A commenter on Bob Murphy's post about the new Econstories video writes: "I don’t recall Keynes talking about any “Marginal Propensity to Invest”, or “Paradox of Consumption”."
I suggest you start here:
The Inducement to Invest
Chapter 11. The Marginal Efficiency of Capital
Chapter 12. The State of Long-term Expectation
Chapter 13. The General Theory of the Rate of Interest
Chapter 14. The Classical Theory of the Rate of Interest
Appendix on the Rate of Interest in Marshall and Ricardo
Chapter 15. The Psychological and Business Incentives to Liquidity
Chapter 16. Sundry Observations on the Nature of Capital
Chapter 17. The Essential Properties of Interest and Money
Chapter 18. The General Theory of Employment Re-stated
You will find this completely mysterious eight-chapter (plus one appendix) book on the behavior of investment hid away behind the apparently massive three chapter book on the behavior of consumption. That's right - if we count the appendix as a chapter, Keynes had three times as much to say about investment behavior as he did about consumption behavior.
Guys like John Papola propagate these sorts of fallacies either by stating them outright or by more subtly nudging people towards them. Doing your homework dispels these fallacies.
Our commenter continues: "No, he talked about marginal propensities to consume, and paradox of saving, despite the fact that by symmetry, the same “problem” would arise if people suddenly reduced their investment with no corresponding rise in consumption, and if people suddenly all tried to consume more without investing more."
Yes, if people suddenly reduced their investment with no corresponding rise in consumption then output would fall.
That's called the paradox of thrift.
There is more savings than there is investment. Two things can adjust: the price of loanable funds that equilibrate savings and investment, or output. Keynes said liquidity preference was a powerful determinant of the interst rate that would cause this problem in the first place, so hope of interest rates falling so that we could gently have consumption replace the lost investment was unlikely. Output would likely be the quantity to adjust.
In other words, our commenter:
1. Misses the most extensive theoretical discussion made by Keynes, namely, his discussion of the behavior of investment, and then,
2. Asserts that Keynes spent too much time focusing on the paradox of thrift and did not spend enough time talking about more important problems, like the paradox of thrift!
This commenter is not a towering mind in economics or anything, which is more reassuring. But he is an excellent example of the sort of rubbish that basks in the glow of the production quality and catchy lyrics of Econstories.
On Mises’ Use of the Term “Inflation”
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