No abstract

No abstract

No abstract

No abstract

Professor Hansen's paper in this number of the Review deals with important issues of economic theory. It expresses the judgment of a leading Keynesian thinker, who has had full opportunity to weigh and refine his reasons for repudiating my interpretation of Keynes.' Every mature economist knows how barren controversy can be and, in fact, usually is. But Keynes' theory is now at the center of much of our economic thinking, and Hansen is its outstanding exponent. Under the circumstances, it may serve the interests of economic science to examine Hansen's strictures with some care. I am grateful to the Editors of the Review for according me the opportunity. In the following pages I shall consider the major issues raised by Hansen. Section I is devoted to the essentials of Keynes' theory of income and employment, Section II to its determinacy, Section 207 KEYNESIAN ECONOMICS ONCE AGAIN Keynes' theory of underemployment equilibrium. .. attempts to show that a free enterprise economy, unless stimulated by governmental policies, may sink into a condition of permanent mass unemployment. The crux of this theory is that the volume of investment and the 'propensity to consume' determine between them a unique level of income and employment. The theory can be put simply without misrepresenting its essence. Assume that business firms in the aggregate decide to add during a given period $2 billion worth of goods to their stockpiles, using this convenient term to include new plant and equipment as well as inventories. This then is the planned investment. Assume, next, that business firms do not plan to retain any part of their income; so that if they pay out, say, $i8 billion to the public, they expect to recover $16 billion through the sale of consumer goods, the difference being paid out on account of the expected addition to their stockpiles. Assume, finally, that the 'consumption function' has a certain definite shape; that if income payments are, say, $i8 billion, the public will spend $i7 billion on consumer goods and save billion, and that one-half of every additional billion dollars of income will be devoted to consumption and one-half to savings. Under these conditions, the national income per 'period' should