From the desk of Guest Blogger BF
Chapter 10 of GT is where we finally get the concepts of the marginal propensity to consume and the Keynesian multiplier set out. The exposition of the multiplier is pretty much the same as you’ll see in the relevant chapter of those intro macro texts which still teach it, and Ch 10 includes the familiar numerical example of how an MPC of .9 translates into a multiplier of 10. I suspect that example has been the source of no end of bad policy – students who barely scrape through an intro course remember that example, and not the stuff which follows it (both in intro courses and in the GT) which sets out the factors which will reduce the size of the multiplier.
Our Guest Blogger BF continues
Chapter 9’s very brief, and we’re actually done with it, but before we go on to Chapter 10 it’s worth taking a quick look back at Chapters 8 and 9 together. JMK refers to them as explaining the propensity to consume, but as we noted earlier he doesn’t introduce the term “marginal propensity to consume” until Chapter 10. Chapters 8 and 9 deal with the whole range of factors which affect consumption behavior.
From BF our Guest Blogger
Chapter 9 is a continuation in theme of Chapter 8, dealing with the subjective factors underlying the propensity to consume. JMK reckons that these are pretty uncontroversial, so he basically just lists them, although in the form of factors which increase the propensity to save and reduce the propensity to consume. For the consumer, they are: To build up a reserve against unforeseen contingencies, to provide for future needs for things like education, old age and the maintenance of dependents, to increase future consumption when the increase in consumption in the future is judged to be preferred to a smaller current consumption (he sees people has having a tendency to want a gradually increasing standard of living, raising interesting questions about his views on the discount rate), to enjoy a sense of independence, to put aside enough to be able to carry out a business plan, to be able to leave bequests, and finally, sheer miserliness or “unreasonable but insistent inhibitions against acts of expenditure as such”.