 THEME: KYNESIAN THEORY

PLAN

INTRODUCTION
I-The Keynesian revolution: a break in the history of economic thought
a-What is the central hypothesis of Keynesian theory
b-The neoclassical synthesis and the first Keynesian split
II: Keynesian thought
a-Refutation of Say’s law
b-Effective demand
c-Policies to adopt
III- Current events in Keynesian thought
CONCLUSION

EXHIBITORS BIBLIOGRAPHY
Awa Lory Diedhiou Wikipedia
Aminata Cisse Sunudaara.com
Fatoumata Binta Diallo WordpressUNIL.com
Marie Conde
Zeinabou Hamadou Kindo

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 INTRODUCTION
Keynesianism, named after the famous British economist John Maynard Keynes, is an
economic theory that profoundly influenced economic thought and economic policies during
the 20th century and beyond. In this presentation, we will explore the nature of Keynesianism,
its place in the history of economic thought, and why it is often referred to as ‘’Keynesian
theory’’. Keynesianism arose in response to the Great Depression of the 1930s, a period
marked by massive unemployment deflation, and a failing economy, and a failing economy.
John Maynard Keynes proposed a revolutionary central hypothesis: effective demand plays a
critical role in determining an economy’s output and employment. This idea broke with
classical economic thought which advocated self-regulation of markets. Throughout this
presentation, we will examine this central hypothesis, the debates and divergences that
emerged within Keynesian thought, as well as its ongoing impact on economics global
economic policy. We will also highlight Keynes ‘key concepts, such as the marginal
propensity to consume, aggregate demand and fiscal policy, hitch have shaped modern
economic theory. Without further ado, let’s dive into the history and current relevance of
Keynesian thought

I-The Keynesian revolution: a break in the history of economic

thought
While the crisis of 1929 profoundly eroded the relevance of classical and neo-classical
paradigm, the Keynesian revolution can be understood a paradigmatic revolution in economic
science. We must then understand the publication of the General theory as on attempt to go
beyond the limits of classical economics although Keynesianism was subsequently structured
around the neo-Keynesian synthesis

a-What is the central hypothesis of Keynesian theory?

The central hypothesis of Keynesian theory of employment, interest of money in 1936, is
based of concept of effective demand. According to Keynes, the economy is not naturally
inclined to achieve automatic equilibrium and full employment. Instead, can be trapped in
situations of underemployment and involuntary unemployment. To remedy this situation,
Keynes argued that government should actively intervene in the economy by stimulating
aggregate demand, particularly through fiscal and monetary policy This is idea marked a
significant break with classical economic doctrines which insisted of the theory of automatic
market equilibrium

b-The neoclassical synthesis and the first Keynesian split

Keynesian theory sparked debates and developments within the economic community. The
neoclassical concepts of supply and demand. This attempt at synthesis helped to alleviate
some of criticism leveled at Keynesian theory. However, the first Keynesian split gave rise to
various interpretations and extensions of Keynes’s thinking. Some economists, know as
“orthodox Keynesians”, advocated more active government intervention, while others “new
Keynesians”, emphasized the importance of rational expectations and efficient markets. This
diversity of interpretations reinforced the richness of Keynesian thought and continued to
influence economic policy.

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II-Keynesian thought
The essence of Keynes's thought is contained in the "General Theory" (1936). This is an analysis of
the Great Depression where Keynes looks for the factors determining the volume of employment and
proposes solutions to the problem of lasting unemployment.h

a-Refutation of Say's Law

Say's law (Classical school) says that all the money earned from the sale of a product is used
by the producer to buy other products. This is a circuit in which currency only serves to
facilitate exchange. Keynes contests this proposition: money is not only required to make
exchanges but also as a "precaution" (the uncertainty of the future pushes one to keep money
aside) and by "speculation" (money is put aside in case a good opportunity arises). A certain
part of income is therefore not reinvested in consumption, but is hoarded (see Figure 1). By
refuting Say's Law, Keynes challenges the classic proposition that supply creates its own
demand, a proposition that demonstrates the self-regulation of the market and justifies the free
market.

b-Effective demand
The Neoclassic think of the labor market as a simple confrontation of supply and demand for
labor. For Keynes, the volume of employment is not determined by the market, but only by
the overall level of production, which depends on demand from businesses. Entrepreneurs
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decide the quantities to produce not on the basis of current demand, says Keynes, but on the
basis of the demand they anticipate, this is “effective demand”. In other words, entrepreneurs
decide to hire on the basis of a forecast: they get an idea of the future demand that will be
addressed to them and based on this, decide to invest more or less in production. Effective
demand is the anticipated demand of entrepreneurs for production and consumer goods:
Consumption: is mainly done by households. They use part of their income for consumption
and save the rest. The level of consumption depends on both income and the propensity to
consume (the share of income dedicated to consumption).
Investment: is made by companies and the State. It depends on the interest rate and the
expected return on the investment.
If there is unemployment, it is because effective demand is insufficient. To increase it, Keynes
suggests state intervention in the economy.

