John M. Keynes was born in Cambridge to an upper-middle-class family.
His father was a lecturer in economics and philosophy at the University of Cambridge.
Keynes studied at Eton College, received a scholarship for brilliant academic performance, then at the Mathematics Department at King's College, Cambridge.
Under the influence of the great economist Alfred Marshall, Keynes became interested in the relatively new science of economics. He published his first article on economics in 1909, and by 1911 he was editor of an economics journal.
During World War I, Keynes helped negotiate with Britain's creditors, as Britain's debt had soared during the war.
In The Economic Consequences of the World, Keynes puts forward as central problem the imposition of huge indemnities on Germany. Keynes called this a tragic mistake, which should lead to a revival of the country's export expansion and the emergence of contradictions that could lead to a new war. Keynes's opinion was taken into account after the Second World War ...
In the 1920s, Keynes was critical of the British government's decision to remain on the 1914 gold standard. He argued that the high value of the pound sterling made it difficult to export and was the main cause of deflation and high unemployment in Britain in 1920.
Keynes married the ballerina Lydia Lopukhova, they had no children. He died of a heart attack in 1946.
Keynes was at the same time a philosopher, an economist and a student of morals. He never ceased to wonder about the ultimate goals of economic activity. He believed that the craving for wealth is justified only by the fact that it allows you to live well, not necessarily richly, but righteously.
Keynes did not just study the economy, he offered concepts, tools to overcome the crises of capitalism within the framework of market ideology. Moreover, the post-war reconstruction of Europe and the United States was largely based on his principles.
Keynesian ideas
Keynes is called one of the founders of macroeconomics as an independent science.
An economy for all: Keynes sought to express the most important ideas in accessible language. Keynes was against excessive mathematization, which interfered with the perception of the economy by non-specialists.
The basic tenet of the Keynesian school is that government intervention can stabilize an economy.
During the Great Depression of the 1930s, economic theory failed to explain the causes of the severe global economic downturn and to develop adequate public policies to restore production and employment. Keynesianism is often called a reaction economic theory to the Great Depression.
Keynes revolutionized economic theory by discarding the prevailing idea at the time that free markets automatically provide full employment for the population, that is, everyone who wants to get a job is sure to.
A market economy is not characterized by an equilibrium that ensures full employment. The reason is the tendency to save a part of income, which leads to the fact that aggregate demand is less than aggregate supply. The state should regulate the economy by influencing aggregate demand: an increase money supply and lower interest rates. The lack of demand is compensated by public works and budget financing.
The key point of Keynes's theory is the assertion that aggregate demand, i.e., the sum of expenditures of households, enterprises and government, is the main driving force in the economy.
Keynes argued that free markets do not have self-regulating mechanisms that provide full employment for the population. According to Keynes, the state intervenes in the economy by public policy eradicating unemployment and stabilizing prices.
The correct monetary policy, according to Keynes, should proceed from the priority of maintaining the stability of domestic prices, and not aim at maintaining an overvalued exchange rate.
Keynes and socialist economics
In view of the importance of the state in the economy noted by Keynes and his criticism of capitalism (+ Russian wife), prerequisites were created for rapprochement with Soviet economists. There is a legend that Keynes visited the USSR and met with Stalin. The result could be ideas for restructuring the capitalist system based on the thesis that there is no self-regulation mechanism in the market economy.
However, Keynesianism denied the uniqueness of planned and administrative management and regulation of the economy. In return, Keynes proposed a system of macroeconomic regulation. It. as well as the rejection of Marx, in different years caused varying degrees of criticism in the USSR, up to the wording "schemer from the economy."
Keynes and the globalists
Keynes was involved in the development of the concept of the Bretton Woods system. He owns the idea of creating a system for regulating exchange rates, which would be combined with the principle of their stability in the long term (today China largely follows these exercises, regulating its currency at the state level). Keynes came up with the idea of creating the IMF.
Criticism of Keynes and Keynesianism
After the Second World War, the classical school began to revive again. Neoclassical representatives insist that the socialist economy is less efficient than the market, although the latter is not perfect, but it is better to regulate it through political rather than economic intervention.
The emergence of monetarism interrupted the dominance of Keynesianism, however, monetarism used the concept monetary regulation, developed by J. M. Keynes.
Keynesianism was criticized by history itself, so two important maxims from the above abstracts on employment:
- Less unemployment, more demand, more inflation.
