Introduction
TheEconomicsofKeynes
Keynesianeconomicswasborninthe1930s.Itsappearanceisnotaccidental,buthasitscomplicatedandprofoundeconomicroots.Itisadirectproductofthe"GreatDepressionofthe1930s."
BeforetheemergenceandspreadofKeynesianeconomics,thedominanteconomicswastraditionaleconomicsrepresentedbyMarshall,A.C.Pigouandothers.Veblenfirstusedtheterm"neo-classical"todescribeMarshalleconomicsin1900.Later,economicsgenerallyacceptedthefixedmeaningsof"neo-classicalschool"and"neo-classicaleconomics"asMarshall,Pigouandothersandtheireconomics.
Keynesianeconomicscriticizedtheemploymenttheoryinneoclassicaleconomics,inheritedthemercantiliststateintervention,Malthus’seffectivedemandisinsufficient,andMendeville’shighconsumptionpromotesprosperitytheoryandHobson’sThedoctrineofexcessivesavingleadstounemploymentandeconomicdepression.
Biography
JohnMaynardKeyneswasbornonJune5,1883inCambridge,England.HisfatherwasanearlydiscipleofMarshall,andhismotherwasasenatorandmayorofCambridge.
Inhisteenageyears,KeyneshadoutstandingmathematicsscoresandwonanEatonScholarshipattheageof14.In1902,hewassenttoNewcastleCollegetostudymathematics.InMarch1909,Keynes'sthesis"ProbabilityTheory"waspassedsmoothly.Afterrevision,itwaspublishedin1921.
In1908,KeyneshiredMarshallasalecturerineconomics.In1911,attherecommendationofMarshall,28-year-oldKeynesbecametheeditor-in-chiefofTheJournalofEconomics.ThismagazineisaquarterlyjournaloftheRoyalEconomicSociety.Keyneshasbeeninchargeofthismagazineformorethan30yearsandhaswrittenmanyarticlesforit.
In1913,India’seconomicproblemswereveryserious."India'sCurrencyandFinance"publishedthisyearbyKeyneswashisfirsteconomicbook.Asaresult,hebecameamemberoftheRoyalIndianCurrencyandFinanceCommitteeandparticipatedinimportantgovernmentwork.
In1914,theFirstWorldWarbrokeout.Soon,KeynesjoinedtheMinistryofFinancethisyear,andhismainresponsibilitywastodealwithfinancialissuesbetweentheAlliedcountries.In1919,heservedasthechiefrepresentativeoftheBritishMinistryofFinancetoattendtheParisPeaceConference,andattendedthesemi-finalmeetingasaconsultant.In1925,KeynesmarriedLydiaLubokova,aRussianballerinawhofledtoEngland.TheyhavebeentoRussiaseveraltimes.
Keynes'sresearchoneconomicissuesinitiallyfocusedonmonetarytheory.In1923,Keynespublished"MonetaryReformTheory",whichheeditedandcompiledaseriesofarticlespublishedinnewspapersin1922,mainlydiscussingpost-wareconomicpolicies.Keynes'sotherbookonthetheoryofmoneyisthetwo-volume"OnMoney"publishedin1930.Thefirstvolumeofthisbookisthepuretheoryofmoney,andthesecondvolumeistheappliedtheoryofmoney.WhatKeyneschallengedtraditionaleconomicswashisthirdbook:"Employment,Interest,andInflation"(referredtoas"GeneralTheory")."GeneralTheory"wasconceivedaftertheoutbreakoftheGreatDepressioninthe1930sandcameoutin1936.
ShortlyafterthepublicationofTheGeneralTheory,Keynessufferedfromaheartattack.Sincethen,hehasnotwrittenalot.In1937,hepublishedanarticle"GeneralTheoryofEmployment",explainingthebasiccontentofhisemploymenttheory.In1940,Keynespublishedapamphlet"HowtoRaiseWarExpenses",whichwasawartimefinancialplanheproposedfortheChancelloroftheExchequer,anditwasverypopular.
