Keynes Criticisms against Classical Theory Article shared by: Unrealistic Assumption of Full Employment Condition:
Underemployment Equilibrium and the Waste of Resources 2. Inevitability of State Intervention 3. Emphasis on the Study of Macroeconomics 4. Recognition to Money as an Active Force. Underemployment Equilibrium and the Waste of Resources: According to Keynes, the tacit assumption of full employment by the classicals is not wholly warranted by facts since there always exists some unemployment in the economy based upon the philosophy of laissez-faire capitalism.
Booms and depressions are common features of capitalist economies and investments are not only inadequate but also fluctuating. In such economies less than full employment is the rule and full employment equilibrium only an exception.
Thus, Keynes felt that underemployment equilibrium equilibrium at less than full employment is the normal situation in such economics. Keynes, thus, gave a rude shock to the classicals by challenging their most important assumption regarding the existence of full employment.
Having presumed the full employment of resources, the only problem with the classicals was how to allocate the given quantity of resources in an optimum manner between firms and industries; to them there was no wastage of resources as these were assumed to be fully employed.
Keynes, however, denounced this assumption on the plea that there is a colossal waste of resources in a free enterprise economy on account of the frequent fluctuations in output and employment in the economy as a whole. Besides, unemployment results in the wastage of time, money and energy.
He concentrated more of his energies on the solution of this problem than any other, and he had considerable success. Inevitability of State Intervention: He was convinced that a private enterprise economy may occasionally fall into a slump which could be remedied only through state action in the form of public investment and other fiscal measures.
He advocated state intervention with a view to save capitalism from its recurring crisis of depressions and booms. Emphasis on the Study of Macroeconomics: He pointed to the misleading conclusions we might derive regarding macro policy from micro principles.
He wanted to build a macro theory which could explain trade cycles and provide a forceful policy against them.
According to Keynes, income is not automatically spent at a rate which will keep all the factors of production employed. Unemployment, according to Keynes, is on account of the failure to spend current income on consumption and investment goods.
In a free enterprise economy, supply does not automatically create enough demand within the economy. It is not warranted by facts. The actual state in a free enterprise economy is a fluctuating level of income, output and employment which depends upon effective demand, the deficiency of which causes unemployment and the excess of which causes inflation.
Keynes never felt convinced that wage cuts can cure unemployment.A simple presentation about the classical approach of Management. Classical Management Theorists and its Criticisms As we know that the seeds of scientific management were sown long before Taylor brought together several strands of thinking into a single methodology for applying scientific principles to the design and organization of work.
The classical theory of concepts is one of the five primary theories of concepts, the other four being prototype or exemplar theories, atomistic theories, theory-theories, and neoclassical theories.
The classical theory implies that every complex concept has a classical analysis, where a classical. THE CLASSICAL APPROACH The classical writers thought of the organisation in terms of its purpose and formal struc-ture.
They placed emphasis on the planning of work, the technical requirements of the organisation, principles of management, and the assumption of rational and logical behaviour. Garegnani and others argue that Keynes' criticisms of the classical theory of interest apply to later neoclassical writers, but not to Ricardo.
This paper re-examines Keynes' criticisms. It argues that Keynes attacked Ricardoapos;s theory of interest despite his awareness that . Despite criticisms, the classical approach to business management is still relevant today. Discuss one example to support this statement.
(25%) Classical approach on management can be in terms of three major perspective: scientific management, Bureaucracy and administrative principles, which are emphasis on purpose and formal structure, for.