Lectures on John Maynard Keynes' General Theory of Employment, Interest and Money (6): Chapters 8, 9 and 10: Keynes' Theory of Consumer Behaviour
University of Guelph Department of Economics and Finance Working Paper No. 2013-11
45 Pages Posted: 22 Aug 2013
Date Written: July 28, 2013
Chapters 8, 9 and 10 set out Keynes’ theory of consumer behavior. Chapter 8 is entitled The Propensity to Consume: I. The Objective Factors, Chapter 9 is The Propensity to Consume: II. The Subjective Factors, and Chapter 10 is The Marginal Propensity to Consume and the Multiplier. Contrary to the widely held belief, Keynes saw the consumer as an intertemporally optimizing agent, in a manner which is quite consistent with Frank Ramsey’s model of intertemporal saving behavior and with modern theories of the behavior of the optimizing consumer. While he did conclude that in the short run income would be the dominant factor underlying consumer behavior, this was an empirical judgement, not simply an assumption about fundamental psychological propensities. Chapter 10 formally introduces the marginal propensity to consume and the multiplier.
Keywords: Keynes, General Theory, Keynesian Economics, Classical Economics, Propensity to Consume, Time Preference, Interest Rate, Bequest Motive, Multiplier, Burying bottles of Banknotes
JEL Classification: B10, B12, B13, B22, B31, E12, N12, N14
Suggested Citation: Suggested Citation