Can anyone please explain what John Maynard Keynes is saying

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Can anyone please explain what John Maynard Keynes is saying in his Book The General Theory of Employment Interest and Money below ? Is Keynes saying that public works jobs will put money in people's pockets and will increase consumer demand ?


John Maynard Keynes
The General Theory of Employment, Interest and Money

Book III
The Propensity to Consume
Chapter 10. The Marginal Propensity to Consume and the Multiplier

II

It follows, therefore, that, if the consumption psychology of the community is such that they will choose to consume, e.g., nine-tenths of an increment of income,[2] then the multiplier k is 10; and the total employment caused by (e.g.) increased public works will be ten times the primary employment provided by the public works themselves, assuming no reduction of investment in other directions. Only in the event of the community maintaining their consumption unchanged in spite of the increase in employment and hence in real income, will the increase of employment be restricted to the primary employment provided by the public works. If, on the other hand, they seek to consume the whole of any increment of income, there will be no point of stability and prices will rise without limit. With normal psychological suppositions, an increase in employment will only be associated with a decline in consumption if there is at the same time a change in the propensity to consume — as the result, for instance, of propaganda in time of war in favour of restricting individual consumption; and it is only in this event that the increased employment in investment will be associated with an unfavourable repercussion on employment in the industries producing for consumption.

III
We have been dealing so far with a net increment of investment. If, therefore, we wish to apply the above without qualification to the effect of (eg.) increased public works, we have to assume that there is no offset through decreased investment in other directions,-and also, of course, no associated change in the propensity of the community to consume. Mr. Kahn was mainly concerned in the article referred to above in considering what offsets we ought to take into account as likely to be important, and in suggesting quantitative estimates. For in an actual case there are several factors besides some specific increase of investment of a given kind which enter into the final result. If, for example, a Government employs 100,000 additional men on public works, and if the multiplier (as defined above) is 4, it is not safe to assume that aggregate employment will increase by 400,000. For the new policy may have adverse reactions on investment in other directions.

V

It is also obvious from the above that the employment of a given number of men on public works will (on the assumptions made) have a much larger effect on aggregate employment at a time when there is severe unemployment, than it will have later on when full employment is approached. In the above example, if, at a time when employment has fallen to 5,200,000, an additional 100,000 men are employed on public works, total employment will rise to 6,400,000. But if employment is already 9,000,000 when the additional 100,000 men are taken on for public works, total employment will only rise to 9,200,000. Thus public works even of doubtful utility may pay for themselves over and over again at a time of severe unemployment, if only from the diminished cost of relief expenditure, provided that we can assume that a smaller proportion of income is saved when unemployment is greater; but they may become a more doubtful proposition as a state of full employment is approached. Furthermore, if our assumption is correct that the marginal propensity to consume falls off steadily as we approach full employment, it follows that it will become more and more troublesome to secure a further given increase of employment by further increasing investment.

http://www.marxists.org/reference/subje ... y/ch10.htm

Yes.
Thats what he is saying.

Well -not exactly.
It depends on the situation.

He is saying that IN TIMES OF SEVERE UNEMPLOYMENT thats what happens. Public works employ X number of people to plant trees to reforest or whatever. But further - there is a multiplier effect- those new workers spend money- which inturn gets spent again several times in a year in the comunity and generates even more employment.

But the cure gets less effective the less severe the disease.

You get gradually less new employment for each dollar the less severe the unemployment. Which makes sense - if unemployment were zero obviously you wouldnt be able to reduce unemployment even more with a public works project. The money spent would only
feed inflation.

The upshot is if that you can use public works as a weapon to fight a severe recession or depression.

All it does is reallocate resources from one sector of the economy into another, either through taxes or inflation. Added to that, however, is the lost benefits of private investment. Government cannot know whether it is allocating resources in a productive way as it does not function on profits. Unemployment is a meaningless statistic unless you factor in productivity. Unproductive jobs do not stimulate economic growth, otherwise you could simply hire every unemployed person to dig holes in the ground and refill them in order to counteract a recession.

When the tire is going soft, pump it up.

ruveyn

What does everyone else think ?

As a neo-classicist, I would say that Keynes General Theory is mostly wrong. In fact, Keynes took ideas which had been floating around in populist circles for the preceding half-century and made them into a mathematical model. It was a good marketing trick for himself. He found what the population (including politicans) wanted and supplied it.
It is all based, however, on specific types of disequilibrium. I believe that the disequilibrium of the 1930's was partially due to the gold standard (as opposed to Keynes' theory). The real value of gold rose in the 1930's as generally happens when the market recognizes that it had been too loose with credit (as it was in the 1920's). Something similar happened worldwide from 2007-present. Since, in a gold standard, the price level is the inverse of the value of gold, prices fell in the 1930's. Assuming that the real value of gold would not have been changed by a gold standard, the price level in the US would have fallen by about 75% from 2005-present if the US had been on a gold standard during that period. (based on gold rising from roughly $400 to $1600 per ounce). A gold standard gives long-term price stability (the CPI was about the same in 1900 as in 1800) but short-term instability.
In the 1930's the US had laws which prevented businesses from reducing prices. Consequently, people just hoarded money (gold), anticipating that the money would purchase more in the future. I believe that this was the real force behind the "saving" in Keynes' model and was a big part of the reason why the Great Depression lasted as long as it did.