“Following Adam Smith, political economy had an underlying bias towards Laissez-faire. The classical economists, with some exceptions, were preoccupied with Government Failure. …In contrast to this orthodoxy, the most revolutionary aspect of Keynes’s work, which we can detect in his writings from the mid-20s onwards, was his clear and unambiguous message that with regard to the general level of employment and output there was no ‘invisible hand’ channeling self-interest into some social optimum.”

“In order effectively to confront the existing orthodoxy head-on, Keynes needed to provide an alternative theory. With the onset of the Great Depression we find Keynes retreating ‘into his ivory tower at King’s to engage, at age forty-eight, in a supreme intellectual effort to save Western civilization from ...economic collapse…” (Snowdon 2005 p. 56)


Keynes shows that “macroeconomic equilibrium is consistent with involuntary unemployment.” And states a “…principle of Effective Demand, together with the equilibrating role of changes in output rather than prices. Before Keynes wrote "General Theory" economists believed that in order to move closer to full employment, aggregate demand should be manipulated. Keynes, on the other hand, felt that the quickest way to move towards full employment was through effectively increasing aggregate demand. He disagreed with the aggregate supply approach stating that movements through increased aggregate supply are downwardly rigid (meaning the movement towards full employment would be much too slow). The emphasis given to quantity rather than price adjustment in the ‘’General Theory’’ is in sharp contrast to the classical model and Keynes’s own earlier work contained in his ‘’Treatise on Money’’ (1930)…” “The principle of effective demand states that in a closed economy with spare capacity the level of output (and hence employment) is determined by Aggregate Planned Expenditure…” (Snowden 2005 p. 58)

Expectations and Uncertainty do much of the work in Keynes' explanation of uncertainty. (Snowden 2005 p. 76)


  1. Snowdon, Brian and Howard R. Vane. 2005: Edward Elgar Publishing;Modern Macroeconomics: Its Origins, Development And Current State
  2. Main Wiki link
  3. Link to full text
  4. New School page (HET link)
This macro-stub needs improving.


                   ________________ |____________
                   AGGREGATE DEMAND             AGGREGATE SUPPLY
                     FUNCTION                     FUNCTION