- More unemployment, less demand, less inflation.
But in the 1970s in the United States again there was a crisis in which there was high unemployment and at the same time high inflation, this phenomenon was called stagflation. This weakened economists' confidence in Keynesianism.
Crisis according to Keynes
A fall in overall consumer demand causes a reduction in production, which leads to unemployment (ruin of small businesses, layoffs of employees, including those at large enterprises). Unemployment leads to a decrease in the income of buyers. And this, in turn, forces a further decline in consumer demand. There is a vicious circle of chronic depression.
Keynes proposed the following solution: if the mass consumer is not able to revive aggregate demand, the state should do it. Large government orders (albeit of little use) will lead to additional hiring of labor. By receiving wages, the former unemployed will increase their spending on consumer goods, and, accordingly, will increase aggregate economic demand. This, in turn, will lead to an increase in the aggregate supply of goods and services and a general recovery of the economy.
Richard Nixon (President of the United States) 1971: "Today we are all Keynesians." Robert Lucas: Apparently, in a crisis, everyone becomes a Keynesian.
There is an opinion that the Keynesian approach to economics makes sense to carry out only in times of crisis.
The English economist John Maynard Keynes (1883–1946) became widely known in connection with Labour' General theory employment, interest and money" (1936), in which he raised the question of the need for state intervention in the economy in order to correct its shortcomings.
At the forefront Keynes put the problem of "effective demand", consumption and accumulation. He put forward the macroeconomic method of research, i.e. study of dependencies and proportions between macroeconomic values - national income, savings and savings.
Keynes uses the psychological characteristics of human nature as the basis of economic processes. Keynes considered the cause of economic crises to be changes in the mood of the capitalists - the transition from optimism to pessimism. He attached decisive importance to the "propensity to consume" and "the propensity to save."
Keynes argued that with an increase in employment, the national income rises and, consequently, consumption increases. But consumption is growing more slowly than income, because as incomes rise, people's desire to save increases. “The basic psychological law,” writes Keynes, “is that people tend, as a rule, to increase their consumption with an increase in income, but not to the extent that income increases.” The latter is expressed in a decrease in aggregate demand, and demand affects the size of production and the level of employment.
Insufficient consumer demand can be offset by increased costs for new investments, i.e. an increase in demand for means of production. The total amount of investment plays a decisive role in determining the size of employment. The amount of investment depends on the propensity to invest. The entrepreneur expands his investment until the rate of profit falls to the level of interest. The difficulty lies in the fact that the rate of profit falls and the rate of interest remains stable. This creates narrow boundaries for new investment and job growth. Keynes attributed the decline in the rate of profit (the "marginal efficiency of capital") to an increase in the mass of capital and the tendency of entrepreneurs to lose faith in future returns.
The main tenet of Keynes's general theory is the thesis of the decisive role of investment in determining the total volume of employment. The growth of investment means the involvement of additional workers in production, which leads to an increase in employment, national income and consumption. The initial increase in employment caused by new investment leads to an additional increase in employment caused by the need to satisfy the demand of additional workers. Keynes called this coefficient of additional employment growth multiplier, which shows the relationship between investment growth on the one hand and income growth on the other. The greater the marginal propensity to consume, the greater the multiplier.
In his economic program, Keynes held that "the state should exercise its guiding influence on the propensity to consume, partly through a system of taxes, partly by fixing the rate of interest, and in other ways."
The most extensive exposition of the American version of Keynesianism is contained in the works of Alvin Hansen (1887-1975) and Stanley Harris (1897-1974). Hansen supplemented the explanations of the causes of crises with the theory of stagnation, which spread in the United States in the late 1930s and during the Second World War. According to this theory, by the beginning of the Second World War, the rapid development of capitalism had ceased due to the following factors: a slowdown in population growth, the lack of free land, and a slowdown in technological progress. Some Keynesians proposed to make huge government orders and purchases, others to increase taxes (up to 60% of wages), government loans, others - use additional release paper money in circulation to cover government spending. American Keynesians declared the state budget the main mechanism for regulating the capitalist economy.
