I agree with Keynes, the classical postulate that supply creates its own demand is rather preposterous, because if that were the case, then the economy would be forever in a state of full employment. The classical orthodox doctrine assumes that full employment takes an infinite value in equilibrium. In my view, the classical perspective presents us with an unstable equilibrium cause no equilibrium is actually an equilibrium in that theory, equilibruim is solely depended on what value aggregate supply takes. But this is a falacy, cause if that were to be the case, then there will in most cases be an inequality between marginal disutility of labour and the real wage. But this contradicts their very arguement that full takes an infite value. Also in agreement with Keynes point that the psychological characteristics of a community should be understood to better understand the behavior of the goods market. This is true because communities differ and nationalities differ, some have a higher marginal propensity to consume than to save like South Africa. This means that countries like South Africa will need to institute fiscal policies that are investment oriented that consumption so that there will be an overall balance between the marginal propensity to consume by civilians and the marginal propensity to invest by treasury. By the same fiscal strategy, government will be able to combat the high current account deficit that renders South Africa an international debtors and causing unstable exchange rates and consequently an distabilizes the price level.
Posted on: Mon, 22 Jul 2013 08:29:16 +0000
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