THE MARSHALLIAN CONTRIBUTION TO THE KEYNESIAN ARGUMENT

The purpose of this research to consider the Marshallian contribution to the Keynesian argument. These contributions are related primarily to the concept of expectations, and to monetary theory. With respect to monetary theory, the emphasis in this research is on quantity of money and liquidity preference.

The Great Depression of the 1930s ushered in unemployment levels of 25 percent and higher in the United States and other industrial economies, and prevailing economic models appeared to be incapable of explaining economic developments (Eisner, 1994, pp. 211-229). It was into this economic morass that John Maynard Keynes introduced The General Theory of Employment, Interest and Money in 1936. The macroeconomic theory "related much of unemployment to an insufficiency of aggregate demand" (p. 211). The output that would result from full employment was in excess of what economic agents were ready to buy. In such a situation, both output and employment would fall. The underlying problem was that the rate of investment was falling because "the rate of investment (or investment demand) was determined by the condition that the expected marginal return on investment could not be less than its costs, taken as the rate of interest. There was a lower bound to the rate of interest (at the level of the liquidity trap or, ultimately zero) and even at that point investment demand might be insufficien

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nstant. Moreover, since money is in the nature of a stock (in contrast to money expenditure which is a flow) the alternative to holding money is the purchase of other assetsùinterest-bearing financial securities or income-yielding property of some kind" (pp. 166-167). For this reason, Keynes emphasized that any effect of changes in the supply of money in circulation on the level of expenditure on goods and services (and, indirectly, on the employment of labor or the services of other factors of production) operates "via the stimulus afforded by lower interest rates on either business expenditure on investment or personal expenditure on consumption. The overall effect on expenditure will depend on the strength of the relative interest elasticitiesùthe elasticity of demand for holding money balances, the elasticity of business expenditures on inventories or fixed capital, and the elasticity of saving out of income. To the extent that the demand for holding money is elastic and the desire to incur capital expenditure or to save is inelastic with respect to the rate of interest, the net effect of an increase in the money supply on total expenditure could be small or negligible" (p. 169). Keynes contended that preferences for hold
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Some common words found in the essay are:
Ekelund Hebert, Ascheim Tavlas, Marshall Keynes, Kaldor Trevithick, Ebbing Tide, Alfred Marshall, Adam Smith, Maynard Keynes, Keynes Cambridge, Principles Economics, ekelund hebert, ekelund hebert 1991, hebert 1991, economic theory, classical economists, economic growth, loanable funds, liquidity preference, monetary theory, quantity money, demand money, loanable funds theory, imbalances unstable currency, currency exchange rates, unstable currency exchange,
Approximate Word count = 9184
Approximate Pages = 37 (250 words per page)

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