In 1936, John Maynard Keynes published a book entitled The General Theory of Employment, Interest, and Money. In economic and political circles, the book was an immediate success, particularly among the new breed of American economists. Not to be immodest, British Keynes wrote a letter to the philosopher George Bernard Shaw stating that, "I believe myself to be writing a book on economic theory which will largely revolutionize . . . the way the world thinks about economic problems" (Harrod 462). Keynes' theory, and the furor it continues to cause, will be the subject of this paper. The paper will begin with a background analysis of both Keynes and his General Theory. It will then focus on the Keynesian legacy in economics, politics, and intellectualism. Finally, the paper will conclude with an assessment of the General Theory within the context of the modern economic system.
As he predicted, the General Theory made a major impact on economic theory, clearly not confined to the economic world. Although the extent of the book's impact on governmental economic policy is still hotly debated in academic circles, its influence has been considerable in the post war economic policies in the West. However, the exact nature of the theoretical contribution made by Keynes has been the subject of a heated debate. After the book was published, harsh criticism of his theories eventually led to the emergence of a neoclassical economic synthesis, accord to which Keynesian economics was a special case, derived by imposing the assumption of monetary wage rigidity. The claim that an under-employment equilibrium could exist in the absence of money wage rigidity was argued to be false and said to take no account of the effect of monetary wealth on consumption (Fender 1).
These arguments continue to take place in the contemporary world, with economists using Keynes to justify the policies of the Reagan years as necessary for the developmen...