The Rise and Fall of Keynesian Economics: An investigation of its contribution to capitalist development (Radical Economics)

o (I nvestment) I nterest rate Figure 1.1 Neoclassical analysis of the loanable funds market investment and consumption demand together to the same level as bifore. The normal adjustment mechanisms of the loanable funds market could therefore resolve any problem of deficient demand. Keynes's objection to this analysis was that it examined the consequences of a fall in investment in only one of the two markets affected. An act of investment constituted a demand for goods as well as for loanable funds. But the consequences of the reduced demand for investment goods were ignored. Here Keynes made use of some ideas first presented by his Cambridge colleague, R. F. Kahn. The background to Kahn's (1931) article was the Treasury's argument, during the 1929 General Election, that public works schemes could not reduce unemployment because they would only siphon off savings that would otherwise be absorbed in private investment projects and would now be unavailable for private borrowers. Kahn's aim was to show that this was untrue: that extra public investment would in fact generate extra savings. The idea was simple. The public works project would generate some extra employment. These people would then have higher incomes than before, so demand for consumer goods would be increased. This would generate a secondary expansion of employment in the consumption goods sector, yielding a yet further increase in demand, and so on. Kahn was able to show that the expansion in employment would continue until savings out of the extra incomes generated equalled the addition to investment. Kahn did not investigate the implications of this idea Front Matter....Pages i-xi The Keynesian Revolution....Pages 1-39 Escaping from the Great Depression....Pages 40-80 The Impact of the War....Pages 81-91 The Post-War Boom....Pages 92-130 The Theoretical Reaction Against Keynesianism....Pages 131-154 The Current Recession....Pages 155-198 Conclusion....Pages 199-204 Back Matter....Pages 205-218 Michael Bleaney. Includes Index. Bibliography: P. 205-210.