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August 22, 2007

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Susanna Babos

Keynes moves away from the traditional market idea of “laissez-faire”, which was first proposed by Adam Smith, and which states that the market will do well on its own, meaning that state intervention in businesses is not necessary or required. However, Keynes actually emphasizes the importance of both the national and private sector by proposing the idea that the market will only be efficient if it is governed by macroeconomics. This also means that the state could and should make the decision that will affect private business, or the microeconomics.
What is revolutionary about Keynes’ model is that he actually argues that the market and its efficiency will be determined by demand for goods/services, and he thinks that this is especially true when a nation’s economic productivity experiences a downturn. Therefore, Keynes writes that governments not only have the opportunity but they actually should intervene in the market to increase macroeconomic demand, which in turn affects microeconomics, deflation and unemployment (these were all present in the 1930’s) as well.
Keynes’s ideas stand in total contrast with the previous economic principles, which stated that the market goes toward equilibrium on its own anyways. Keynes proceeds to state that the market does not have a tendency to correct itself and reach equilibrium and proves his point by demonstrating the economic situation of the 1930’s (after WW2), where self-correction of the market clearly failed, and unemployment, low wages, decreasing demand, oversupply are all present because the market failed to reach equilibrium on its own (Ken also talked about the economic crisis just before me).
Why was it so necessary to revolutionize economic theories? As Nate wrote it, Keynes was not satisfied with the reconstruction after WW1, because monetary policies were just not good enough to be able to solve the crisis that hit the world after WW1, so Keynes proposed a whole set of new ideas, which are used even today, and his significance lies precisely in this notion.

Zack Simon

There is no doubt in my mind that I am probably violating some unwritten rule to not echo the responses of our classmates so strongly. However, I am in much agreement with them as I see their comments on J M Keynes’ primary arguments toward public policy outlined in their postings. I was immediately struck by the straightforwardness of Keynes’ essay that delineated his historically significant points so clearly. Most significantly, Keynes’ opposition to the classical model of free-enterprise capitalism is apparent. He firmly maintains that the ‘laissez-faire’ standard does not serve to progess society in a socially responsible way, at least not one that really benefits those who are most vulnerable to its legislation and jurisdiction.

It is substantial to note that the first notion that Keynes addresses is the impact of the size of a governing body. Echoing what Kenzie mentioned before me and that I find very progressive is Keynes’ take on the ideal size of governmental control and organization as lying “somewhere between the individual and the modern State.” With this, Keynes alludes to the organizational model of the joint-stock institutions—modern day corporations. These serve as self-governing bodies, but they are subject to “prescribed limitations” which, Keynes believes, benefit the well-being of the society of which they—the stockholders of the corporation—too are members. This reference to what we know today as the social-responsibility model—the outreach by a commercial institution to get in touch with its shareholders to motivate profit while serving a public good, and its reputation—sounds very progressive for Keynes’ time. He states that “we must probably prefer semi-autonomous corporations to organs of the central government for which ministers of State are directly responsible.” Keynes recognizes the politician’s role within the domain of public policy as performing a balance between peculiarized, individual interest and the interest of his broader constituency as a whole. He goes to great length to explain the notion of offering increased social services as be a natural complement, maybe even an obligation, to the government and its constituency, its citizens settled within its borders. Improved health management as well as increased resources to manage its citizens’ private investments more wisely are both elements of what Keynes refers to as a progressive capitalism.

Lastly, it is very significant that Keynes takes the stance that capitalism, “wisely managed,” and the model of a socially-responsible State can exist as complements to one another rather than as opposites. Each of his examples details ways in which a responsible capitalism can bring about cultural uplift and progressive rationality to modern society.

Julia Lohmann

I agree with Kinzie and Kent that Keynes wants to find the perfect balance between state and individual control, which would result in a 'wisely managed' capitalist economy. The previous points made about semi-autonomous bodies, controlled government intervention, the allocation of resources and control of investment and spending were all in keeping with the argument he outlined. However, I think that he is much more opposed to the laissez-faire classical economic theory than Kinzie implied.
His essays begin to introduce the first coherent critiques of the existing classical economic theory that he had grown up with.
His idea that the government could 'fine-tune' the economy during booms and slumps was in direct contradiction to the laissez-faire ideals that were so prevalent at the time he was writing (as Glory noted). Specifically, his endorsement of increased public spending to stimulate the economy as well as reducing interest rates to boost investment were quite controversial ideas.
We must remember that at the time he was writing, the spectre of socialism was looming in the minds of many politicians and any endorsement of increased government intervention could easily be associated as pushing towards state domination of the people. His understanding of classical economics led him to recognize the cyclical nature of decreased investment leading to a reduction in consumption and increased unemployment, but he did not see this as inevitable. He was not afraid to champion the idea that the state must step in to stop widespread suffering. He was the first to challenge the idea that a balanced budget was not the only goal of government, and argued that a state deficit which would boost the economy was more desirable.
Although he met with much criticism as he tried to make others understand his arguments, the merit of his theory became apparent as the US economy underwent a miraculous recovery when Roosevelt increased government spending in preparation for WWII. (Susanna was mistaken in thinking that the recession of the 30s occured after WWII, it was actually the increased governmental spending that finally occured in the end of the 30s as the US prepared to take part in WWII that brought the economy out of the depression.) I do not quite agree that he challenged the ability of the market to reach an equilibrium, rather he thought that this equilibrium, while it might be stable by pure laissez-faire economics, would be disastrous for much of the population if it occurred at a point of high unemployment (as it seemed was occurirng during the depression).
I wholeheartedly agree with what others have pointed out, that Keynes was not 'anti-capitalist', but he was definitely no longer in favor of laissez faire economic policies. He was truly an innovator in the field of economics, and we owe much to him for the success of the American economy today.

