Keynesian Employment Theory Is Not Defunct

In the last few years it has become increasingly common to hear and read the claim that Keynesian employment theory is irrelevant for understanding the recent high levels of unemployment in the United Kingdom and other countries, and that governments can no longer spend their way out of unemployment. There have been several lines of argument and attack, but three main camps or schools of thought are discernible which I shall call ‘the technological’, ‘the monetarist’ and ‘the old classical’. The technological school see the high unemployment as of the structural variety caused by technological change which is not amenable to Keynesian demand management policy. It is this school that is particularly worried about the future, and the unemployment consequences of the micro-processor revolution. The monetarist school, to which the present Conservative government subscribes, believes that government spending is the enemy of employment in two ways. First, government borrowing is inflationary which destroys confidence in the private sector. Secondly, government expenditure ‘crowds out’ private expenditure. This latter belief is essentially a return to the old Treasury view, originally based on the classical assumption of full employment, that there is a fixed quantum of resources, and that more spending by the government must inevitably mean less spending in real terms by other agents.