PPR295: KEYNESIANISM AND VEBLEN

(KEYNES)

★ GENERAL INTRODUCTION
- Write during the Great Depression
- High levels of unemployment, reduced public spending, and thousands of businesses
went under
- Heather Whiteside (2020):

● Capitalism was no longer able to function like during the 19th century
● The liberal laissez faire and self-regulating nature of the free market is increasingly
under attack
● WW1 and WW2 enforced the idea that the state is needed to intervene in the
economy and to mobilise resources

- Key issues:

1) No shortages in the amount of resources and labour in the market

2) The demand for work and consumption did not diminish

- All of these happened because of the profit-seeking incentives of corporations

★ THE CIRCULAR FLOW OF INCOME

★ CONVERGENCE WITH NEOCLASSICAL ECONOMY
- Neoclassical Economy:

● Consumption-based and very focused on competition

● Interest rates = savings and investments
● Cut in wages during a depression

- Keynes:

● Cut real wages by decrease money wages and increase good prices (but would b
very unpopular and unrealistic)
● Accepted that wages are equal to the workers’ marginal productivity

★ DIVERGENCE WITH NEOCLASSICAL ECONOMY

- Keynes believed that the rate of interest influence savings but the level of aggregate
income is more important on the amount of savings than the rate of interest
- Keynes believed that a welfare state is needed to ensure that government spending
is ever-present
(VEBLEN)

★ GENERAL INTRODUCTION
- Capitalists are turned into a rentier and managerial class in corporations
- Following the emergence of Taylorism which replaced the older systems of
bureaucracy in production
- Economic agents act by being conscious of social norms, choices, and
consequences
- Wrote during the Gilded Age

★ ANALYSIS OF HUMAN NATURE

- Society is highly complex and dynamic
- Humans are utilitarian and are also products of cultural-institutional contexts
- The workmanship and predatory instincts

★ CLASS DIVISIONS
- Private property as the basis of class-divided societies
- A class-divided society is highly predatory in nature
- Two main classes:

A) Working Class (workmanship instinct)

B) Leisure Class (predatory instinct)

★ THE STATE
- The state maintain the rights of the capitalists and their private property
- Inherently at odds with the people’s demand for democracy and pluralism

★ CULTURE AS AN INSTITUTION
- Conspicuous consumption of the rich
- The formation of conservative societies based on capitalism and the predatory
instinct

★ CRITICISMS OF NEOCLASSICAL ECONOMIC THEORIES

1) On History
● Neoclassical economy is claimed to be ahistorical
● But production is always influenced by culture and social factors
2) On Social Antagonism
● Neoclassical economic theories claimed that class antagonisms don’t exist
● But clearly this is not the case

★ WEAKNESSES

1) Cannot explain the nature of profits and wages

2) Crisis still happen despite Veblen’s predictions and theories