Hye Jin Lee

Keynes thinks that the ideal size of government is between “individual and the modern State” and “semi-autonomous bodies” within the State with focus on public good rather than private advantage. He wants to separate technically social services to the technically individual ones and also suggests that the government needs to do what individuals are not doing, not interrupt what the individuals are already doing, as Kent, Sam, and others have already quoted. He thinks the inequality of wealth and many other consequences of businesses run by individuals can be solved through control of currency by a central institution and possibly written laws that can regulate business data publicity. This will involve, he says “society in exercising directive intelligence through some appropriate organ of action over many of the inner intricacies of private business.” He adds that this might not be sufficient but will be a least a good start.
He is also concerned about population size policy and government regulation on where savings and investments are spent.
Overall, he wants to eliminate the old misunderstanding of laissez-faire and other principles in the past but base future actions on inner examination of feeling and towards a more controlled capitalism. In his words, “Our problem is to work out a social organization which shall be as efficient as possible without offending our notions of a satisfactory way of life.”

Amitha Harichandran

As Nathaniel points out, the problem that still exists today is the fact that the State often attempts to fix economic crises with immediate, but temporary, solutions. This allows them to get the approval of the public, however in most cases does not fix the underlying problem. Keynes recognizes this and asserts that it takes farsightedness to put humpty dumpty together again.

One factor that Keynes identifies, is the “return, it may be said, towards medieval conceptions of separate autonomies.” He does not believe that a laissez-faire economy is feasible, nor does he believe that the economy should be under complete state control. Instead, he believes it is necessary to find a middle ground, and have semi-autonomous bodies that “are mainly autonomous within their prescribed limitations, but are subject in the last resort to the sovereignty of the democracy.” Therefore, the government only steps in when need be, instead of fixing things that do not need fixing.

This leads to another factor that Keynes believes is important is the separation of those “those services which are technically social from those which are technically individual.” He believes that the government should only intervene in areas that are not regulated by individuals. Rather, the government’s role is to intervene where there are no other regulations in place, and thus, some form of intervention is necessary.

Finally, Keynes believes that it is essential that we learn to “elucidate our own feelings” as often our emotions hinder us from making the proper decisions. When times are bad, we attempts to change things to avoid poverty; however this is the very time that we should be careful of change and there is not much room for error. Similarly, when times are good, we rarely take the chance of change, as we do not want to risk what we have. In order to escape this emotional hold, we must examine our own emotions and be able to view their relation to our environment.

Adriana Gomez

The title of Keynes’ work says it all: “The end of the Laissez-Faire Economy.” Keynes believes in government intervention in more areas than those in which it is currently intervening. He believes that because for a long time, the belief was that a laissez-faire economy would work better, “Economists, like other scientists, have chosen the hypothesis from which they set out, and which they offer to beginners because it is the simplest, and not because it is the nearest to the facts… partly, I admit, because they have been biased by the traditions of the subject.” Keynes also argues that the laissez-fair theory has been argued by too many “metaphysical or general principles.”

The first principle that Keynes argues would aid the economy is if there was a smaller ratio for the control of the economy, a ratio such as that “between individual and the modern state.” This smaller ratio of control for an economy is expected to result in possibly better control of an economy.

In addition to this, Keynes argues that the starting a business or investing in one is sometimes like “a lottery” in which some people may come out really financially hurt while others are very fortunate in engaging in a really lucrative business. In order to avoid the massive disappointment, Keynes advocates for the informing of the public so that people will know what sort of competition or revenues expect them going into a market. The same applies to investment: Keynes advocates government regulation in savings and investments because the public has not been careful for themselves and has not been able to take a good look at the economy as a whole the way the government has. The government, without a doubt, act more wisely in investing than an individual would, according to Keynes.

Together, these two points that Keynes makes would help the economy because the government would have a closer watch on what needs to be done to its small region; it would stimulate more successful investments; ultimately, more investment would result in more employment, and the economy would be overall likely to persevere through means of more government intervention.

