The General Theory of Employment, Interest, and Money

Keynes revisits the historical debate between mercantilist and classical economic doctrines concerning trade balances and the role of money in national prosperity. He explains how early mercantilist thinkers, often dismissed by later economists, recognized that maintaining a favorable balance of trade could boost a nation’s supply of precious metals and thus lower its prevailing rate of interest, fostering investment and employment. Contrasting this with the classical free trade viewpoint that assumes an automatic, self-correcting balance, Keynes emphasizes that mercantilists dealt with realities of liquidity preferences, fears of unemployment, and concerns about capital outflow. Through examples drawn from 16th and 17th century debates, he shows mercantilists were neither wholly misguided nor oblivious to trade’s mutual benefits; rather, they correctly perceived the dangers of persistently high interest rates and sluggish investment. Keynes acknowledges that while modern societies differ, the mercantilists’ interest in managing money flows for domestic advantage holds lessons for contemporary policy, reminding us that purely theoretical arguments about trade and prices must be reconciled with practical measures to ensure enough investment and demand for full employment.

Additionally, Keynes revisits various economic thinkers who proposed under-consumption theories and critiques the reluctance of mainstream economics to engage with these ideas. He highlights English philosopher Jeremy Bentham’s protest against laws that hamper legitimate risk-taking, noting that Bentham’s perspective largely prevailed during the 19th century, when confidence in continuous capital growth obscured the possibility of insufficient investment demand. Keynes gives special attention to German economist Silvio Gesell, an often-dismissed thinker whose insights on money, interest, and “stamped” currency presaged modern liquidity considerations but stopped short due to a missing theory of liquidity-preference. He also evaluates J.A. Hobson and A.F. Mummery’s The Physiology of Industry (1889), which identified that excess saving without matching investment can curtail demand and employment. Although they lacked an explicit interest-rate framework, their criticisms advanced the under-consumption argument lost since 18th century English economist Thomas Malthus. Finally, Keynes addresses newer heresies like C. H. Douglas’s “A+B theorem,” acknowledging that, while often flawed in specifics, they emerged partly because orthodox doctrine failed to address the root problem of balancing investment and consumption to maintain adequate overall demand.

Keynes concludes by addressing the broader social and philosophical implications of his economic theory. He emphasizes the two major failings of contemporary economies: the recurring inability to achieve full employment and the inequitable distribution of wealth. With his focus on controlling aggregate demand and on lowering the rate of interest to levels conducive to investment, Keynes envisions a scenario where private initiative can flourish without the destructive levels of unemployment often deemed inevitable. He challenges the old moral justification for vast inequalities—namely that the wealthy are necessary for capital accumulation—and argues that once society is capable of properly managing investment, disparities in wealth can be substantially reduced without harming productivity. While he accepts there may be a place for individualism and personal incentives, Keynes sees a need for government interventions—through fiscal and monetary means—to ensure that the propensity to consume and the inducement to invest are balanced. Ultimately, he believes that such a managed form of capitalism need not lead to totalitarianism, but rather to a more stable and just order, with full employment, moderated inequality, and a preserved sphere for personal freedom and initiative.