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CIAO DATE: 03/02
Critical Review
Keynes on Capitalism: Reply to Hill
By Steven Horwitz
Abstract
Greg Hill's recent article voices the Keynesian complaint that capitalism produces unemployment because there is no mechanism that coordinates decisions to save with decisions to invest. But resources that are not spent on current consumption are either "invested" as bank deposits or "hoarded" as cash. Deposits are lent out by banks to investors, who are informed by interest rates as to the degree of saving for future consumption that is taking place. And wage/price flexibility, as well as increases in the supply of cash, can avoid declines in real income and employment caused by increased cash holdings.