Saturday, 29 May 2010

John Maynard Keynes and The Capitalist System

John Maynard Keynes the economist, can be described as both the destroyer and the hero of capitalism for different reasons. The Marxists hailed him as the destroyer of capitalism because of his theory to reject the laissez-faire economic structure that had dominated the western world up until this point. Keynes said that in order to get the economy moving we needed to employ people to do meaningless, pointless, domenial jobs such as digging holes and filling them up again. By doing this, we'd be putting money in peoples pockets which they in turn would spend and put back into the economy. There was of course great criticism of this theory. The main problem being that while giving people work would indeed provide funds for people, to maintain a profit  the workers would need to work for less money that the cost of what they were making otherwise there was a risk of a market crash. The theory was seen as unsustainable.

Keynes however had another solution... the Government could print more money to provide benefits for the people who needed them. However, this caused a massive inflation and caused the value of money to go down. Keynes believed that money was only as valuable as it's interest rate. To put it simply, if there is more money to go around then the price of living goes up. That 50p loaf of bread will become 60p. This solution can be applied to modern day where Gordon Brown printed more money at the height of the recession. David Cameron is sort of anti-Keynes in the way he doesn't believe that printing more money will boost the economy and so he is now trying to take money out of the economy by cutting government spending.

Keynes can be seen as the hero of capitalism as his plan to get the economy working is still being used today.

1 comment:

  1. This is good, but not exactly right on interest rates and the nature of inflation - he has a more dynamic view of the economy that the printing money can cause an effect in the real economy so that production will rise and that will cause the price of goods to go down; and that this deflationary effect of increased output will balance the inflationary effect of increasing the money supply. Keynes' discoveries in this field I think had as big an impact (positive) on people's lives I would say than as say the dfiscovery of pencillin or something. As you say the real argument at the last election was WITHIN Keynesianism - Brown/Obama to stimulate more and hope that the increase in output (or the reduced reduction in output) will prevent inflation (or allow inflation at a mdoerate level - Keynesians are not very worried about inflation and don't think it can destroy civilization, etc, like Hayek says. Cameron wants to stimulate less, or maybe even cut back the money supply in absolute terms (the Hayek wing of conservativeism would want that - event though it would cause massive unemployment). So the real poltics of the last election really boiled down did you want to risk high inflation with Labour, but have a better chance of keeping your job; or did you want to risk mass unemployment and falling wages, but have a better chance of keeping the value of your savings, fixed assets like property and farmland and share portfolio and what have you.

    That's how I would put it anyway. Who you vote for is rationally determined by how much money you have got because in the nature of government policy it is alway a play off of inflation against unemployment. You can't have a situation really where both sides win.