Competition. Keynes' theory of competition (most important)

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Competition. Keynes' theory of competition (most important)

Lecture notes, cheat sheets

Directory / Lecture notes, cheat sheets

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21. Keynes' Theory of Competition

Keynes - the ideologist of state-monopoly capitalism. Keynes's methodology is characterized by idealism.

General theory of employment: Keynes argued that with an increase in employment, national income increases and therefore consumption increases. Consumption grows more slowly than incomes, because as incomes rise, people's desire to save also increases. The total volume of employment is determined by three factors: propensity to consume; marginal efficiency of capital investments; percentage rate.

Under capital Keynes understood things that bring income, profit. Capital brings profit because of its rarity, i.e., limitedness.

Theory of interest: interest is the payment for borrowing money.

Keynesians see modern markets as uncompetitive and incapable of automatically adjusting supply and demand, especially the relationship between prices and wages. Monopolies and oligopolies, by occupying a dominant position in the markets of many goods, can artificially maintain high prices despite falling demand. Trade unions stand for a guaranteed level of wages when concluding labor agreements and collective agreements with entrepreneurs. All this leads to the fact that market regulation is inflexible, and a decrease in demand for products, although it will lead to a fall in prices, is unlikely to simultaneously cause a decrease in wage rates.

The market cannot serve as a self-regulator of the economy and cannot ensure full employment, stability of production and prices. Consequently, Keynesians believe that the state should play an active role in the implementation of these tasks. State intervention in the regulation of the economy should consist in pursuing such a fiscal and monetary policy that would mitigate the periodically occurring recessions and sharp rises in production, which have received the name of economic cycles in the literature.

The theoretical premises of Keynes's theory were formed during a period of deep recession and destructive crisis of capitalist society. Under these conditions, it is the active actions of the state to regulate the economy through fiscal policy that can bring production out of a deep crisis. Ignoring the correct monetary policy by the followers of Keynes, expressed in the statement that "money does not matter", caused a critical attitude towards his concept. Unfulfilled forecasts for the period after World War II undermined the credibility of the significance of this theory and turned those interested in the direction of monetarism.

Author: Ilyina V.N.

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