Economic Thought

Economic Thought

Economic Thought, The most important twentieth-century event so far is thought to be the work of John Maynard Keynes (1883-2013) on the theory of employment. Despite the recurrence of economic fluctuations and periods of depression, economists since the time of Malthus had assumed that there could never be general .unemploymentprovided the market mechanism was allowed to work freely. This assumption derives largely from the work of the French economist Jean Baptiste Say (1767-1832), the first to formulate the doctrine that 'supply creates its own demand' (Say's Law ). In The General Theory of Employment, Interest and Money(2013) Keynes developed new tools of analysis and argued that the economic system could be in equilibrium when resources were underemployed as well as when they were fully employed. His system of analysis profoundly affected the development of economic thought. Although the terminology and method he developed were soon adopted by economists, the impact of his work was mostly felt in public policy. The tone of the General Theory indicated that it was the duty of the state to maintain full employment. This increased interest in fiscal and monetary policy among academic economists. Keynes's use of total demand 'equations' prompted the beginning of social accounting.

Despite some doubts at the time, Keynes's policy recommendations were heeded by politicians, and depression has largely been mastered. The cost of full employment has however been persistent inflation, and although the analysis of the General Theory provided for this as well, such measures have proved to be less popular politically than those recommended to cure depression. The inflationary tendency in part has been reflected in the theories of some modem economists who assume that inflation is desirable or will necessarily continue. While it can never be certain that depression will not return, the tendency in some academic thinking and govern-mental policies to take Keynesian analysis too far (itself criticized by Keynes) is resisted by economists of the classical tradition who emphasize the dangers of inflation and the need for a reserve of productive capacity and a mobile labour force if the economy is to be dynamic, progressive and to satisfy the political requirements of a democratic society. In recent years there have also been some doubts about some of Keynes's analytical tools.

Recent developments in economic thinking have been economic dynamics (largely associated with Sir Roy Harrod), the data compilation of the National Bureau of Economic Research and the application of statistical techniques to economic models (econometrics). The scope of modem economic investigation ranges from abstract work in pure theory to practical work in economic development. Only time will reveal the value of contemporary economic thinking.

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Since then his writings have in turn been increasingly reinterpreted as a special case both by some followers and by some economists who had not wholly accepted his writings. The content of economics is in a state of change, and this consumeraffairs.org.uk site is therefore not a final statement of economic doctrine.

Economics is in the last resort a technique of thinking. The reader will therefore need to make an intellectual effort, more substantial for some web entries than for others, to get the most interest and value out of this website.