E. Hansen, John Maurice Clark (1884-1963) and other American Keynesians supplemented the concept of the multiplier with the accelerator principle. “The numerical multiplier by which each dollar of incremental income increases investment is called the acceleration factor, or simply the accelerator.* The accelerator, or acceleration factor, is equal to the ratio of the increase in investment to the increase in income. Due to the long lead time of equipment manufacturing, unsatisfied demand for it accumulates, which stimulates an excessive expansion of equipment production. An accelerator refers to the upward impact of income growth (through increased demand) on investment. Based on the principles of the multiplier and the accelerator, the American Keynesians developed a scheme for the continuous growth of the economy, the starting point of which is public investment.
They called the state budget a "built-in stabilizer" designed to automatically respond to and mitigate cyclical fluctuations. The “built-in stabilizers” also include income tax, social insurance payments, unemployment benefits, etc.
E. Hansen, Yevsey Domar (b. 1914) and Roy Harrod (b. 1900) created theories of economic growth. According to these theories, the economy will be in a state of dynamic equilibrium if the movement of demand contributes to the full use of productive resources. The growth of national income, on which demand depends, is, in their opinion, only a function of capital accumulation, and the demand for capital is determined only by the rate of growth of national income.
An important place in neo-Keynesian models of economic growth is occupied by the consideration of quantitative relationships between accumulation and consumption, the “multiplier-accelerator” system. The main factors of economic growth are investment (the rate of capital accumulation) and capital intensity of production (the ratio of capital to output).
Neo-Keynesians have developed measures of indirect and direct regulation of the economy. Methods of indirect influence include tax policy, budget financing, credit policy, accelerated depreciation. These methods are called automatic stabilizers, credit stabilizers, institutional stabilizers, and so on.
1. List the main causes of the world economic crisis of 1929-1933.
1. Serious disruption (imbalance) in the economy, and above all in the chain of production - distribution - consumption. That is, they produced more than they could buy.
2. The market mechanism of automatic regulation and the system for realizing the results of production (distribution and consumption) went out of order - huge industries were concentrated in the hands of a few corporations and trusts, thanks to which conditions of monopoly, price dictatorship and restriction of competition were created. Several corporations, such as those dominant in the steel industry, cut production, but prices remained almost the same. Therefore, the market and competition as regulators have ceased to work.
2. What are its main manifestations and features?
The depreciation of shares, the bankruptcy of banks, the production has lost its financial supply - investments and loans. As a result, factories and plants, offices were closed, trade was curtailed. Unemployment rose.
The crisis acquired a global character, lasted quite a long time - 5 years.
The crisis occurred in the United States - a country where there were the highest rates of economic growth, where a high level of maturity was achieved in industrial development, in the organization and management of mass production. Consequently, the world economic crisis that began was of a structural and systemic nature, that is, it was a crisis of a certain stage in the development of the capitalist system - a break, a turning point in the development of capitalism.
The closure of enterprises, the reduction in production gave rise to mass unemployment, the growth of contrasts of wealth and poverty, the appearance of the homeless and the poor on the streets of cities, food riots and social protest movements. In addition to these visible signs of the system's decay, much remained as if behind the scenes - the loss of a sense of dignity by many people, hopelessness, suicide, a decline in morality, an increase in crime.
3. Why did the crisis put on the agenda the problem of state regulation of the market economy?
In the USA, Germany, England, for the first third of the XX century. reached high level concentration: in the hands of a few corporations and trusts, huge industries were concentrated, thanks to which conditions were created for monopoly, price dictatorship and restriction of competition. Several corporations, such as those dominant in the steel industry, cut production, but prices remained almost the same. Therefore, the market and competition as regulators have ceased to work. In the current situation, it was impossible to automatically get out of the crisis with the help of the previous market mechanisms.
4. What did the English economist Keynes offer?
He justified the need for state regulation economic development and redistribution of production results. At the same time, the key issue is to increase the purchasing power of the population (it is necessary to create “effective demand”) so that mass production corresponds to mass consumption, otherwise the system will not be able to get out of the impasse of a relative excess of goods produced. Only the state power could solve such a macroeconomic problem.
Keynesianism proposed a specific mechanism for anti-crisis or anti-inflationary (it depends on the specific situation) regulation: in the first case, through an increase in government spending, tax cuts and bank interest(the “go” principle), and in the second case, through a reduction in government spending, an increase in taxes and bank interest (“stop” principle). These principles, which provide for “pushing” consumption growth during a crisis, and “holding back” it during inflation, are called “stop and go”.
5. Why should mass production correspond to mass consumption?
The produced goods must be sold, otherwise the income of both the enterprise itself and its employees will begin to fall. Accordingly, the purchasing power of the population will also fall.