Edward Taylor

After reading John Maynard Keynes, it is clear that he is in favor of a brand of capitalism that needs to be wisely managed. The posts prior have done an excellent job describing exactly what Keynes believes needs to be done in order to return to pre-WW1 economic prosperity, political reason, and general progress. However, to pay due service to Keynes, a quick review of his solutions to the major challenges facing the world during the first half of the 20th century is needed. As the posts prior have pointed out, Keynes called for small semi-autonomous councils, a limiting of State services in order to make the remaining state services more effective, and finally some sort of guidance by the State for individual’s savings and investments. Keynes argues that a return to economic progress and political reason will be a result of a new balance between the people and the State. Since this all has been exhausted in the posts prior, I want to focus on Keynes the individual in this post. Many things about Keynes personally fascinate me, particularly his ability to see that the treaty post-WW1 was not feasible and would ultimately lead to more bad than good. It takes a unique individual to lash out at your masters and colleagues and outline an alternative for peace after WW1. At first this alternative was seen as absurd, and as professor DeLong said in lecture, Keynes was viewed as “a wild man on the fringe of British politics.” Nevertheless his ego remained intact and he continued to push his alternatives for peace. His work caught on and Keynes’ fame continued to grow. However as we all know Keynes alternatives to peace were not implemented and WWII soon followed. However it can be argued that Keynes was a revolutionist in his field as he helped redefine classical economic thought.

Kurt De La Rosa

John Maynard Keynes believes that the old ways of “laissez faire” not exactly hinder a nation-States economy but didn’t allow it for complete growth. Keynes did not believe that an overriding rule of the government on the economy would help but if the government did play a partial royal in shaping the actions of the economy then the nation-State could grow domestically and internationally. Keynes new post-WWI capitalism would help decrease internal human errors and increase the economies stability. Keynes also believes that supply did not create demand and therefore it was the role of the government to help initiate an economic demand internationally. But Keynes theories weren’t being followed and he believed that most of post-WWI Europe was too busy focusing on clearing war debts rather than working to rebuild there economies.

Nina Brooks

Given the stress put on the short-term and immediate profits by economics, it is incredibly farsighted of John Maynard Keynes to argue that the short-term cannot always be given priority in the face of the long-term. Keynes argued that the extreme individualism and utilitarianism espoused by 18th century classical political economic theorists were shortsighted because individual and social benefit are not always the same. “The world is not so governed from above that private and social interest always coincide” (Keynes). In order to put the humpty-dumpty back together Keynes proposed a public policy plan that would create a space in economics for government bodies, while at the same time maintaining a balance between individual activity and the overstretch of state regulating powers. Keynes harshly criticized previous attempts by the government to intervene in the economy, such as protectionism of the 1700s and Marxian socialism. In fact, Keynes partly credits the entrenchment of laissez-faire capitalism to the deficiencies of these policies.

As many numerous posts have pointed out, Keynes’ plan for government intervention involves semi-autonomous bodies within the state that would be mostly involved in mediating the effects of the business cycle on the individual. The role of these bodies would be to reduce risk of investment (much like the modern FDIC) and increasing individual’s knowledge of the economic climate so they could make better-informed decisions. In addition, Keynes supports the state stepping when no individual action is taken and when individuals acting in their own interest cause a decrease in the greater good (such as monopolist creating deadweight loss). As at least one other student pointed out, socialism was looming over the Western world, which resulted in tremendous hostility to Keynes’ proposals because any mention of government involvement smacked of communism. What his critics failed to acknowledge (or understand) is that Keynes clearly has a deep understanding and respect for classical political economists who developed the theories that became laissez-faire capitalism and that Keynes was most definitely not a communist. He was merely proposing some amendments to the system to make it more compatible with the modern world. He was definitely not putting the interests of the state ahead of the individual, only proposing the state step in to help the individuals [giraffes] that were getting left behind [too short to eat the good leaves].

Beth Dukes

Because the previous posters did a great job of explaining the argumentation and reasoning of Keynes’ position, I will delve more into explaining how his plan itself manifests itself in the real world.

As Kent eloquently summarized, Keynes “believes that there should be smaller autonomous groups that should answer to the higher authority of the state [which] are free to make their own decisions to a certain point.” Because such institutions existed (to a degree) when Keynes was writing, it is useful to look to his own examples in order to conceptualize what these bodies are and how they work. In The End of Laissez-Faire, he explains: “It is easy to give examples, from what already exists, of separate autonomies which have attained or are approaching the mode I designate - the universities, the Bank of England, the Port of London Authority, even perhaps the railway companies”. When I think of such groups, institutions like the Transportation Security Administration come to mind. Keynes is arguing for organizations which are privately owned and operated, but perhaps commissioned by and by definition subject to the standards of the government.

Keynes furthers, as others have noted, that “We must aim at separating those services which are technically social from those which are technically individual” in deciding how to allocate economic tasks and decisions. This part of Keynes’ plan is designed to minimize the effect of free riders on what is being produced, and to allow the government to properly equip itself. Keynes acknowledges that individuals understand that it is not in their benefit to produce works which others can use without compensation and thus they do not produce these works in the first place. Therefore, he ascribes the production of these types of works onto the government. This part of his argument manifests itself in the form of public works projects such highways, parks, and other public infrastructure. However, as Kinzie pointed out, more abstract examples of such a policy come in the form of a social security, and as Keynes himself stated, in the example of population control.

Keynes suggests that in order to pick the pieces up from WWI, the government ought to get involved, though in a very small way, in the production and supervision of certain goods and works. Keynes’ ideas—though radical for his time—are exemplified in many of the institutions we take for granted today.

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