Failures and weaknesses of Keynesian theory
Evaluation of Keynesian theory will be incomplete if we do not make an attempt to examine the important weaknesses and failures of the theory. It can be briefly enumerated as mentioned below:
1) It is only a capitalistic theory:
Keynesian theory is branded as capitalistic theory. Keynes has evolved a theory to make capitalistic economy work smoothly. He has not taken into consideration the recent developments in economic system in the form of socialism and communism. In these economic systems, profit motive is absent and capital is owned by the state itself. So the question of marginal efficiency of capital or anticipated profits does not arise in communist and socialist economies. That is why it is said: “If communism comes, Keynes will be as dead of Ricardo”. The concepts of Keynes cannot be altogether dismissed in socialist economies. Even in socialist countries, attempts to rise the level of employment and to increase national incomes are made. Most of the operations are centralized and planned investment is the government investment, which becomes autonomous investment.
2) It is only a depressionary economics: Keynes created his new theory in the depressionary period to offer something as solution to retrieve the economies from the morass of depression. It was born out of the Great depression, in the thirties and the theory has no relevance to modern economies bristling with hectic economic activity. This criticism is too uncharitable. Keynes’ theory is not exclusively for depressionary periods. His models explain both depression and boom periods and clarify situations and also offer solutions. Autonomous investment in the depression to boost the economy and disinvestment in the boom period are the solutions offered by Keynes to mitigate the evil of trade cycle.
3) It is short run economics: An important feature of Keynesian theory is its short run considerations of the concepts and effects. It does not pay much attention to long run effects.
4) It is based on the assumption of perfect competition: Like old classical economists, Keynes too has assumed perfect composition which is far from realistic. Keynes has completely overlooked the problems of monopoly and imperfect conditions. From this point of view, Keynesian theory becomes obsolete and outdated as it does not conform to practical conditions.
5) It is too aggregative, neglecting micro aspects:
One of the major criticisms against Keynes’ theory is its aggregative character.
6) Confusing units of measurement: Another fundamental criticism against this theory is the wrong choice of units in measuring the total output of the economy. For want of a common unit of measurement to denote the output of an economy, Keynes used employment as the unit of measurement.