6. What types of political regimes existed in Europe?
Liberal-democratic regime: equal application of laws, recognition of fundamental and inalienable human rights that have priority over the rights of the state, the principle of separation of powers, parliamentarism, civil society as a system of public organizations independent and independent of the state.
Totalitarian regime: totalitarianism, according to the meaning of the term itself (total is universal), stands for universality, totality of state regulation. Replacement of market relations by state planning and distribution. In this case, private property is so limited that it disappears as the basis of personal freedom.
A totalitarian state presupposes the inseparable political and state leadership of the country by the one-party bureaucratic elite. Therefore, in the political field, totalitarianism means the destruction of the regime of liberal democracy, elective institutions or their reduction to an empty formality, the absorption of civil society by the state.
In the field of ideology, totalitarianism instills unanimity, intolerance for other views, and the cult of the leader.
Authoritarianism is a political regime in which political power carried out by a political leader, political party, family or social group with minimal participation of the people. At the same time, there is limited or strict regulation of the political rights of citizens and socio-political organizations, but there is no large repressive apparatus. Interference in civil society is insignificant, the principle “everything that is not prohibited by the state is allowed” applies, which implies the absence of total regulation, the need for a single ideology.
Task for table 1.
Analyze basic principles political regimes and formulate the lines of their comparison.
Lines of juxtaposition: Ideological politics, parties and statecraft, military control, censorship, repression, economics, private life and society.
In 1929, an unprecedented world economic crisis broke out, which dealt a powerful blow to the foundations of the ideology of "free enterprise", undermining faith in the "invisible hand" of market regulation. Under the influence of this crisis, the famous book appears "The General Theory of Employment, Interest and Money"(1936) by the English economist John Maynard Keynes, which marked the beginning of the "Keynesian revolution" in economic theory. The main conclusion of Keynes's theory is that the total volume of production and employment in the capitalist economy depends on unstable psychological factors (people's expectations, the level of optimism-pessimism), and therefore is subject to serious fluctuations. Leaving aside the issue of analyzing the depth of this provision for the time being, we note that we can find it in almost any textbook on macroeconomics, but it is difficult to find the economic policy that Keynes proposed in it. There is an opinion that Keynes proposed a counter-cyclical fiscal and monetary policy, but the study of the original source leads us to another, somewhat unexpected answer to the question posed in the title of the article.
"The state will have to exert its guiding influence on the propensity to consume, partly by an appropriate system of taxes, partly by fixing the rate of interest, and perhaps in other ways. Moreover, it seems unlikely that the influence of banking policy on the rate of interest would by itself be sufficient to ensure optimal size investment. I imagine therefore that Sufficiently broad socialization of investment will be the only means to ensure an approximation to full employment, although this should not exclude all kinds of compromises and ways of cooperation between the state and private initiative. But apart from this, there is no obvious basis for a system of state socialism that would cover most of economic life society. It is not the ownership of the instruments of production that is essential for the state. If the state could determine the total amount of resources intended for increasing the instruments of production and the basic rates of remuneration for the owners of these resources, everything that is needed would be achieved. In addition, the necessary socialization measures can be introduced gradually, without breaking the established traditions of society.(J. M. Keynes. General theory of employment, interest and money. - M.: Progress, 1978. - S. 452-453).
Thus, John Maynard Keynes, in addition to the proposal of fiscal and monetary policy, understood that without public control over the investment process, the economy cannot develop without crisis. However, he proposed social control for the capitalist economy, so the policy he proposed is, in my opinion, somewhat utopian. Naturally, the "orthodox Keynesians" (representatives of the main current in Keynesianism) rejected the idea of "investment socialization", confining themselves to fiscal and monetary policy. The result of this policy is known - in 1949, 1957, 1960, 1969 and 1973 new world economic crises erupted, which led to a conservative counter-revolution in economic science and politics, that is, in many respects to a return to self-discredited classical principles government intervention in the economy. The outcome of the conservative counter-revolution and deregulation of markets is also known: the world is facing the threat of a new Great Depression and, possibly, a world war (or many local wars).
From all this we can conclude that Keynes's idea of "investment socialization" was not and could not be implemented in a capitalist economy, but could be implemented in an economy dominated by public property on the means of production, but there would be no excessive centralization and bureaucratization of management, in an economy in which there would be a developed self-management of labor collectives.