c-Policies to adopt
To act on demand, the State must encourage investment and consumption. Several policies
can be put in place (in pink in Figure 2):
To stimulate consumption, it can apply a redistribution policy which allows the poorest
households to consume. He can also implement a tax policy to reduce taxes. He can also
increase his own consumption.
To encourage investment, it can implement a monetary policy of lowering interest rates. It can
also make significant public investments (major national projects for example), even if this
results in a budget deficit. The State can also act directly on the level of employment by hiring
civil servants.
Policies to adopt
To act on demand, the State must encourage investment and consumption. Several policies
can be put in place (in pink in Figure 2):
To stimulate consumption, it can apply a redistribution policy which allows the poorest
households to consume. He can also implement a tax policy to reduce taxes. He can also
increase his own consumption.
To encourage investment, it can implement a monetary policy of lowering interest rates. It can
also make significant public investments (major national projects for example), even if this
results in a budget deficit.
The State can also act directly on the level of employment by hiring civil servants.

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According to neoclassical economists, market equilibrium is a situation of full employment
where unemployment is voluntary (the unemployed do not want to work because the salary
offered is not high enough). Through his analysis of effective demand, Keynes shows that
equilibrium does not necessarily lead to a situation of full employment, the latter is only one
situation among others. Equilibrium can therefore exist in a situation of underemployment,
with involuntary unemployment. Even if he advocates state intervention in the economy,
Keynes remains a defender of capitalism, he does not envisage a socialist type economy. The
capitalist system simply needs to be improved. The function of the State is stabilizing: in
times of crisis, it must revive the economy, but in periods of excessive inflation, it must slow
it down, through tax increases for example. The State therefore acts contrary to the forces of
the economic cycle, it pursues a countercyclical policy.

III-Current events in Keynesian thought

Keynesian methods have proven themselves in terms of growth, social cohesion and
employment for thirty years, thus empirically demonstrating their relevance. When
"stagflation" appeared, Keynesianism seemed ineffective and at that time, the proponents of
neoliberal economics who had been carrying out intense lobbying work with the support of
capital holders for thirty years, took the upper hand. (See the historical article: From Mont-
Pelerin to the White House). To perpetuate the type of regulated economy advocated by
Keynes, it would have been necessary to rethink it taking into account global competition.
The 2008 crisis and its stagnation brought new relevance to some of Keynes' central concepts.
Bernard Gazier quotes: "effective demand, the collapse of which can be followed around the
world at the end of 2008 and the beginning of 2009; the liquidity trap, which means that
economies massively supplied with liquidity avoid collapse but do not recover however; and
involuntary unemployment. The sudden increase observed in certain countries such as Spain

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between 2008 and 2009 can hardly be explained by the rise of imperfect competitive behavior
or by a change in agents' preferences." The least we can say is that the evolution towards
neoliberalism has proven him right about the "enormous difficulties", and above all, we can
clearly see that it casts doubt on the possibility of economic liberalism to stem the “animal
spirits” (greed, selfishness). The interest in the work of John Maynard Keynes comes from the
fact that he proposes a reasonable approach to the capitalized economy (using massive
capital). By reasonable, we mean nuanced and integrating the complexity of the problems,
proposing compensations. This point of view was made possible by the fact that Keynes was
not subservient to a partisan ideological tendency.

CONCLUSION
About the importance of economic thought, Keynes wrote in the General Theory: "The ideas
of economists and political philosophers, whether correct or not, are more influential than is
generally thought. In fact, we can almost consider that they rule the world. The pragmatists
who believe themselves free from all intellectual influence are generally the slaves of a few
deceased economists. Certain that his own thought profoundly marked the intellectual and
political context of the second half of the 20th century. Not only does the General Theory bring
about a real revolution in the history of thought economic, calling into question the hegemony
of the classical paradigm, but the ability to adapt the Keynesian paradigm to different
successive contexts has enabled it to cope to the numerous critiques, both empirical and
theoretical, which have attempted to erode its influence. The historical similarities between
the crisis of 2008 and that of 1929, however, brought back the Keynesianism at a level of
popularity close to that of the post-war years.