Critical Review: Keynesian Political Economy

Critical Review: Keynesian Political Economy Summary This paper seeks to critique the thoughts advanced by renowned scholar, Keynes, in relation to political economy in the article, “Theories of political economy” by Caporaso and Levine (1992). According to the article under review, Keynes theory critiques a common school of thought relating to the self-regulation of markets. Much of Keynes arguments seek to water down the thoughts of both the classical and neoclassical economists. The article’s argument largely revolves around the effects of politics on markets. According to the authors, Keynes school of thought tends to disagree with the assertion that forces of demand and supply are responsible for the pricing of market commodities. Keynes widens his net of thought beyond price mechanisms.

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Keynesian school of thought asserts that low demand for produced goods is a systematic hitch, whose result can never be limited to price mechanism failure. In accordance to Keynes school of thought, politics play a cardinal role in shaping the populace demands for goods and services. The aforementioned issues are largely reputed by other scholars such as Karl Marx.

Evaluation This essay seeks to critique the shortfalls associated with Keynes Theory on political economy. The essay offers an analysis of the shortcomings of the theory in an effort to explain why other scholars and contemporary economic society share a discerning opinion. The essay begins with a brief description of the Keynes theory as advanced by the article, and then delves into the main controversies surrounding the theory. Political economy theory by other scholars also forms part of the description used in the essay Keynesian school of thought dwells much on the instability of the production system as brought about by a capitalistic economy. Keynes school of thought has not gone down well with modern economists who have advanced differing thoughts on the subject. In their discerning opinion, other scholars advocate for administrative mechanisms that will seek to stabilize and provide adequate market for products automatically. Keynesian political economy is not a perfect theory as it does not meet the expectations of not only other economic thinkers, but also those of the contemporary business world. The theory fails to accommodate divergent thoughts that relate to market mechanism.

Keynes developed a political economy theory that sought to showcase the effects of capitalistic economy politics on market operations. The political economy theory of Keynes fails to appreciate the need of individualistic choices in an economy. According to Keynes, a capitalistic economy is an ogre that should never be banked on to safeguard the livelihoods of

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those dependent on it as it makes lives unbearable in the long run (McConnell, 2008). This assertion is very insensitive and untrue in that it also implies that personal pursuits towards economic improvements often fail.

On matters of investment, Keynes asserts that savings do not necessarily mean investment. Given that decisions related to investment are not influenced by an increase in savings is tragic. This school of thought defies that of most renowned economic scholars who assert that investment decisions are often guided by savings. Whereas other economic scholars found a tradeoff between consumption and savings, Keynes saw a tradeoff between demand and a leakage in the circular flow of production. Going by his Keynesian thought, a leakage in the circular flow does not necessary induce demand. In addition, Keynes observes that any investment related to savings will worsen off the state of individuals in both the short and long run. This notion is not in agreement with his argument of political economy and confines it in the incomes of participants in an economy. Moreover, in the contemporary business world, investment is guided by past profitability of a venture. That is, to realize a profit a firm needs to price its goods above the incurred production costs. The wider the margin between a set price and the costs associated to production, the higher the profit margin (Amable, 2003). Therefore, it is apparent that the theory of Keynes fails to observe the basic principles of markets.

In a capitalistic economy, the state often chips in to ensure macroeconomic conditions needed for good business are in place. According to Keynes, the move by the state to establish workable conditions brings market instability. Without considering the intention of a state in totality, Keynes argument is true. Considering the state increases taxes to foster macroeconomic stability, demand will relatively go down. However, looking at the totality, state moves are

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meant to cushion citizens from unfavorable states that may jeopardize their private interests.

Keynes fails to appreciate the fact that government actions are often guided by public interest In conclusion, the article has articulated Keynesian issues in an understandable manner.

However, it fails to pinpoint the concrete reasons as to why Keynes related politics to markets. In addition, it is apparent the forces of demand and supply are largely responsible for production decisions. This is because the market often dictates what it needs and is ready to consume at a given time. A firm that is sensitive to the market needs will often sell its produce at a good price, thereby increasing its profitability. Finally, the effects of government’s hand on markets cannot be understated.

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Amable, B. (2003). The diversity of modern capitalism. London: Oxford University Press.

Caporaso, J. A. & Levine, D. P. (1992). Theories of political economy. Cambridge: The Press Syndicate of the University of Cambridge.

McConnell, C. (2008). Economic principles. Sydney: McGraw-Hill.