UPD Continuing the theme of Keynes's theory -
John Maynard Keynes 1st Baron Keynes CB (born John Maynard Keynes, 1st Baron Keynes, June 5, 1883, Cambridge - April 21, 1946, Tilton Manor, Sussex) - English economist, founder of the Keynesian trend in economic theory. Knight of the Order of the Bath.
In addition, Keynes created an original theory of probability, not related to the axiomatics of Laplace, von Mises or Kolmogorov, based on the assumption that probability is a logical, not a numerical ratio.
The economic trend that arose under the influence of the ideas of John Maynard Keynes was later called Keynesianism. Considered one of the founders of macroeconomics as an independent science.
Keynes was born in the family of John Nevil Keynes, a well-known economist, professor of economics and philosophy at the University of Cambridge, and Florence Ada Brown, a successful writer who was also engaged in social activities. His younger brother, Geoffrey Keynes (1887-1982), was a surgeon and bibliophile, his younger sister Margaret (1890-1974) was married to the Nobel Prize-winning psychologist Archibald Hill. The economist's niece, Polly Hill, is also a well-known economist.
Keynes was very tall, about 198 cm tall. Biographers report his homosexuality. Serious relationship had with the artist Duncan Grant between 1908 and 1915.
Keynes, John Maynard
Keynes continued to help Grant financially throughout his life. In October 1918, Keynes met the Russian ballerina of the Diaghilev company Lidia Lopukhova, who in 1925 became his wife. In the same year, he made his first trip to the USSR to celebrate the 200th anniversary of the Academy of Sciences, and also became a ballet patron and even composed ballet librettos. In addition, Keynes was in the USSR back in 1928 and 1936 with private visits. Keynes's marriage appears to have been a happy one, although medical problems prevented the couple from having children.
Keynes was a successful investor and managed to make a good fortune. After the stock market crash of 1929, Keynes was on the verge of bankruptcy, but soon managed to restore his wealth.
He was fond of collecting books and managed to acquire many of the original works of Isaac Newton (Keynes called him the Last Alchemist (eng. "the last alchemist") and dedicated the lecture "Newton, the Man" to him. In the preface to Hideki Yukawa's Lectures on Physics, a biographical Keynes's book on Newton, but it means the printed edition of this lecture or a more extensive work, it is not clear from the context.
He was interested in literature and drama, and provided financial assistance to the Cambridge Arts Theatre, which allowed this theater to become, although only for a while, the most significant British theater located outside London.
Keynes studied at Eton, at King's College, Cambridge, and at the university he studied with Alfred Marshall, who had a high opinion of the student's abilities. In Cambridge, Keynes took an active part in the work of the scientific circle, which was led by the philosopher George Moore, popular among young people, was a member of the Apostles philosophical club, where he made acquaintance with many of his future friends, who later became members of the Bloomsbury Circle of Intellectuals, created in 1905-1906. . For example, the members of this circle were the philosopher Bertrand Russell, the literary critic and publisher Cleve Bell and his wife Vanessa, the writer Leonard Woolf and his wife the writer Virginia Woolf, the writer Layton Strachey.
From 1906 to 1914, Keynes worked in the Department of Indian Affairs, the Royal Commission on Indian Finance and Currency. During this period, he writes his first book - " Money turnover and Finance of India” (1913), as well as a dissertation on the problems of probability, the main results of which were published in 1921 in the work “Treatise on Probability”. After defending his dissertation, Keynes began teaching at King's College.
From 1915 to 1919, Keynes served in the Treasury. In 1919, as a representative of the Treasury, Keynes participated in the Paris peace talks and proposes his plan for the post-war reconstruction of the European economy, which was not adopted, but served as the basis for the work "Economic Consequences of Peace". In this work, in particular, he objected to the economic oppression of Germany: the imposition of huge indemnities, which, in the end, according to Keynes, could (and, as you know, did) lead to an increase in revanchist sentiment. On the contrary, Keynes proposed a number of measures to restore the German economy, realizing that the country is one of the most important links in the world economic system.
In 1919, Keynes returned to Cambridge, but spent most of his time in London, being on the board of several financial companies, editorial board of a number of journals (he was the owner of the Nation weekly, as well as the editor (from 1911 to 1945) of the Economic Journal, advising the government. Keynes is also known as a successful player on the stock exchange.