InJune1942,hewasmadealord.
OnApril21,1946,Keynesdiedsuddenlyofaheartattack.
Views
ThecoreofKeynes'seconomicpolicyviewsistoopposelaissez-faireandadvocatestateintervention.
TheexpansionofgovernmentfunctionsreferredtobyKeynesmainlyreferstotheexpansionofthegovernment'sfunctionsofregulatingconsumptionpropensityandinvestmentinducement.Thepurposeofadjustingthepropensitytoconsumeistostimulateconsumption.Regulatinginvestmentinducementsisaimedatstimulatinginvestment.Effectivedemandiscomposedofconsumerdemandandinvestmentdemand.Stimulatingconsumptionandinvestmentmeansstimulatingeffectivedemand.
Keynesalsopointedoutthatthesmartestwayforthegovernmentistodoatwo-prongedapproach.Ontheonehand,thesocietycontrolstheinvestmentrateandincreaseinvestment;ontheotherhand,itraisesthepropensitytoconsumeandincreasesconsumption.However,Keynesemphasizedthatweshouldnotfocustoomuchonincreasingconsumption,butoninvestment.
Tostimulateconsumptionandinvestment,monetarypolicyandfiscalpolicycanbeadopted.Keynespointedoutthatitisdifficulttorelyonmonetarypolicyalone,andfiscalpolicyshouldmainlybeused.Regardingfiscalpolicy,Keynesdisagreedwiththeviewthattraditionaleconomicsmaintainsthebalanceofthenationalbudget,butpointedoutthatdeficitfinanceisbeneficial.Regardingmonetarypolicy,Keynesdisagreedwiththeviewthattraditionaleconomicsmaintainsastabledomesticpricelevel,butpointedoutthatmoderateinflationisharmless.
Development
NewKeynesianSchool
(1)OriginandDevelopmentofNewKeynesianSchool
1.OriginalKeynesianismandNewKeynesianism
Keynesianismhasbeeninthemainstreameconomicspositionforalongtimeinthefieldofmacroeconomics.However,sincethelate1960sandearly1970s,Keynesianismhasbeencriticizedbytheopposingschoolsofliberaleconomicsforfailingtoexplainthephenomenonofstagflation.Keynesianismwasincapableofcopingwiththechallengesofrealityandtheoryandfellintoapredicament,fallingfromthethroneofmainstreamorthodoxeconomics.Theideologicaltrendofeconomicliberalismsweptthemacroeconomicfield,andKeynesianismwasdeclining.TheemergenceofNewKeynesianismbroughtKeynesianismoutofitspredicament.
2.ThetheoreticalbackgroundoftheformationofNewKeynesianism
TheobjectiveconditionsfortheemergenceofNewKeynesianismarethetheoreticalflawsoftheoriginalKeynesianismandtheineffectivenessofneoclassicalmacroeconomicsinexplainingpracticalproblems.Lack.
ThedeficienciesoftheoriginalKeynesandthetheoreticalprogressofneoclassicalmacroeconomicshavegivenusefulenlightenmenttothenewKeynesians.Neo-KeynesianismwasformedaftertheoriginalKeynesianismwashitbyneoclassicalmacroeconomicsandlearnedfromtheexperienceandlessonsofthestrugglebetweenKeynesianismanditsopposingschools,andithascontinuedtodevelopinthestruggleagainstneoclassicalmacroeconomics.ItistheoriginalKeynesianism.Revival.
3.HypothesesandcharacteristicsofNewKeynesianism
Thenon-market-clearinghypothesisisthemostimportanthypothesisofNewKeynesianism.ThishypothesiscomesfromtheoriginalKeynesianism.However,thereisamajordifferencebetweenthetwonon-marketclearingtheories.TheassumptionsofNewKeynesianismare:
(1)Assumingthatwagesandpricesaresticky,thatis,wagesandpricescannotbeadjusted,butcanbeadjusted,buttheadjustmentisveryslowandtakesaconsiderableamountoftime.
