entrusted with the task of ensuring the employment of labor and production equipment. Monetary regulation J.
What did the English economist Keynes propose?
Keynes played a smaller role.
Based on the idea of "effective demand", the entire financial concept was revised. The theory of public finance began to be seen as an integral part of the theory of employment and income, and financial policy - as an integral part of economic policy. The place and role of certain categories of public finance in a capitalist economy were determined. J. Keynes views government spending as the main instrument of government intervention in the cyclical development of the economy and overcoming the crisis. Therefore, he considered their formation, structure and growth to be a very important and integral factor in achieving “effective demand.” The growth of government spending, in his opinion, should contribute to the realization of national income and ultimately the achievement of full employment; for this, the state must influence the main components of demand: personal and investment consumption. The tendency to spend money, that is, to create demand, is considered by J. Keynes as a psychological need. If aggregate demand is lower than supply, the entrepreneur cannot cover production costs and make a profit, so he will reduce investment and fire workers. Conversely, if demand is higher than supply, the entrepreneur will increase investment and hire additional workers.
Government demand, supported by taxes and borrowing, should revive business activity and lead to growth in national income and employment. J. Keynes criticizes the principle of classical political economy about the “non-interference” of the state in economic development. “The construction of pyramids,” writes J. Keynes with great irony, “earthquakes, even wars can serve to increase wealth if the education of our statesmen on the principles of classical economy closes the path to something better”1. Just like government spending, J. Keynes “inscribes” taxes into the movement of macro indicators, believing that changes in tax policy can affect the “propensity to consume.”
A new concept introduced into scientific circulation by J. Keynes was the concept of “taxes are built-in stabilizers.” It is based on the functional relationship between national income and taxes. This means that the amount of taxes withdrawn (other things being equal) depends on the size of national income. The higher the level of national income, the greater the amount of taxes that will go to the budget. And vice versa, when, during a crisis drop in production, national income decreases, the amount of taxes is reduced. This nature of taxes, from his point of view, provides a certain automatic flexibility of the economic system. He relates this provision primarily to income tax. Its collection at progressive rates leads to greater fluctuations in the level of tax than in income. They are greater, the steeper the tax rate curve and the fluctuations in the volume of national income. This determines the regulatory capabilities of income tax. During a crisis drop in production and rising unemployment, taxes, automatically being reduced, contribute to income growth, which awakens the “propensity to consume;” and stimulates demand.
J. Keynes assigned particular importance to taxes in their impact on the basic “psychological law”, according to which people tend to increase their consumption as income increases, but not to the extent that it increases. As their income increases, their “propensity to save” increases, so a tax policy is needed that would remove these savings. In his opinion, income tax should be levied at progressive rates. He noted that such views are often seen as an attack on the capital necessary for expanded reproduction. However, there is a need to withdraw part of the financial funds not invested in investments. Excessive savings can stimulate economic growth only in conditions of full employment (by full employment, Western economists mean its value at the level of 97%), in crisis years they impede this growth. From this, recommendations are derived for drawing up a school of personal income tax rates that would contribute to the redistribution of income from persons with savings to persons who invest them. Excess savings, withdrawn through taxes, are directed into investments through the state budget.
New in the theory of J. Keynes is the concept of the growth of public capital investments, which complement government measures to stimulate the “propensity to invest.” In his opinion, regulation of the volume of current investments cannot be left in private hands, only “broad socialization of investments will be the only means to ensure an approach to full employment, although this should not exclude all kinds of compromises and ways of cooperation with private initiative”1. Also new is the position introduced by J. Keynes into the theory of public finance about the need to increase government spending, “financed with the help of loans.” The followers of J. Keynes called it the principle of “deficit financing”. According to J. Keynes, public investments and current government expenditures can be financed with debt. Government investment financed through borrowing will lead to an expansion of the "propensity to invest", and financing of current government expenditure will lead to an increase in the "propensity to consume". He views the growth of debt of the state and local authorities as an integral part of state regulation of “effective demand”. Since the time of J. Keynes, the mandatory correspondence of budget expenditures and revenues began to be considered an anachronism, and the fear of budget deficits and growth of public debt - a harmful prejudice; the concept of “healthy finances” was done away with. The loan capital market becomes one of the tools for achieving “effective demand”, and the state budget deficit becomes one of the ways to regulate the economy.
The general theory of J. Keynes, as well as his financial concept, contains a number of contradictory provisions. First, encouraging “effective demand” by increasing government spending can only produce temporary results. Essentially, the state does not create new demand, but only transforms some of its forms into others. Government demand and consumption are created by reducing private sector investment demand and consumer demand. All other things being equal, an increase in government spending will shift demand from the private sector to the government sector, since the government can only finance its purchases through taxes or borrowing, which are anticipated taxes. Consequently, if the state expands its demand, then the purchasing power of the population decreases to one degree or another, which aggravates the problem of selling the total social product. But in this transformation of demand, the monopoly found a “rational grain” for itself. Centralization of demand by the state makes it possible to form a guaranteed market for monopolies. Work for the “treasury,” noted V.I. Lenin, is no longer work for the free market, where the elements reign1. The possibility of selling the products of monopolies is greatly facilitated, and the personal union of their managers with representatives of the state apparatus makes it possible to fulfill government orders at high prices. The ideological function of the theory of John Keynes lies in the substantiation of this advantage.
Secondly, the growth of investment, financed by taxes and loans, contributes to the expansion of production activities and an increase in national income. But public investment increases the organic composition of capital, which leads to a lag in employment growth. Despite government intervention, unemployment was not only not overcome, but also increased, especially in the 70s.
Thirdly, financing government spending through loans leads to an increase in the scale of secondary exploitation of workers, since repayment of debts and interest payments on them are made through taxes. Taxes imposed on mass consumers, i.e. workers, ultimately exacerbate the contradiction between the social nature of production and the private form of appropriation of its results. The placement of part of government loans in issuing and commercial banks increases inflation.
Thus, J. Keynes developed a fundamentally new theory of finance, aimed at regulating the economy under the dominance of monopolies. He created the theory of state regulation of the economy within the framework of bourgeois reformism. The justification of state intervention in the reproduction process with the help of finance as the objective necessity of adapting capitalist production relations to the process of socialization of production, capital and labor testifies to the foresight of the author of the theory. In fact, he tacitly acknowledges the antagonistic contradictions between production and consumption and tries to find ways to resolve them by building a reformist model of state intervention in the process of expanded capitalist reproduction. The views of J. Keynes had a strong influence on the entire further development of bourgeois financial science.
The development of financial policy and its implementation in practice based on the basic provisions of the theory of John Keynes was carried out by his followers. In the 40s - 60s it had success and certain positive results. The extensive type of economic development corresponded to the Keynesian postulate about the need to increase government spending, in which the monopolies were directly interested. The idea of achieving full employment met the interests of liberal-minded circles. In a number of Western European countries, social reformist forms of government regulation were implemented. On this basis, there was an increase in spending on education and healthcare, and a fairly effective social insurance system was formed. And until the 70s, the financial theory and practice of most leading industrialized states of the capitalist world were based on the initial provisions of the theory of John Keynes.
