Keynes (1883-1946) was originally a free trade theorist. Until the late 1920s, he still believed in traditional free trade theory and believed that protectionism was useless for domestic economic prosperity and employment growth. Even when he was debating the issue of German reparations with Swedish economist Ohlin in 1929, he insisted that the balance of payments would automatically restore balance through changes in domestic and foreign price levels.
When his masterpiece "The General Theory of Employment, Interest and Money" ("The General Theory") was published in 1936, Keynes reversed his past position and instead emphasized the trade balance Regarding the impact on national income, I believe that if protective policies can bring about a trade surplus, it will certainly help increase investment levels and expand employment, ultimately leading to economic prosperity.
Keynes believes that traditional trade theory is based on the premise that all production factors, including labor force, are fully employed, and advocates conducting trade based on the principle of comparative cost, which not only achieves full employment, but also enjoys the benefits of division of labor. However, this premise does not exist in real life, but there is often a large amount of involuntary unemployment. If a country trades freely according to traditional theory, although it can engage in specialized production in sectors with comparative advantages and obtain certain division of labor benefits, it will give up Or reducing the peace in sectors with little or no comparative advantages, unemployment will inevitably become more serious. Therefore, Keynes continued to protest that traditional trade theory was not applicable to modern capitalism.
He also criticized traditional theory for only focusing on the benefits of division of labor and emphasizing the automatic adjustment process of external balance of payments, while completely ignoring the impact of the trade balance on national income and employment. He believes that as far as a country is concerned, the latter is more important than the former, because a surplus can increase income, enable capital inflows, lower interest rates, increase investment, and expand employment; on the contrary, "if it is a deficit, a stubborn economy may soon develop." Recession. "
As a result, Keynes favored trade surplus and re-advocated mercantilism, believing that "the doctrine of mercantilism contains a negative element" but only affirmed some views of mercantilism. At the same time, he also admitted that "the benefits that can be obtained by implementing mercantilism are limited to one country and will not benefit the whole world."
In "The General Theory", Keynes started from the principle of investment multiplier and further elaborated on the relationship between the trade balance and the rise and fall of the national economy. He believes that the multiplier effect of investment is that new investment in a department will not only increase the income of that department, but also cause an increase in the income of other relevant departments through a chain reaction. Additional new investment generates new income, causing the total national income to increase several times that of the initial investment.
The total investment of a country includes both domestic investment (which is determined by the domestic marginal efficiency of capital and interest rate) and foreign investment (which is determined by the trade surplus). "To increase the surplus, the government It is the only direct way to increase foreign investment; at the same time, if there is a trade surplus, precious metals will flow inward, so it is the only indirect way for the government to reduce domestic interest rates and increase domestic investment incentives. "In addition, Keynes also emphasized the trade surplus itself. It also plays an important role in the national economy like investment. It is believed that exports are the demand for the country's products, like investment, are an "injection" that can increase national income; while imports are an increase in the consumption of imported goods, like savings, are a kind of leakage, which will weaken investment The effect of the multiplier reduces national income.
Therefore, Keynes strongly advocated a trade surplus and proposed that exports should be expanded as much as possible while using protective tariffs and encouraging "buying British goods" to limit imports. Keynes's above-mentioned analysis of the multiplier theory and trade surplus was later developed into the foreign trade multiplier theory through the arguments of British scholar Harold and American scholar Machlop and others.
In addition to "The General Theory", Keynes's other two important economic theory works are "A Tract on Monetary Reform" (1923) and "A Treatise on Money" (1930) .
These two works are his representative works on monetary theory, but neither of them can break away from the classical quantity theory of money.