(2)ThenewKeynesianmodeladdstwoassumptionsthatwereignoredbytheoriginalKeynesianmodel:oneistheprincipleofmaximizingeconomicparties,andtheotherisrationalexpectations.
ThecharacteristicofNewKeynesianeconomicsisthatitdeniestheneoclassicaldichotomyandbelievesthattheeconomyisanon-Walrasianequilibrium,andactualincompletenessisimportant.
(2)NewKeynesianpricestickinesstheory
NewKeynesianpricestickinesstheorycanbedividedintotwocategories:oneisnominalpricestickiness;theotherisactualpricestickiness.
1.Nominalpricestickinesstheory
(1)Menucosttheory
Therearemanyliteraturesonmenucosttheory,amongwhichtherepresentativetheoriesare:menucostandBusinesscycletheory;approximaterationalbusinesscyclemodel;actualrigidityandcurrencynon-neutraltheory,etc.
(2)Staggeredpriceadjustmenttheory
Thestaggeredadjustmenttheorybelievesthatinanimperfectlycompetitivemarket,inordertomaximizeprofits,manufacturersusuallyadjustpricesinastaggeredratherthansynchronizedmanner.
2.Actualpricestickinesstheory
TheactualpricestickinesstheoryofNewKeynesianism,inadditiontothe"actualrigidityandcurrencynon-neutraltheory"mentionedabove,alsoincludes:Reputationtheory,demandasymmetrytheory,input-outputtabletheory,oligopolymarketandpricestickinesstheory.
(3)NewKeynesianlabormarkettheory
ThenewKeynesianlabormarkettheoryovercomesthefatalflawsofKeynesianismandmaintainsthekeynesiancreedofnon-clearlabormarket.ThekeyassumptionoftheNewKeynesianlabormarkettheoryisthestickinessofwages,whichcanbesummedupintotwocategories:oneisthetheoryofnominalwagestickiness;butthetheoryofrealwagestickiness.
1.NominalWageStickinessTheory
TherepresentativetheoriesofNewKeynesiannominalwagestickinessinclude:staggeredadjustmentwagetheoryandlong-termlaborcontracttheory.
2.Realwagestickinesstheory
NewKeynesianismhasmanytheoriesaboutrealwagestickiness,anditstypicaltheoriesare:implicitcontracttheory,efficiencywagetheoryandinside-outsidertheory.
Theimpliedcontracttheoryincludestheopeninformationimpliedcontracttheoryandtheasymmetricinformationimpliedcontracttheory.Themaincontentofefficiencywagetheoryincludesthefollowingthreeaspects:efficiencywagesandlabormarket;themicro-foundationofefficiencywages;efficiencywagesandunemployment.Unemploymentlagtheoryalsoincludesthreeaspects:wageadjustmentsforpureinsiders;wageadjustmentsunderpressurefromoutsiders;persistenceofunemploymentandwageadjustments.
(4)New-Keynesiantheoryofcreditrationing
Thenew-KeynesiantheoryofcreditrationingstartsfromtheasymmetryofinformationinthecreditmarketanddiscussesthattheselectioneffectofinterestratesandloanmortgageswillleadtoIfcreditrationingoccursinthecreditmarket,thecreditmarketwillfail,andgovernmentinterventionwillhaveapositiveeffect.
1.Theselectioneffectofinterestratesandcreditrationing
Therearetwooptionsforinterestrates,oneispositiveselection,andtheotherisnegativeselection.
Thepositiveselectioneffectofinterestratesmeansthatanincreaseininterestratescanincreasetheincomeofbanks,anditisthedirectimpactofinterestratesonbankincome.Interestratesalsoprovideincentivesformanufacturersandcanchangetheirattitudestowardsrisks.
