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What is the definition of "Keynesian"?

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No2statism Posted: Wed, May 8 2013 7:45 PM

I was told that monetarism isn't keynesian, but I had thought it was because I believed that Keynesians wanted to create demand to generate wealth and that monetarists thought that govt controlling the money supply would regulate demand.

Any answers would be appreciated.

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Bogart replied on Wed, May 8 2013 8:16 PM

You were told correctly.  The difference between the two schools is significant as the Monetarists believe in free markets EXCEPT when it comes to central planning of the financial system while the Keynesians not only favor central planning of the financial system but want the government to create demand by taxing (stealing) from current payers or future payers through debt. 

Both schools are vastly different from the Austrian School in both theory and practice.  Austrians in theory believe that economics is not derrived from experiment or mathematics but is logically deduced from human action.  Austrians in practice believe that all human interaction should be free and and those actors in the marketplace are responsible for any damage to other persons or property.

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while the Keynesians not only favor central planning of the financial system

Straw man. Keynesians aren't necessarily anti-market. Even Krugman doesn't want a central planning board to control the economy.

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What's the functional difference of the government regulating nearly every aspect of the economy and goosing it up with subsidies, and it controlling the economy? The difference between fascism and socialism? Saying you're for markets but desire government intervention in every facet of them means you are for markets when it comes to trivial baubbles but not for handling any of the 'serious' stuff.

Freedom of markets is positively correlated with the degree of evolution in any society...

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Even Krugman doesn't want a central planning board to control the economy.

But Keynes did. Dissent on Keynes [Chapter 1, footnote 1] summarises it,

Actually, Keynes adopted a highly socialistic approach in The General Theory, including control of consumption, “socialization of investment,” taxation of stock transactions, protectionism, progressive income taxation, and heavy death duties (Keynes 1936: 372–84).

As he put it in Chapter 24:

Whilst, therefore, the enlargement of the functions of government, involved in the task of adjusting to one another the propensity to consume and the inducement to invest, would seem to a nineteenth-century publicist or to a contemporary American financier to be a terrific encroachment on individualism. I defend it...

All those things are the right things to do to save the economy from inevitable disaster, if we accept his exposition of economics, as shown in Chapter 24 of his General Theory. The current Keynsians still believe in his exposition.

 

 

 

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Has anyone in here ever read the General Theory?  Or only its criticisms?

"The Fed does not make predictions. It makes forecasts..." - Mustang19
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@ Aristohphanes:  I haven't read it, but Keynes' theory is incompatible with the ethics of liberty.

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Keynes advocates for the "socialization of investment" because he perceives there to be a macro-scale market failure -- that some savings won't be invested, because expected revenue is below costs of production and borrowing costs. This can happen, according to Keynes, if consumption is too low ( present private investment, he (erroneously) posits, is a function of present consumption) or if the rate of interest is above the natural rate (because of a high liquidity preference). His theory of trade protectionism assumes a deficiency of demand, and essentially the argument is that whatever welfare loss protectionism causes may be less than the potential welfare loss of an underemployment equilibrium when there's a demand shortage. I don't remember Keynes advocating consumption control in TGT.

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I don't remember Keynes advocating consumption control in TGT.

What do you think the whole book is about?

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Definitely not the "control of consumption" (whatever that term means*). This is what the book is about.

Edit:

* If it means that Keynes advocated stimulating consumption, then it's true (although it's not what the "whole book is about"). If it means consumption control in the stricter sense of planned allocation of consumers' goods, this is not in The General Theory.

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Neodoxy replied on Thu, May 9 2013 8:29 PM

@OP

Wheylous got it most right. It should be noted that what separates monetarists and Keynesians is ultimately not so much framework as conclusions. I like to refer to monetarism as "money Kenyesianism". If Keynesians thought that investment was stable and that public spending tended to crowd out investment then they would be monetarists. If monetarists believed the opposite of the above then they would be Keynesians. There are a few minor differences, but those are the big ones beyond the Taylor Rule, which advocates stabilization through a non-discretionary fiscal policy.

The ultimate difference between Keynesianism and Monetarism:

The slopes of the above curves. If you get agreement on those two then the schools are pretty identical.

Edit

Aristophanes,

I began reading the book, but I couldn't finish it. Not necessarily because the concepts were bad but because Keynes might honestly be the worst writer out of any economist/political theorist I've ever read.

At last those coming came and they never looked back With blinding stars in their eyes but all they saw was black...
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That article you wrote missed the boat. He called it "General" because he thought classical economics is only correct in a special case, that of full employment. He was going to expand economics to include all cases, including those of  less than full employment, aka generalizing a special case. It's how the word is used by mathematicians, which he was. Like special relativity and general relativity.

He says all this explicitly in the book. 

After we grasp this, we realize that stimulating consumption is exactly what the whole book is about. It's his prescription for the general case.

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Dave,

Right, but he believed that economies secularly move towards underemployment equilibria. That's the point of my post. In other words, to Keynes full employment is the "special case" theory, and his theory of macro market failure is the "general" theory. He believed underemployment is endemic to the market system, such that full employment is actually rare (unless there's active stimulation [the "quasi-permanent boom"]). But, you may be right: where does he say what you claim he says in the book?

His prescription for solving this macro market failure is not *just* consumption stimulation. He also advocates socializing investment, to make up for the demand shortage (the use of idle savings). He also advocates lowering short term interest rates and, possibly influenced by Ralph Hawtrey, supported the use of monetary policy to change expectations. More specifically, he didn't argue sacrificing investment for the sake of greater consumption. If he wanted to stimulate consumption it was to stimulate investment -- this is the point behind the concept of the multiplier, which, as I write, is the central assumption in the book.

Finally, there's a big difference between "control of consumption" and "consumption stimulation," just like there's a big difference between the control of investment (e.g. central allocation of means of production) and the stimulation of investment. I admit that terms can be defined however a person wishes, and it's the definition that matters, but what I'm saying is that the term is misleading.

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Just for the sake of actually citing Keynes,

I have called this book the General Theory of Employment, Interest and Money, placing the emphasis on the prefix general... I shall argue that the postulates of the classical theory are applicable to a special case only and not to the general case, the situation which it assumes being a limiting point of the possible positions of equilibrium. Moreover, the characteristics of the special case assumed by the classical theory happen not to be those of the economic society in which we actually live, with the result that its teaching is misleading and disastrous if we attempt to apply it to the facts of experience.

p. 3.

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