In the 1920s, Keynes was concerned with the future of the world economy and finance. The crisis of 1921 and the depression that followed it drew the attention of the scientist to the problem of price stability and the level of production and employment. In 1923, Keynes published "Treatise on Monetary Reform", where he analyzes the causes and consequences of changes in the value of money, while paying attention to such important points, as the impact of inflation on the distribution of income, the role of expectations, the relationship between expectations in price changes and interest rates, etc. The correct monetary policy, according to Keynes, should proceed from the priority of maintaining domestic price stability, and not aim to maintain an overvalued exchange rate, as did the British government at that time. Keynes criticized the policy in his pamphlet The Economic Consequences of Mr. Churchill (1925).
In the second half of the 1920s, Keynes devoted himself to A Treatise on Money (1930), where he continued to explore issues related to exchange rates and the gold standard. In this work, for the first time, the idea appears that there is no automatic balancing between expected savings and expected investment, that is, their equality at the level of full employment.
In the late 1920s and early 1930s, the US economy was hit by a deep crisis - the "Great Depression", which engulfed not only the American economy - European countries were also subject to crisis, and in Europe this crisis began even earlier than in the USA. The leaders and economists of the leading countries of the world were feverishly looking for ways out of the crisis.
As a predictor, Keynes proved to be colossally unlucky. Two weeks before the start of the Great Depression, he makes a prediction that the world economy has entered a sustainable growth trend and that there will never be recessions. As you know, the Great Depression was predicted by Friedrich Hayek and Ludwig Mises one month before it began. Not understanding the essence of economic cycles, Keynes loses all his savings during a depression.
Keynes was appointed to the Royal Commission on Finance and Industry and to the Economic Advisory Council. In February 1936, the scientist publishes his main work - "The General Theory of Employment, Interest and Money", in which, for example, he introduces the concept of the accumulation multiplier (Keynes's multiplier), and also formulates the basic psychological law. After the General Theory of Employment, Interest and Money, Keynes established himself as a leader in economic science and economic policy of his time.
In 1940, Keynes became a member of the Treasury Treasury's Advisory Committee on War Matters, then an adviser to the minister. In the same year, he published the work "How to pay for the war?". The plan outlined in it involves the compulsory depositing of all funds remaining with people after paying taxes and exceeding a certain level to special accounts in the Postal Savings Bank with their subsequent release. Such a plan allowed us to solve two problems at once: to weaken demand-pull inflation and to reduce the post-war recession.
In 1942, Keynes was granted a hereditary peerage (baron). He was president of the Econometric Society (1944-1945).
During World War II, Keynes devoted himself to questions of international finance and the post-war organization of the world financial system. He took part in the development of the concept of the Bretton Woods system, and in 1945 he negotiated American loans to Great Britain. Keynes came up with the idea of creating a system for regulating exchange rates, which would be combined with the principle of their de facto stability in the long term. His plan called for the creation of a Clearing Union, a mechanism which would allow countries with a passive balance of payments to access the reserves accumulated by other countries.
In March 1946, Keynes participated in the opening of the International Monetary Fund.
Scientific achievements
Keynes gained a reputation as a talented debater, and Friedrich von Hayek repeatedly refused to discuss economics with him. Hayek once sharply criticized the ideas of Keynes, and the disputes between them reflected the confrontation between the Anglo-Saxon and Austrian traditions in economic theory. After the publication of Treatise on Money (1930), Hayek accused Keynes of not having a theory of capital and interest and of misdiagnosing the causes of crises. It must be said that, to some extent, Keynes was forced to admit the validity of the reproaches.
Also widely known is the discussion (often called the Debate on the method) of Keynes with the future Nobel Prize winner in economics, Jan Tinbergen, who introduced regression methods into economics. This discussion began with Keynes's "Professor Tinbergen's Method" article in the Economic Journal and continued in a series of articles by various authors (by the way, the young Milton Friedman also took part in it). However, many believe that a more interesting presentation of this discussion (because of greater frankness) was in the private correspondence between Keynes and Tinbergen, now published in the Cambridge edition of Keynes's writings. The meaning of the discussion was to discuss the philosophy and methodology of econometrics, as well as economics in general. In his writings, Keynes sees economics less as "the science of thinking in terms of models" than as "the art of selecting appropriate models" (models to fit an ever-changing world). This discussion became in many ways decisive for the development of econometrics.
