John Maynard Keynes Social Theory
Although much of his ideas were often misunderstood throughout his life, Keynes offered bright new insights into the nature and origin of financial theories. In his most well known writings, The General Theory of Employment, Interest, and Money, which was published in 1936, Keynes worked to break down the prior ideas of traditional economics and point out its inadequacies, which became obvious during the downturn of the economy. He felt a new approach was needed, and through his work in The General Theory, he sought to bring this transformed stance to light and make sense of the economic crisis that surrounded him. Keynes entire social theory is based upon the concept of human behavior in regards to their money and the expectations of which will always be brought into a future which is uncertain. It was a time of great economic hardship, jobs were scarce and the economy was in a downward spiral, it was then that Keynes took to his efforts in shifting the economic ideas from those of the classical model to one of a more hands on approach. In his book Keynes speaks to three main ideas, the propensity to consume, the state of ones liquidity preference as determing the rate of interest, and the marginal efficiency of capital or the anticipated return on their investment in capital assets. The propensity to consume is one which we use most in our everyday lives and one which involves the least amount of uncertainty. We all use our money to purchase goods for our every day lives, whether it be in the form of food, a car, or perhaps a novel, we all purchase things on a regular basis and though we may not be able to accurately predict the quality of said item we usually have a basic understanding of what it is we are to getting from the transaction and what the results will be. It is this propensity to spend, or consume that we are most familiar with in our everyday lives and one which Keynes explains in terms of
having the least amount of uncertainty as it is the simple act of purchasing that which you need for the sole purpose of having that item, there is no expectations beyond the receiving of that particular merchandise, you are not looking to turn a profit nor are you anticipating any kind of increase in value, the value is simply within the use of the item which you purchased. The effective demand of the propensity to consume is composed of two items, first, that of the investment, or expenditure, and second, the act of consumption. It is believed by Keynes that ones propensity to consume is directly related to their income, when someone’s income goes up, so does their propensity to consume. However, there are exceptions to this rule. If one makes such a large income that they find it hard to completely dispose of every month and receives some kind of increase in their income, their propensity to consume goes down considerably as they would most likely save the majority of their income. Also, if ones income is small enough that they usually end up spending the majority of their income every month, if they receive an increase in income they will most likely have a much higher propensity to spend then that of someone who has a much larger, harder to spend income. This is an illustration of the level of effective demand within ones propensity to consume. The propensity to consume is the most simple, and purest form of what someone can do with their money and one that is used on a regular basis by people everyday.
Another action you can do with your money according to Keynes is loan, with his second point being on the state of ones liquidity preference as determing the rate of interest. Ones liquidity preference really refers to how readily available one would like their money to be to them, in the form of high liquidity preference one would want their money in the most liquid or readily available form to...
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