Portal:Business/Selected article/September 2007

The General Theory of Employment, Interest, and Money is a book written by the English economist John Maynard Keynes. The book, generally considered to be the magnum opus of the English economist, is largely credited for creating the terminology of modern macro-economics. Published in February 1936 it ushered in a revolution, commonly referred to as the "Keynesian Revolution", in the way economists thought and especially in terms of the feasibility and wisdom of public sector management and intervention towards the aggregate level of demand in the economy. Regarded widely as the cornerstone of Keynesian thought, the book attacked the established classical economics based upon laissez-faire, and put forward important theories on the consumption function, the multiplier principle, marginal efficiency of capital and liquidity preference.

In Keynes' book Essays in Persuasion he looked back on his frustrating attempts to influence public opinion in the West during the Great Depression of the early nineteen thirties. Part of his frustration is, as he concedes, that "the theory of aggregated production, which is the point of the following book, nevertheless can be much easier adapted to the conditions of a totalitarian state [eines totalen Staates] than the theory of production and distribution of a given production put forth under conditions of free competition and a large degree of laissez-faire." Thus, the General Theory represented Keynes's attempt to shift opinion by altering the framework of thought in macro-economics.

Over the seven decades since its publishing in the mid-1930s, the General Theory has shaped the views of politicians, businessmen and administrators around the world, where unbeknown to them, policies such as tax cuts to create jobs by putting spending money in people's pockets is the direct result of Keynesian doctrine. Briefly, the General Theory argued that the level of employment in a modern economy was determined by three factors: the marginal propensity to consume (the percentage of any increase in the income that people chose to spend on goods and services), the marginal efficiency of capital (the cut-off rate used to see whether investments are worthy, which are dependent on anticipated rates of return) and the rate of interest.