See Keynes’ Prose Sparkle

September 24, 2009

I don’t own a copy of his General Theory, so the Marxists let me look at their copy. Couldn’t open to a random page, so I just went to the beginning of the third chapter. Behold!

WE need, to start with, a few terms which will be defined precisely later. In a given state of technique, resources and costs, the employment of a given volume of labour by an entrepreneur involves him in two kinds of expense: first of all, the amounts which he pays out to the factors of production (exclusive of other entrepreneurs) for their current services, which we shall call the factor cost of the employment in question; and secondly, the amounts which he pays out to other entrepreneurs for what he has to purchase from them together with the sacrifice which he incurs by employing the equipment instead of leaving it idle, which we shall call the user cost of the employment in question.[1] The excess of the value of the resulting output over the sum of its factor cost and its user cost is the profit or, it we shall call it, the income of the entrepreneur. The factor cost is, of course, the same thing, looked at from the point of view of the entrepreneur, as what the factors of production regard as their income. Thus the factor cost and the entrepreneur’s profit make up, between them, what we shall define as the total income resulting from the employment given by the entrepreneur. The entrepreneur’s profit thus defined is, as it should be, the quantity which he endeavours to maximise when he is deciding what amount, of employment to offer. It is sometimes convenient, when we are looking at it from the entrepreneur’s standpoint, to call the aggregate income (i.e. factor cost plus profit) resulting from a given amount of employment the proceeds of that employment. On the other hand, the aggregate supply price[2] of the output of a given amount of employment is the expectation of proceeds which will just make it worth the while of the entrepreneurs to give that employment.[3]

Feeling enlightened yet? Let’s keep going:

It follows that in a given situation of technique, resources and factor cost per unit of employment, the amount of employment, both in each individual firm and industry and in the aggregate, depends on the amount of the proceeds which the entrepreneurs expect to receive from the corresponding output.[4] For entrepreneurs will endeavour to fix the amount of employment at the level which they expect to maximise the excess of the proceeds over the factor cost.

Let Z be the aggregate supply price of the output from employing N men, the relationship between Z and N being written Z = φ(N), which can be called the Aggregate Supply Function.[5] Similarly, let D be the proceeds which entrepreneirs expect to receive from the relationship between D and N being written D = f(N), which can be called the Aggregate Demand Function.

Now if for a given value of N the expected proceeds are greater than the aggregate supply price, i.e. if D is greater than Z, there will be an incentive to entrepreneurs to increase employment beyond N and, if necessary, to raise costs by competing with one another for the factors of production, up to the value of N for which Z has become equal to D. Thus the volume of employment is given by the point of intersection between the aggregate demand function and the aggregate supply function; for it is at this point that the entrepreneurs’ expectation of profits will be maximised. The value of D at the point of the aggregate demand function, where it is intersected by the aggregate supply function, will be called the effective demand. Since this is the substance of the General Theory of Employment, which it will be our object to expound, the succeeding chapters will be largely occupied with examining the various factors upon which these two functions depend.

This is the beginning of the chapter, people! I didn’t have to work hard to find this passage because this is how the General Theory is written. What does it mean that Keynes is really difficult to read? Not much. I’ve been reading economics more or less without cease for the last three weeks, so I’m not about to claim that all good economists write interesting and easy-to-understand prose. But describing the General Theory as easy to read is a joke.


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