Banksusethereverseselectioneffectofinterestratesasatestwittoidentifythedegreeofrarerisksofmanufacturersandtheriskoflendingtodifferentmanufacturers.
Theoptimalbankinterestrateisusuallynotequaltotheinterestratewhenthemarketclears.Therefore,rationingoccursinthecreditmarket.Theappearanceofrationinginthecreditmarketistheresultofbanks'selectioneffectsbasedoninterestratesinthefreecreditmarket,andtheresultofactingrationallyinordertoachievethegoalofprofitmaximization.Itisnotaproductofstateintervention.
2.Theselectioneffectandcreditrationingofloancollateral
Loancollateralhasapositiveselectioneffectandareverseselectioneffect.Theformermeansthatwhenthereisexcessdemandinthecreditmarket,banksincreasethereliabilityofloanrepaymentbyincreasingthelevelofloancollateral,reducetheriskofbaddebts,andincreasebankincome.Atthesametime,italsosuppressesborrowers'demandforloans.Thelatterreferstotheincreaseinthelevelofloancollateralwillincreasetheriskofloansandreducethereliabilityofrepayment.Thebankcandeterminethebestcollaterallevelbasedonthesetwo.
TheNewKeynesiantheoryofcreditrationingpointsoutthatsinceinterestratewitandrationingwitworkatthesametimeinthecreditmarket,thecreditmarketwillhavemultipleequilibriumsandmarketmechanismswillfail.Governmentinterventioncancorrectmarketfailures.
(5)TheNewKeynesianSchool’sPolicyPropositions
1.TheNewKeynesianPricePolicy
ThemainthrustoftheNewKeynesianpricepolicyproposalsistorestrainPricestickinessmakespricesmoreflexibletorepairmalfunctioningmarketmechanismsandstabilizetotaloutput.TheNewKeynesiansputforwardsimilarpolicyrecommendationsinthestaggeredadjustmentpricetheoryandthemenucosttheory.Bothofthesepolicyrecommendationsadvocatetheuseofpolicyinterventiontocoordinatethebehaviorofeconomicagentsandcorrectmarketfailures.Theyarebasicallycorrect,buttheylackoperability.
2.NewKeynesianemploymentpolicy
ThenewKeynesianlaborwagetheoryexplainswagestickinessandunemploymentonthebasisofmicroeconomics,andputsforwardanumberofissuesconcerningwageemploymentPolicy.Thesepolicyrecommendationsmainlyfocusontheoriessuchastheinside-outsidertheoryandtheinterlacedlaborcontracttheory.
TheemploymentpolicyofNewKeynesianismstillincreaseswageflexibilityandreducesunemployment.Itspolicythinkingisreasonable,butithasastrongidealcolor,anditisdifficulttoimplementinpractice.Thegovernmentintervenesinlaborcontracts,whichisnotfeasibleincapitalistcountries.
3.NewKeynesianmonetarypolicyandcreditpolicy
(1)Monetarypolicy
NewKeynesianpointedoutthatinordertoachievethegoalofstableoutputThemostappropriatemonetarypolicyforthegovernmentis:theadjustmentofthemoneymarketisadaptedtotheactualdisturbancethataffectstheprice,andactsintheoppositedirectiontothenominaldisturbancethatcausespricechanges.However,theimpactofthesetwopoliciesonemployeesisdifferent.Theformermeansthatwhenoutputisstable,employeewagesarenotstable,whilethelattermeansthatwhenoutputisstable,employeewagesarerelativelystable.
(2)CreditPolicy
TheNewKeynesiancreditpolicyrecommendationisthatthegovernmentshouldstartfrommaximizingsocialwelfareandinterveneinthecreditmarket.Useloansubsidiesorprovidecreditguaranteestoreducemarketinterestratessothatprojectswithsocialbenefitscanobtainloans.