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    THE GENERAL THEORY OF EMPLOYMENT,

    INTEREST, & MONEYby

    John Maynard Keynes

    Part I: Elements of the General Theory

    Page Contents

    HYPERLINK "http://www.futurecasts.com/Keynes,%20The%20General%20Theory%20(I).htm" \l

    "Keynesian theory" Keynesian theory

    HYPERLINK "http://www.futurecasts.com/Keynes,%20The%20General%20Theory%20(I).htm" \l "Labor

    market theory" Labor market theory

    HYPERLINK

    "http://www.futurecasts.com/Keynes,%20The%20General%20Theory%20(I).htm" \l"The General Theory" The General Theory

    FUTURECASTS online magazine

    www.futurecasts.com

    Vol. 6, No. 5, 5/1/04.

    HYPERLINK "http://www.futurecasts.com/Default.htm" Homepage

    Introduction to Parts I & II

    Keynesian theory:

    In the source of Keynesian theory, "The General Theory of Employment, Interest, and

    Money,"John Maynard Keynes purports to provide a "general theory" for self-regulatingcapitalist market systems. He asserts that it is applicable generally in all economic

    circumstances. Classical concepts, on the other hand, operate only in those rare "special"

    circumstances where full employment is possible.

    With disconcerting frequency, Marxian stupidities were invoked with approval, althoughin only one instance explicitly crediting Marx.

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    However, it is Keynesian theory that - if applicable at all - is applicable only in very

    narrow circumstances - like the "special" circumstances of the depths of the Great

    Depression where political leaders proved incapable of reforming the fundamental policystupidities that prevented recovery.

    Keynes nevertheless successfully convinced multitudes of supposedly knowledgeableeconomists to accept a series of black-is-white arguments. Savings became bad and

    deficits became good, and the prudent accumulation of reserves for foreseeable and

    unforeseeable contingencies was imprudently responsible for disastrous consequences.The accumulation of capital assets becomes an economic obstacle rather than an

    economic advantage. Investment and employment is stimulated by inflation and hindered

    by price declines. Market liquidity becomes more of a problem than an advantage.

    Free trade has disadvantages and closed economic systems have advantages because of

    the greater ease of manipulating the latter. With disconcerting frequency, Marxian

    stupidities were invoked with approval, although in only one instance explicitly crediting

    Marx.Although controversy over war debts and other international debts and trade war

    protectionism was raging around him, Keynes has not a word to offer about the obviousroles of such government policies in the business cycle in general and the Great

    Depression in particular. See Great Depression Chronology Series, beginning with "

    HYPERLINK "http://www.futurecasts.com/Depression_descent-'29.html" \t "_top" TheGreat Depression: The Crash of '29."

    Keynes provides a rationale for pursuing short term relief from economic problems bymeans of budgetary deficits and monetary inflation - palliatives that must ultimately just

    make matters considerably worse.

    Over a century of capitalist economic history was thus ignored, as were all arguments

    to the contrary, until Keynesian theories were put to the test in the 1970s - andpredictably failed miserably wherever pursued.

    Nevertheless, Keynesian concepts are once again popular and in use today - especiallyin the United States under the Bush (II) administration. They remain very popular with

    political leaders, since they provide intellectual cover for doing what political leaders

    have always done when seeking to put off confronting the real problems that afflict aneconomy. Keynes provides a rationale for pursuing short term relief from those problemsby means of budgetary deficits and monetary inflation - palliatives that must ultimately

    just make matters considerably worse.

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    The influence of Marx:

    It is evident that Keynes rejected much of the worst of Marxian doctrine. Keynes relies

    on competitive markets to allocate resources where Marx navely relies on socialistdirectives. Keynes uses market exchange values instead of Marx's impractical concept ofindustrial labor use-values. Keynes had infinite faith in paper money managed by

    governments - Marx had none. (Both are wrong on this last one.)

    Keynes can thus omit all of the twisted indeterminate and nonfunctional definitions

    and redefinitions of economic terms that Marx relied upon for the defense of his narrowindustrial labor use-value concept and for support of his propaganda myth. Profits -

    frequently referred to as "income" or "yields" - takes its obvious place for Keynes as adetermining factor for capitalist economic activity. Although he views capitalism asunable to operate at optimal levels for any length of time, Keynes recognizes - unlike

    Marx - that capitalism is inherently stable within the parameters of the business cycle.

