Review of John Hicks' Article 'a Suggested Interpretation of Keynes'

3840 WordsFeb 11, 201316 Pages
A Review of Mr. Keynes and the “Classics”; A Suggested Interpretation By J. R. Hicks Word count: 2,932, (excluding mathematical equations) We aim to examine the British economist Sir John Hick’s article ‘Mr Keynes and the “classics”; A suggested interpretation (April 1937)’ in which Hicks seeks to devise a simpler more cruder ‘classical’ model of the imperial, however complicated work of Professor Pigou’s ‘The theory of unemployment’ that will rightfully disagree with Mr Keynes’s mystifying but accepted proposal in his ‘General theory of unemployment.’ We seek to explore the proposed model by Hicks with the support of mathematics, economic behaviour and theory from his own independent views as well established economists. I…show more content…
The assumption to neglect depreciation is ‘dangerous’ as described by Sir Hicks himself. The danger occurs as most investment goods may experience depreciation of assets and capital, which will in turn affect the cost of production resulting in firms having less profit. This could be a big factor in the number of people a firm can employ, consequently affecting the unemployment rate. This shows the danger can be off vast effect. However, the assumption of such danger is of necessity to devise a simple model. Taking into account appreciation of assets and goods is of too much complication and will be almost impossible to calculate and formulate with consistency and reliability. A model characteristic Hicks seeks to avoid. The rational and fair views of Hicks’ new approach can be further fortified where he refers to “Classical economics” and “Keynesian” in the same sentence, ‘thus I assume that I am dealing with a short period in which the quantity of physical equipment of all kinds available can be taken as fixed. Hicks generates ‘three fundamental equations’ denoting: w = Rate of money wages/person There are only 2 industries; Investment goods and consumption goods x = Output of investment goods (PQx) y = Output of consumption goods (PQy) There are 2 Factors of production in short run (Labour and Capital) as Land and Enterprise are fixed, so our output function including labour and capital is shown by: x=fx(Nx,C) y=fy(Ny,C)

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