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 insufficient to fill the gap between full employment output and consumption" (p. 212). Monetary intervention to lower the rate of interest failed to stimulate demand in part because the actual interventions were timid. Keynes argued that through "increasing government expenditures or cutting taxes, aggregate demand could be increased to fill the gap at full employment" (p. 213).
With respect to Alfred Marshall, however, Keynes in the "Foreword" to the German edition of the General Theory, pro...