Keynes on the Marginal Efficiency of Capital and the Great Depression

Tsoulfidis, Lefteris (2008): Keynes on the Marginal Efficiency of Capital and the Great Depression. Published in: History of Economic Ideas , Vol. 16, No. 3 (2008): pp. 65-78.

Abstract

This paper argues that Keynes’s analysis of the marginal efficiency of capital is consistent with the principle of effective demand and is, in this sense, characteristically different from the related classical or neoclassical conceptualisations. Furthermore, the notion of the marginal efficiency of capital is used not only as an explanation of the short term fluctuations in the level of economic activity but also as an interpretation of more serious long term fluctuations such as that of the great depression. Finally, some of Keynes’s economic policy proposals are critically evaluated.

• Item Type: MPRA Paper
• Language: English
• Keywords: Marginal efficiency of capital, effective demand, great depression, interest rate, overinvestment
• Subjects: B - History of Economic Thought, Methodology, and Heterodox Approaches > B1 - History of Economic Thought through 1925 > B10 - General; B - History of Economic Thought, Methodology, and Heterodox Approaches > B1 - History of Economic Thought through 1925 > B12 - Classical (includes Adam Smith); B - History of Economic Thought, Methodology, and Heterodox Approaches > B1 - History of Economic Thought through 1925 > B14 - Socialist ; Marxist; B - History of Economic Thought, Methodology, and Heterodox Approaches > B5 - Current Heterodox Approaches > B51 - Socialist ; Marxian ; Sraffian; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E65 - Studies of Particular Policy Episodes; N - Economic History > N2 - Financial Markets and Institutions > N20 - General, International, or Comparative

References

Asimakopoulos A. 1991. Keynes’s General Theory and Accumulation, Cambridge: Cambridge University Press.

Barnett V. 2001. «Tugan-Baranovsky as a Pioneer of Trade Cycle Analysis», Journal of the History of Economic Thought, 23, 4, 443-466.

Chick V. 1983, Macroeconomics After Keynes: A Reconsideration of the General Theory, Cambridge Mass.: The MIT Press.

Dillard D. 1948. The Economics of John Maynard Keynes: The Theory of Monetary Economy, Englewood Cliffs, N.J.: Prentice-Hall.

Dimand R. 1995. «Irving Fisher, J.M. Keynes, and the Transition to Modern Macroeconomics», in Cottrell A. and Lawlor, M. (eds.) 1995, New Perspectives on Keynes, Durham and London: Duke University Press.

Eatwell J. 1987. «Marginal Efficiency of Capital», in Eatwell, J., Milgate, M. and Newman, P. (eds.) 1987, The New Palgrave: A Dictionary of Economics, New York: MacMillan, 318-19.

Eisner R. 1997. «The Marginal Efficiency of Capital and Investment», in Harcourt, G. and Riach, P. (eds.) 1997, A ‘Second Edition’ of the GeneralTheory, London: Routledge, 185-197.

Garegnani P. 1978-1979, «Notes on Consumption, Investment and Effective Demand, I & II», Cambridge Journal of Economics, 2, 335-53; 3, 63-82.

Hansen A. 1953, A Guide to Keynes, New York: MacGraw Hill.

Keynes J. M. 1930, A Treatise on Money, London: Macmillan.

Keynes J. M. 1936, The General Theory of Employment, Interest, and Money, New York: Harcourt, Brace & World.

Keynes J. M. 1937, «The General Theory of Employment», Quarterly Journal of Economics, 51, 209-52.

Keynes J. M. 1971-89, The Collected Writings of John Maynard Keynes, 30 vols. edited by D.E. Moggridge, London: Macmillan.

Keynes J. M. and Henderson, H. 1929, «Can Lloyd George Do It? », Vol. IX, in D.E. Moggridge (ed.) The Collected Writings of John Maynard Keynes, London: Macmillan.

Leroy S. 1983, «Keynes Theory of Investment», History of Political Economy, 15, 397-421.

Minsky H. 1975, John Maynard Keynes, New York: Columbia University Press.

Pasinetti L. 1997, «The Marginal Efficiency of Investment», in Harcourt, G. and Riach, P. (eds.) 1997, A ‘Second Edition’ of the General Theory, London: Routledge, 198-218.

Smith A. 1776, An Inquiry into the Nature and Causes of the Wealth of Nations, New York: Modern Library.