Few would gainsay that Keynes “opened up new vistas and new pathways to a whole generation of economists,” but many would now consider his analysis less than adequate for meeting such special problems as cyclical forecasts and controls, persistent inflation, the maintenance of full employment, booms, secular growth, non-linear structural relations and macro-functional distribution. Keynes’s treatment of the speculative demand for money is very narrow because he confined himself only to cash and bonds, and failed to consider other types of assets. theory suggested that high unemployment rates would lead to lower wage rates, which would lead to lower prices, which would lead to higher demand because of the increased purchasing power of existing wealth. Abstract. The Keynesian theory is not applicable even to modern capitalist economies where there is monopolistic competition rather than perfect competition. Lastly, Keynes has also been criticised by Harrod for formulating his theory in “stock” terms and neglecting the “flow” variables. Under normal circumstances, the demand for money remains stable but during hyper-inflation the demand for money falls due to the effects of price-level expectations. Second, for assuming a direct functional relationship between effective demand and the volume of employment. Keynes erred in depending exclusively on the investment function and taking the consumption function to be stable in determining the volume of employment. Keynesian economics is a theory of total spending in the economy (called aggregate demand) and its effects on output and inflation. Around the turn of the present century, the world witnessed a series of crises which cast doubt on the practical utility of the orthodox economics. A Dictionary of Economics », Subjects: According to Hazlitt, the volume of employment is not a function of effective demand rather it depends upon the inter-relationship between wage- rates, prices and the supply of money. The policy implications of Keynesian economics have also been criticised. Transactions costs and uncertainty: theory and practice 44 Peter J. Buckley and Malcolm Chapman 5. As pointed out by Hicks, “The theory of the acceleration and the theory of multiplier are the two sides of the theory of the fluctuations, just as the theory of demand and the theory of supply are the two sides of the theory of value.”. Hence the question of the applicability of Keynesian theory in them does not arise. Keynesian unemployment can be reduced by the use of monetary or fiscal policy to increase effective demand. He was a profound thinker. But this policy has serious repercussions, because the state may spend beyond its means in an extravagant manner. (d) Keynes paid little attention to monetary policy. The classical economists failed to provide an adequate explanation of the cyclical phenomena. To Keynes, saving was a private virtue and a public vice. There is hardly any book on macroeconomics, monetary economics and public economics which is without the imprint of Keynesian thought and policy. 1. " According to Hansen, Keynes believed like the quantity theorists that the transactions demand for money was interest inelastic. And according to Dillard, “The acceptance of deficit financing as a respectable type of public policy is one of the remarkable changes in public thinking for which Keynesian economics has been primarily responsible.” We therefore, do not agree with Hazlitt, the staunch anti-Keynesian that the General theory was “one of the great intellectual scandals of our age.” In fact, Schumpeter’s assessment of Malthus applies fairly to Keynes. Disclaimer 9. 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