The general theory of employment, interest, and money [1936]

Abstract

It has become traditional for reviewers of important books to begin by saying that it is impossible within the limits of a single article to do more than consider very briefly a few of the questions at issue. Such a statement would assuredly be justified in the present case, for in this book Mr. Keynes attacks one of the fundamental assumptions which has underlain orthodox theory since the days of Ricardo. This is the doctrine which used to be expressed categorically in the phrase “Supply creates its own demand." Later writers have been more guarded on the subject, and often refrained from stating it specifically in any form at all. But however it might be expressed or implied, orthodox theory has continued to be based on the principle that “what constitutes the means of payment for commodities is simply commodities”1 (Mill); from which it follows (inter alia) that money makes no difference except frictionally, that consumption is limited by production and not vice versa that general oversupply is impossible, and that, to quote Professor Pigou, unemployment is due to the fact that “frictional resistances prevent the appropriate wage adjustments from being made instantaneously." In place of this Mr. Keynes seeks to substitute a monetary theory of production according to which unemployment may be due, not to labor’s refusal to accept a lower reward, but to a deficiency of “effective demand.".