Keynes Theory of Full Employment

Prof. J.M. Keynes is regarded as the greatest economist of the twentieth century. He started his career as an ardent supporter of the classical school, but showed disagreement to their theories when these failed to operate during the great depression of 1930’s. The level of economic activities had sunk so low as to throw millions of workers out of employment. Unemployment rather than full employment became the order of the day.

The great depression of 1930’s compelled Prof. Keynes to think differently from the classical school of thought and he wrote an epoch-making book entitled General Theory of Employment, Interest and Money. This book gave a new direction to the theory of employment.

Keynes did not agree with the ‘laissez faire policy’ of the classical thinkers which believed in the automatic functioning of the economy. Market forces of demand and supply can correct any imbalance or disequilibrium in the economy without any outside intervention. Market failures let Keynes to advocate government intervention in the business activities.

The classical Theory of Employment emphasizes upon the supply side to attain full employment. Keynes economics is essentially the demand side economics. Keynes has developed his theory on the concept of effective demand. In the words of Dudley Dillard, “the concept of effective demand is the logical starting point of Keynes’ theory of income and employment”.

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