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JSPES, Vol. 37, No. 1 (Spring 2012)
pp. 67-93

Needed in the Context of the Renewed Popularity of Keynes’s Ideas: An Analysis of his Errors

Brian P. Simpson

National University, La Jolla, California

This paper provides a detailed exposition of Keynes’s theory of why depressions occur in a market economy, doing so by allowing Keynes himself to describe his theory, for which the article draws mainly from The General Theory of Employment, Interest, and Money. The basic reason Keynes gave for why depressions occur is that there is too much saving and too little consumption and investment. After explaining his theory of depressions, the article proceeds to show the major errors Keynes commits. These errors include believing that falling wage rates lead to decreased spending and a lower rate of profit, believing more investment leads to a lower rate of profit, equating gross values with net values, and equating saving with hoarding. This paper is relevant to current events in which governments around the globe have used various Keynesianinspired “stimulus packages” in an attempt to help economies recover from the financial crisis and recession of 2008.