What does Keynes mean when he says that economic activity, generally, is characterized ° oy uncertainty? Why does he think that this casts doubt on the validity of the standard, no-classical economic theory? How is the idea of uncertainty related to Keynes's claim that aggregate effective demand is likely to be a problem in a capitalist economy? Why does Keynes think that, given this problem, only a significant degree of government intervention will allow the preservation of the capitalist economy, and, so, of individual freedom? Be sure to discuss the role of aggregate investment. Note: Please base your essay on the actual Keynes readings that we have done, and on what has been said in class, not on generalized ideas you may have about him from other sources. 2. Both Hayek and Keynes argue that uncertainty is a necessary feature of economic life: for Hayek, the future is unpredictable and unforeseeable, and we cannot even fully understand what happened in the past; for Keynes, our expectations of the future are fluctuating, vague, and uncertain. But for Hayek, uncertainty requires that the economy be unregulated; whereas, for Keynes, largely because of uncertainty, only significant government intervention can prevent economic collapse. Account both for the similarities and the differences in their views of uncertainty. Be sure to ground your essay in specific passages from the texts. Note: The point is not to decide who is right or wrong, but to see how the two views Illuminate one another.
"... To indicate the nature of the environment which the fret play of economic forces requires if it is to realize the full potentialities of production." (The General Theory of Employment, Interest, and Money) "The political problem of mankind is to combine three things: Economic Efficiency, Social Justice, and Individual Liberty." ("Liberalism and Labour") "I believe that in many cases the ideal size for the unit of control and organization lies somewhere between the individual and the modem State. I suggest, therefore, that progress lies in the growth and the recognition of semi-autonomous bodies within the State—bodies whose criterion of action within their own field is solely the public good as they understand it, and from whose deliberations motives of private advantage are excluded ..." ("The End of Laissez-Faire") In each of these three passages, Keynes denotes three things - (1) environment, free play of economic forces, full potentialities of production; (2) Economic Efficiency, Social Justice, Individual Liberty; (3) the State, intermediate organizations, the individual. In each, he argues for the necessity of all three things, and for recognizing and bringing about the proper relations among them. Say something about the significance of each passage, including the necessity of the three things in each, and the contrast to neoclassical economics. How are the three passages related to one another? How do the three together lay out a program for reforming (but preserving) the modern capitalist economy so that it can realize the full potentialities of production while also preserving Social Justice and Individual Liberty? (Be sure to indicate the role of intermediate organizations in this program.) Another passage may help to focus your response to the last question: ... the whole question whether wages should be fixed by the forces of supply and demand in accordance with the orthodox theories of laissez-faire, or whether we should begin to limit the freedom of those forces by reference to what is "fair" and "reasonable" having regard to all the circumstances."