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

Book 1: Introduction
Chapter 1. The General Theory
I HAVE called this book the General Theory of Employment, Interest
and Money, placing the emphasis on the prefix general. The object of
such a title is to contrast the character of my arguments and
conclusions with those of the classical[1] theory of the subject, upon
which I was brought up and which dominates the economic thought,
both practical and theoretical, of the governing and academic classes
of this generation, as it has for a hundred years past. I shall argue that
the postulates of the classical theory are applicable to a special case
only and not to the general case, the situation which it assumes being a
limiting point of the possible positions of equilibrium. Moreover, the
characteristics of the special case assumed by the classical theory
happen not to be those of the economic society which we actually live,
with the result that its teaching is misleading and disastrous if we
attempt to apply it to the facts of experience.
Author’s Footnotes
1. “The classical economists” was a name invented by Marx to cover
Ricardo and James Mill and their predecessors, that is to say for the
founders of the theory which culminated in the Ricardian economics. I
have become accustomed, perhaps perpetrating a solecism, to include
in “the classical school” the followers of Ricardo, those, that is to say,
who adopted and perfected the theory of the Ricardian economics,
including (for example) J. S. Mill, Marshall, Edgeworth and Prof.
Pigou.

Chapter 2. The Postulates of the Classical
Economics
MOST treatises on the theory of value and production are primarily
concerned with the distribution of a given volume of employed
resources between different uses and with the conditions which,
assuming the employment of this quantity of resources, determine their
relative rewards and the relative values of their products.
The question, also, of the volume of the available resources, in the
sense of the size of the employable population, the extent of natural
wealth and the accumulated capital equipment, has often been treated
descriptively. But the pure theory of what determines the actual
employment of the available resources has seldom been examined in
great detail. To say that it has not been examined at all would, of
course, be absurd. For every discussion concerning fluctuations of
employment, of which there have been many, has been concerned with
it. I mean, not that the topic has been overlooked, but that the
fundamental theory underlying it has been deemed so simple and
obvious that it has received, at the most, a bare mention.
I
The classical theory of employment — supposedly simple and obvious
— has been based. I think, on two fundamental postulates, though
practically without discussion, namely:
i. The wage is equal to the marginal product of labor.
That is to say, the wage of an employed person is equal to the value
which would be lost if employment were to be reduced by one unit
(after deducting any other costs which this reduction of output would

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