Link to Learning Objectives
 Link to Review and Summary

 Learning Objectives:

1. List differences between what classical economists believed and The General Theory J.M. Keynes wrote in 1936 regarding unemployment during the Great Depression.
2. Construct Keynesian graphical relationships between:
(A) equilibrium spending and income/output;
(B) consumer spending and income/output; &
(C) an adjusted consumer spending such that income/output would occur at full employment.
3. Identify economists associated with
Father of Capitalism Doomed and
Father of Capitalism Revitalized.

 

 

 

Classical Economists Smith, Ricardo, Marx, and Marshall) believed that ...
1. Value of goods were determined by what it cost to make them. (Smith)
2. Labor was paid more if it was educated and could thereby sustain more difficult work.  (Ricardo)
3. Labor was exploited & would overthrow its capitalist masters. (Marx)
4. Like blades of a scissors, both what something cost (supply) and what buyers would pay (demand) determined both quantities and prices. (Marshall)
5. Freely fluctuating wages, prices, and market forces kept supply filled and land, labor, and capital employed at equilibrium prices, wages, rents, and interest rates.

 

 

John Maynard Keynes
1. Disagreed with fluctuating prices, saying "In the 20th Century, wages and prices are no longer free to fall.

Corollary:  There could be persistent and widespread unemployment and unsold inventories of goods.
2. Keynes borrowed or invented the remaining ideas:
National income equals national output. (borrowed from Simon Kuznets.)
3 A stable national income (and output) occur when total spending purchases the value of total output, using total income earned.

Corollary #1: An unstable income level exists if total spending exceeds, or is less than the value of output or income.
Corollary #2: Total spending can be deliberately manipulated by government so as to attain full employment.
4. Consumption (consumer spending) rises with income.
5. Employment is proportional to income and output.
Corollary #3:  Government ought to manage aggregate demand to achieve full employment.

 

 Review & Summary

1. Keynes refuted the classic economists, saying:

Wages and prices may rise, but they do not readily fall during the modern age.


Corollary:  There can be massive and sustained unemployment, with no automatic correction to full employment.
2.  

Government can and should manipulate total spending to arrive at full employment of a nation's resources.

 
3. There's a sequence of three important economic explanations:

The  Father of Capitalism Doomed   was Karl Marx.

The  Father of Capitalism Revitalized  is John Maynard Keynes. (born in the year that Marx passed away)

Obviously, the next great economist will be Tom Meyer. (born in the year that Keynes passed away)
   
 

Thank you for inviting me
to speak with you!

Tom Meyer

 

Love for Econ Springs Eternal !