51, No. What Is Keynesian Economics? (taking equipment and technique as given) on the volume of employment… These policies needed modification and moderation. Keynes looks to introduce to us the gist of his argument against the Classical theory of employment. This is to say that total expenditure constitutes aggregate demand while total income is the aggregate supply. He did not draw any diagram in his ‘General Theory’ but his ideas can be better understood with the help of such a simple diagram as is given below. It may be called ‘Income = Expenditure’ line. Keynes’s work has left a deep mark on modern macro-economics. Classical economists believed that saving was a great private and social virtue. In it, he argues vigorously for strong government action to correct the excesses of laissez-faire capitalism. A labour unit may be taken to mean one hour of work by ordinary, unskilled or common worker. Its analysis remains comparatively static, though at times Keynes introduced expectations in his analysis. THE POSTULATES OF THE CLASSICAL ECONOMICS 3. Prof. Fisher’s definition was better than both Dr. Marshall’s and Prof. Pigou’s in as much as it was nearer the concept of economic welfare because welfare depends upon the goods and services made available to the individuals of the community. Further, the amount of wages received by ordinary labour for an hour’s work, Keynes called-wage unit. Consumption is only one, though major, component of expenditure. His theory of interest depends upon it. Interest, in turn, affects investment and employment. Keynes does not deduct the whole of depreciation from the Gross National Product, he subtracts a little less than the whole amount of depreciation called ‘User Cost’. Earlier definitions did not throw any light on the factors which go to determine income or its relation with employment; this purpose was amply achieved in the definition adopted by Keynes. they are simply bartered away; Pigou’s definition was of no use. At income levels less than this, planned saving is much less than planned investment. This may be great simplification of facts but it brings forth the crucial importance of investment in Keynesian theory of employment. Keynes himself measured these quantities in terms of money but found it rather unsatisfactory because with changes in prices, money does not depict true changes in the economic aggregate. Not only is income equal to expenditure, Y = C +I, but saving also equals investment, S = I. At the income level of Rs. Thus, the user cost would be Rs. The bought and the un bought do not differ in kind from one another in any fundamental respect. At levels of income greater than Rs. Since unemployment results from the deficiency of aggregate demand, employment and income can be increased by increasing aggregate demand. According to Prof. Fisher, “…….. the national dividend or income consists solely of services received by ultimate consumers, whether from their material or from their human environment. Keynes considered government as the sole supplier of money in the short period. Keynes analyzed that situation of unemployment and tried to find the reason and solution to that problem. Experience in the 1970’s in particular has shown that high rates of inflation can co-exist with high rates of unemployment. Secondly, he could very nicely provide reasons for departures from the policy of balanced budgets. It is the cost of using capital equipment rather than of leaving it idle. The straight line labelled C shows the behaviour of consumption expenditure with respect to income. When most countries of the world were experiencing the gravest depression of the last two hundred years – that is, the so- called Great Depression of 1929-36-economists of the time faced a challenge in the problem of increasing unemployment, shrinking national income, falling prices and failing firms. He solved this problem in his own way. As such it is called Consumption Function. In Keynesian Economics saving is defined as the excess of income over consumption, i.e., S = Y – C. The fundamental fact about saving is that its volume depends upon income. He assumed that there is a fairly high degree of competition in the markets. Keynes’s early-1900s economic theories had a huge impact on economic theory and the economic policies of global governments. Lerner, a disciple of Keynes, called it the policy of Functional Finance. According to Prof. Hansen, Consumption Function is the most important contribution of J.M. Thus, net income = A – U – V. In other words, both user costs (U) and supplementary costs (V) have to be subtracted from Gross National Product (A) to obtain the net national income. Controversy over both the meaning and contribution of the General Theory has resulted in what David Colander has termed "the what did Keynes really mean sweepstakes" (1990, p. 294). In his view, short period is that in which new investments do not change the technique, the organisation and equipment. The book has proved revolutionary in the sense that it has left its imprint on all branches of economic theory. User Cost is the difference between the depreciation in the value of the machine when it is put to use and the depreciation which would occur if not in use plus the expenditure incurred on its maintenance and upkeep. Original investment would be to increase the national income, saving is simply an keynes' theory of employment summary individual. 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