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2021 | OriginalPaper | Chapter

Chapter 3: John Maynard Keynes on Debt and Demand

Author : Irene van Staveren

Published in: Alternative Ideas from 10 (Almost) Forgotten Economists

Publisher: Springer International Publishing

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Abstract

This chapter discusses the insights from John Maynard Keynes about crises. He introduced a behavioural explanation of booms and busts with the help of two psychological concepts: animal spirits (greed and fear) and herd behaviour (reinforcing ups and downs of financial markets). He also pointed at the destabilizing consequences of high household debt for the economy. This represents the connection between his microeconomics and his macroeconomics. When households reduce their consumer spending due to high indebtedness and/or high unemployment rates (during a recession), effective demand in an economy is low. This can only be countered with increased government expenditures. Recovery measures include stimulus packages and a debt jubilee.

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previous chapter Chapter 2: Hyman Minsky on Financial Crises

next chapter Chapter 4: Frank Knight on Risk and Uncertainty

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Title: Chapter 3: John Maynard Keynes on Debt and Demand
Author: Irene van Staveren
Publisher: Springer International Publishing
Book: Alternative Ideas from 10 (Almost) Forgotten Economists
Print ISBN: 978-3-030-57608-0

Electronic ISBN: 978-3-030-57609-7

Copyright Year: 2021
DOI: https://doi.org/10.1007/978-3-030-57609-7_4