General Theory of Employment Interest and Money, which was
published in 1936. Keynes challenged many of the theories of
classical economics, and a separate branch of economic thought
eventually developed around his ideas. In the 1990s, Keynes is
probably most often thought of as a proponent of an active role
for government in the management of the economy. Keynes,
however, cemented the role of psychology in economic behavior.
Expectations play a major role in many of his theories.
The classical economic theory holding that money stimulates
trade had two major deficiencies. The first of these
deficiencies was that classical theory ignored the effects of
money on the price level. This deficiency was corrected by
Alfred Marshall in his formulation of economic theory. The
second deficiency was that classical theory often downplayed the
role of expectations in the economic decision making process.
More than any economic theorist before him, Keynes corrected this
situation, by incorporating the concept of expectations in a
major way into much of his theory.
Keynes recognized that expectations played a major role
in consumption decisions. He also recognized that expectations
were important in the reaching of decisions related to
investment. Expectations play a major role in Keynes' concept of
the marginal efficiency of capital. More so than Marshall,
Keynes believed that aggregate investment is conditioned largely
by price and profit expectations. While considering the role of
expectations, Marshall often tended to associate prices, costs,
and economic decisions with events, as opposed to expectations.
When expectations are considered within the context of time,
P8 à4 Šdifferences in the ways in which expectations ar...