Keynes’s Contribution to Economic Theory | Keynes’s General Theory

Let us make an in-depth study of the Keynes’s Contribution to Economic Theory.

Keynes’ contribution to economic theory and policy is of paramount importance and profound influence.

It is true that most of the ideas on which Keynesian theory of employment has been built are not entirely original or new.

Some think that all the important ideas on which Keynes built the apparatus of his general theory already spoken or written about its ideas in some form. According to Prof. Hazlitt, “whatever is original in Keynes is not true and whatever is true is not original”.

In many respects, Dr. McCracken maintains, the new ideas advanced by Keynes were not so new as has been thought. Some of Keynes’ basic ideas had been advanced by Commons and other economists-Malthus, Lauderdale, Mandeville and the followers of Richard T. Ely.

For example, T.R. Malthus talked of the idea of effective demand without analysing the factors on which it depended. Again, Karl Marx talked of under ­consumption. Keynes’ opposition to wage cuts as means of achieving full employment is based on arguments advanced by Hobsen.

Keynes liquidity preference theory is to be found in the writings of Proudhon. Lord Lauderdale and Bernard Mandeville were quite definitely champions of macroeconomics, and their fundamental approach was from the ‘national income’ point of view. One of the most revolutionary ideas attributed to Keynes was his treatment of ‘expectation’. Yet, J R. Commons, twenty years earlier, had placed expectations at centre of his ‘theory of value’.

Thus, Keynesian economics doesn’t turn out to be quite as new as has been thought. It was Keynes, however, who integrated the scattered ideas in an orderly manner, refined them and put them in a systematic and determinate theory.

According to A.H. Hansen “Every contributor to any field of knowledge knows that no one man over single-handed invented anything. In a sense, there are no revolutionary discoveries.” In this integration and orderly presentation of ideas lay Keynes’s originality.

Keynes was more particular about these ideas rather than the form in which these ideas were expressed. Keynes wrote, “I am more attached to the comparatively simple fundamental ideas which underlie my theory than to the particular form in which I have embodied them.” The basic and fundamental ideas on which Keynes’ theory of employment has been built are effective demand, consumption function, investment, saving, marginal efficiency of capital, multiplier liquidity preference and underemployment equilibrium. These related ideas are all brought together into the theory of employment which is the essence of “General Theory”.

Keynes was basically a classical economist in the sense that his ideas were essentially based on classical readings and teachings. He remained wedded to classical economics for a long time having taught it for more than twenty years. His ideas and philosophy can, therefore, be fully understood only when read against the background of classical economics.

No doubt, later on, he made a significant break with classical doctrines and thus waged a revolution against it. It was not until Keynes had lived through the Great Depression that he was able to divorce some of the standard classical doctrines. Keynes wrote, “…… the classical theory is misleading and disastrous if we attempt to apply it to the facts of experience.”