Did Keynes Make His Case? An Argument

The paper examines Keynes’ justification for fiscal stimulus during a slump, which has remained popular in both policy and scholarly research. It focuses on four specific real-world examples when, according to Keynes, monetary policies alone would not have restored prosperity and, as a result, fiscal activism would have been beneficial. These were: 1) the 1890s slump; 2) the Great Depression’s beginning in 1930; 3) the Roosevelt Recovery in 1933; and 4) the US contraction in 1937-38. However, evidence from all four cases presented here refutes Keynes’ assertions… The paper then moves on to Keynes’ theoretical rationale, revealing that the well-known “liquidity trap” argument was simply one of several he made for monetary policy ineffectiveness. And it wasn’t the one he highlighted the most, despite the fact that his own texts cast doubt on its consistency. Keynes’ perspective on the Great Depression was influenced by the stagnationist tenor of economic theory in the mid-1930s, as well as his own cultural and artistic dislike for “capitalist individualism.” The flaws in Keynes’ real-world examples reflect, in part, his poor underlying critique of “classical” theory, especially Say’s Law — a critique that has sometimes hampered understanding due to its prominence. Keynes’ argument was not persuasive. The irony is that when interest rates fell to historic lows and expected returns on investment fell even lower, Keynes, the vaunted revolutionary of Depression economics, had so little to say on the employment of monetary policy.

Author (S) Details

Clark Johnson
Deptartment of Defense, 2009-2014, USA.

View Book :- https://stm.bookpi.org/MPEBM-V1/article/view/2019

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