Macro 2: Rod O'Donnell, Keynes's Economics & Politics NOTEZ
The theoretical grounding for the General Theory is based on uncertainty and the role of expectations, and in doing so Keynes creates a distinctive approach to behavior and rationality. Keynes has the following expectations dependent concepts:
1. Effective demand- because expectations are not always realized. Keynes writes that "effective demand always reflects the current expectation of actual demand." and "effective demand corresponds to the income of the expectation of which has set production moving, not to the actually realized income." So it's' a mix between expected income of consumers, expectations of the profit maximizing firm to determine employment/out, and expectations of investors.
2. The Propensity to Consume- Keynes describes how this is determined by both objective and subjective factors, but uncertainty and expectations figure prominently in the subjective factors saying "Propensity to consumer is determined solely by a psychological composite of actual and expected income."
3. The Marginal Efficiency of Capital- the chronological series of expected yields (expected profits, almost)
4. Liquidity Preference and the Rate of Interest- the rate of interest equilibrates the total demand and supply of money. Motives for liquidity include transactions, precautionary, and speculative.
5. Monetary Theory of Economics- "a monetary economy is essentially one in which changing views about the future are capable of influencing the quantity of employment." Money is the indispensable characteristic of an economy in which activity depends on expectations prone to variation.
Short & Long Run Expectations
Short: concerned with decisions to produce using existing capital
Long: concerned with investment
JMK's Political Philosophy
"lion's share of investment"....
"the political problem of mankind is to combine three things: economic efficiency, social justice, and individual liberty.."
Doesn't argue that market forces are sufficient for optimal social states
Critique of laissez-faire, private and social interests do not always coincide
State as agent of social rationality, but also to preserve liberty
Regulation of casino stock market
Remove involuntary unemployment
"uneconomic" activities deserving of public monies (health, recreation, natural beauty)
Rod concentrates on JMK's liberalism, state-run capitalism, opposed socialism despite using terms like collective planning or state, because he wanted something based on individualism and social control...according to Rod