Keynes and Classical Economics
Legacy
Keynes made his mark in history – as Marx made his. But while Marx wanted to destroy capitalism, Keynes wanted merely to reform it. Both wanted to enlist, and really to unleash, the power of the state, although where Marx spoke of "the liquidation of the capitalists" Keynes spoke of the "liquidation of the rentiers". Marx wanted total socialism, actually communism, or, as he himself called it, "scientific socialism". Keynes wanted some "socialization of demand," and "a somewhat comprehensive socialization of investment". Clearly, Keynes was no friend of laissez faire capitalism:
The decadent international but individualistic capitalism, in the hands of which we found ourselves after the war, is not a success. It is not intelligent, it is not beautiful, it is not just, it is not virtuous – and it doesn't deliver the goods. In short we dislike it, and we are beginning to despise it. But when we wonder what to put in its place, we are extremely perplexed.
Eventually, Keynes presented a whole new set of ideas in his General Theory. There he claimed that capitalism tends to run an equilibrium "between workers and the economy at less than full employment". Underconsumption, he said, stems in great measure from a mal-distribution of income. Saving and investment are non-related, and saving amounts to hoarding and is, in effect, anti-social.
Three issues in his work that remain controversial are worthy of comment: inflation, macroeconomics, and Keynesian treatment of the state.
Inflation
Keynes argued that depression – more specifically, unemployment – was the offspring of the failure of consumption demand and the failure of investment demand. Hence, underconsumption (or underspending) was the economic culprit. Hence Keynes' slogans became "let us spend ourselves into prosperity" and, "avoid the temptation of saving". The argument was that if too little private spending caused unemployment, then more public "compensatory" spending would create employment. However, debt or deficit spending involves, almost invariably, inflation; that much every economist in his time knew.
Macroeconomics
Keynes' method of macroeconomics was one of aggregate thinking. For example, using the GNP as a statistical sum of inflated currencies based on assumed sellers' prices. Furthermore, he made assumptions of constants in economic activity when there are only variables. The assumption that individual people are numbers with no independent will of their own created no room for any serious prediction of any economic activity.
State
The Keynesian legacy on "the new look" of the State can be deduced from his General Theory:
I expect to see the State, which is in a position to calculate the marginal efficiency of capital-goods on long views and on the basis of the general social advantage, taking an even greater responsibility for directly organizing investment.
Clearly, government can "compensate" private spending, and hence, eventually, it must over-compensate. Again, government can invest, but, inherently, it cannot disinvest. In other words, power does not, cannot, and will not dissolve itself. Power, unless checked, can move, but in one direction, that of more power.
Although many of his ideas did not stand the test of time, due to their popularity and revolutionary nature Keynes is still considered one of the founders of modern theoretical macroeconomics. While Keynesian economics as Keynes envisioned it no longer holds sway, there are many who continue to develop his ideas and so Keynesian economics continues to influence the world.