    Moreover, Keynes avoids many of the weaknesses of logic that permeate Marx's work.See the series of articles beginning with HYPERLINK

    "http://www.futurecasts.com/Marx,%20Capital%20(Das%20Kapital)%20%20Vol%201%

    20(I).htm" \t "_top" Karl Marx, "Capital (Das Kapital)" vol. 1 (I), "Value Determinedby an Abstract Labor Standard."

    Keynes, like Marx, ignores the particular reasons why particular periods of economic

    trouble have taken place.

    Keynes appears totally ignorant of the inherent inefficiency of government management.

    Nevertheless, Marx's "mature capitalism" fallacy - for which Keynes cites Marx

    with approval - is the central feature of the General Theory, and Keynes relies upon someindeterminate concepts of his own to support his "mature capitalism" theme. In the

    process, Keynes, like Marx, ignores the particular reasons why particular periods of

    economic trouble have taken place.

    Like Marx, Keynes believes the ownership interest is not an essential element in

    capitalist productivity. Stock market investors are "functionless." Ignoring Adam Smith'swarnings about the weaknesses inherent in the separation of management from

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    ownership, Keynes agrees with Marx that good management and supervision is always

    readily available and can be procured simply by offer of a suitable salary.

    Like Marx and all socialists, Keynes appears totally ignorant of the inherent inefficiency

    of government management. See, " HYPERLINK

    "http://www.futurecasts.com/Government_futurecast.html" \t "_top" GovernmentFuturecast," Part II, "Government Management." He has total faith in the capabilities of

    government and "community" administered economic systems. While Marx offers broad

    socialist solutions, Keynes offers narrower administered solutions directed at controllinginterest rates, directing investment flows, redistributing wealth, and ultimately directing

    the activities of major business entities.

    To entice the credulous, Keynes like Marx offers a vision of an impossible utopia. If a

    capitalist system is resolutely stimulated pursuant to Keynesian policies, it will generateabundant capital assets - "full capitalization" - so that capital assets are no longer scarce.

    Then, there would no longer be any need for financiers and rentiers. While residual

    entrepreneurs would continue to be tolerated, Keynes agrees with Marx that theentrepreneur will become unnecessary. See, HYPERLINK

    "http://www.futurecasts.com/Keynes,%20The%20General%20Theory%20(II).htm" \t

    "_top" Keynes, "The General Theory of Employment, Interest, & Money," Part II,"Interest Rates, Aggregate Demand, and the Business Cycle."

    Keynes - also like Marx - assumes that the study of economics is a "scientific" endeavor.

    He thus avails himself - or at least succumbs to - the "science" propaganda ploy that was

    a central feature in the propaganda myth created by Karl Marx. His followers wouldardently continue this propaganda deception until forced to retreat somewhat by their

    gross failures in the 1970s.

    The savings gap:

    Keynes provides us with psychological propensities to consume and save. He blames

    the business cycle and involuntary unemployment on the notion that wealthy nations -"mature" capitalist systems - will inevitably save more than can be profitably invested,

    leading to periods of economic decline - if not chronic economic decline. Like Marx's

    concepts, none of this can be measured, and in fact all the evidence is exactly theopposite.

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    As assets accumulate, people and businesses can - and observably do - rely more on theirasset wealth than on monetary savings.

    The decline in savings rates in the U.S. in recent prosperous times has been notorious fordecades.

    Mature - wealthy - capitalist systems require and have lower rates of savings - not

    higher. As assets accumulate, people and businesses can - and observably do - rely more

    on their asset wealth than on monetary savings. Their asset wealth supports vast increasesin the purchasing power of credit, naturally stimulating both consumption and

    investment, with profit rates and interest rates sensitively adjusting these flows except

    when other factors undermine the pertinent markets.

    Except during the depths of already developed severe depressions, financial

    intermediaries and the money markets have no trouble instantly putting all savingsto work in commerce. As is repeatedly po