Scientific works
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12.1. The essence and contradictions of the financial concept of J. M. Keynes
The theory of the English bourgeois economist J. M. Keynes (1883-1946) had a huge impact on the formation of the financial concept and the development of fiscal policy in almost all capitalist countries during the 40s and the first half of the 70s. In his book The General Theory of Employment, Interest and Money, there is no term "public finance", only a few pages devoted to tax policy, so-called "social investment" and "loan-financed spending". But his main idea about the need for government intervention to achieve "effective demand" is directly related to public finance and fiscal policy. This line of research into the capitalist economy determined the development of bourgeois financial science for many years.
The financial concept of J. M. Keynes is based on the following main provisions of his general theory:
1. All the most important problems of capitalist expanded reproduction should be solved not from the standpoint of studying the supply of resources, as his predecessors did, but from the standpoint of demand, which ensures the realization of resources.
2. The capitalist economy cannot self-regulate. In conditions of enormous socialization of capital and labor, state intervention is inevitable. State regulation should replace (or significantly supplement) the mechanism of automatic regulation of the economy with the help of prices.
3. Crises of overproduction appear on the surface of phenomena as a lack of consumer demand, so the problem of equilibrium in the economy should be solved from the point of view of demand. To do this, John. Keynes introduces the term "effective demand", which expresses the balance between consumption and production, income and employment.
4. The introduction of the term "effective demand" into economic circulation made it possible to return to the analysis of macroeconomic indicators (total social product and national income), which, in essence, were abandoned by all post-Ricardian schools. Return to macroeconomic indicators made it possible to find out how the economic system as a whole functions, to set a number of tasks related to the movement of the entire flow of produced, distributed and consumed value.
5. The main instrument for regulating the economy is budgetary policy. The state budget and financial policy as a whole were entrusted with the task of providing employment for the labor force and production equipment. Monetary regulation J.
What did the English economist Keynes suggest?
Keynes played a smaller role.
Based on the idea of "efficient demand", the entire financial concept was revised. The theory of public finance has come to be seen as component theories of employment and income, and financial policy as an integral part of economic policy. The place and role of certain categories of public finances in the capitalist economy were determined. J. Keynes considers government spending as the main instrument of government intervention in the cyclical development of the economy and overcoming the crisis. Therefore, he considered their formation, structure and growth to be a very important and integral factor in achieving "effective demand". The growth of public spending, in his opinion, should contribute to the realization of national income and, ultimately, the achievement of full employment, for this the state must influence the main components of demand: personal and investment consumption. The propensity to spend money, that is, to create demand, J. Keynes considers as a psychological need. If aggregate demand is lower than supply, the entrepreneur cannot cover production costs and make a profit, so he will reduce investment and lay off workers. Conversely, if demand is higher than supply, the entrepreneur will increase investment and hire more workers.
Government demand, backed by taxes and loans, should revitalize entrepreneurial activity and lead to an increase in national income and employment. J. Keynes criticizes the principle of classical political economy about "non-intervention" of the state in economic development. “Pyramid building,” writes John Keynes with great irony, “earthquakes, even wars, can serve to increase wealth if the education of our statesmen on the principles of classical economy closes the way to something better”1. Just like government spending, J. Keynes "inscribes" taxes in the movement of macro indicators, believing that changes in tax policy can affect the "propensity to consume."
A new provision introduced into scientific circulation by J. Keynes was the concept of "taxes - built-in stabilizers". It is based on the functional relationship between national income and taxes. This means that the amount of taxes withdrawn (ceteris paribus) depends on the size of the national income. The higher the level of national income, the greater the amount of taxes will go to the budget. And vice versa, when the national income decreases during a crisis in production, the amount of taxes is reduced. This nature of taxes, from his point of view, provides a certain automatic flexibility of the economic system. He relates this provision primarily to income tax. Its collection at progressive rates leads to more significant fluctuations in the level of tax than income. They are the greater, the steeper the curve of tax rates and fluctuations in the volume of national income. This determines the regulatory possibilities of income tax. With a crisis of falling production and rising unemployment, taxes, automatically reduced, contribute to the growth of income, which awakens "the propensity to consume;" and stimulate demand.
