Summary of The General Theory of Employment, Interest, and Money

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In 1936, in the midst of the Great Depression, John Maynard Keynes forever transformed the field of macroeconomics with this classic and still controversial work. In it, he argues vigorously for strong government action to correct the excesses of laissez-faire capitalism. Some professionals believe that many of this book’s lessons disappeared from the collective consciousness as neoclassical economics spread widely, beginning in the 1970s. But since the 2008 financial crisis and the ensuing Great Recession, insights drawn from Keynes’s original ideas are gaining renewed attention. His writing can be dense and difficult to understand at times, although some sections are easy and enjoyable to read, and you’ll find dozens of colorful and eloquent sentences to quote. getAbstract recommends this product of genius, whether or not you follow – or subscribe to – every idea. According to one-half of the world’s top economists, the other half doesn’t completely understand its messages, either.

About the Author

John Maynard Keynes [1883–1946] was arguably the most influential economist of the 20th century. He is known as the founder of modern macroeconomics. 

 

Summary

Persistent Disequilibrium

The dominant economic thinking in 1936, referred to as “classical economics,” proved inadequate in explaining the 1930s Great Depression. Why did economies stay at low levels of output for so long while resources were lying idle? Why did the initial shock of the 1929 stock market crash cause such a prolonged slump?

The ideas of laissez-faire capitalism are central to classical economics, which assumes that markets left alone – to operate as free markets – always adjust to shocks by efficiently returning an economy to a situation in which it can employ and consume its maximum resources. But in fact, unregulated capitalism defies this assumption. A “general theory” could explain what drives changing output and employment levels in an economy as a whole and how economies function during crises and downturns.

Output and Employment

Economists use the concept of “aggregate demand” to designate economic output. Basically, aggregate demand comes from buyers spending their incomes on goods and services that they will enjoy immediately and in the future. The classical model assumes that...


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