J. Keynes assigned particular importance to taxes in their impact on the basic "psychological law", according to which people tend to increase their consumption with income growth, but not to the extent that it increases. As their income grows, their “propensity to save” grows, so a tax policy is needed that would withdraw these savings. In his opinion, income tax should be levied at progressive rates. He noted that such views are often seen as an attack on the capital needed for expanded reproduction. However, there is a need to withdraw part of the financial funds that are not invested in investments. Excessive savings can stimulate economic growth only in conditions of full employment (by Western economists, full employment means its value at the level of 97%), in crisis years they impede this growth. From this, recommendations are derived for the compilation of a school of personal income tax rates that would contribute to the redistribution of income from those who have savings to those who invest them. state budget directed to investments.
New in the theory of J. Keynes is the concept of the growth of public capital investments, which complement government measures to stimulate the "propensity to invest". In his opinion, the regulation of the volume of current investments cannot be left in private hands, only "wide socialization of investments will be the only way to ensure an approximation to full employment, although this should not exclude all kinds of compromises and ways of cooperating with private initiative"1. Also new is the provision introduced by J. Keynes into the theory of public finance on the need to increase public spending, "financed by loans." The followers of J. Keynes called it the principle of "deficit financing". According to J. Keynes, public investment and current government spending can be financed in debt. Government investment financed by loans will increase "propensity and investment" and financing current government spending will increase "propensity to consume". He considers the growth of debts of the state and local authorities as an integral part of the state regulation of "effective demand". Since the time of John Keynes, the obligatory correspondence of budget expenditures and revenues has been considered an anachronism, and the fear of budget deficits and the growth of public debt has become a harmful prejudice, the concept of "healthy finances" has been done away with. The loan capital market is becoming one of the tools to achieve "effective demand", and the state budget deficit is turning into one of the ways to regulate the economy.
The general theory of J. Keynes, as well as his financial concept, contains a number of contradictory provisions. First, encouraging "effective demand" by increasing government spending can only be temporary. In essence, the state does not create new demand, but only transforms one of its forms into others. Government demand and consumption are created by reducing investment demand in the private sector and consumer demand. Ceteris paribus, an increase in government spending will shift demand from the private sector to the government sector, since the government can only finance its purchases through taxes or loans, which are anticipatory taxes. Consequently, if the state expands its demand, then the purchasing power of the population decreases to one degree or another, which exacerbates the problem of realizing the total social product. But in this transformation of demand, the monopoly has found a "rational grain" for itself. The centralization of demand from the state makes it possible to form a guaranteed market for monopolies. Work for the "treasury", noted V. I. Lenin, is no longer work for the free market, where the elements prevail1. The possibility of selling the products of monopolies is greatly facilitated, and the personal union of their managers with representatives of the state apparatus makes it possible to carry out state orders at high prices. The ideological function of the theory of J. Keynes is justifying this advantage.
Secondly, the growth of investments, financed by taxes and loans, contributes to the expansion of production activities, an increase in national income. But public investment raises the organic composition of capital, which lags employment growth. Despite state intervention, unemployment not only was not overcome, but also increased, especially in the 70s.
Thirdly, the financing of government spending through loans leads to an increase in the scale of secondary exploitation of workers, since the repayment of debts and the payment of interest on them are made at the expense of taxes. Taxes imposed on mass consumers, i.e., workers, ultimately exacerbate the contradiction between the social character of production and the private form of appropriation of its results. Placement of a part of state loans in issuing and commercial banks boosts inflation.
Thus, J. Keynes developed in principle new theory finance, aimed at regulating the economy under the domination of monopolies. He created the theory of state regulation of the economy within the framework of bourgeois reformism. Justification of state intervention in the reproduction process with the help of finance as an objective necessity to adapt the capitalist industrial relations to the process of socialization of production, capital and labor testifies to the foresight of the author of the theory. In fact, he tacitly recognizes the antagonistic contradictions between production and consumption and tries to find ways to resolve them by building a reformist model of state intervention in the process of expanded capitalist reproduction. The views of J. Keynes had a strong influence on everything further development bourgeois financial science.
The development of financial policy and its implementation in practice based on the main provisions of the theory of J. Keynes was carried out by his followers. In the 1940s and 1960s it had success and certain positive results. The extensive type of economic development was consistent with the Keynesian postulate about the need to increase government spending, in which the monopolies were directly interested. The idea of achieving full employment was in the interests of liberal-minded circles. In a number of Western European countries, social reformist forms of state regulation were implemented. On this basis, there was an increase in spending on education, health care, a fairly efficient system social insurance. And until the 1970s, the financial theory and practice of most of the leading industrialized states of the capitalist world were based on the initial provisions of the theory of J. Keynes.
