Home > Free Essays > Economics > Economic Theories > Change in the Value of Money According to Keynes

Change in the Value of Money According to Keynes Essay

Exclusively available on IvyPanda Available only on IvyPanda
Updated: Dec 4th, 2021

The essay “Social consequences of change in the value of money” by Keynes discusses how both inflation and deflation can cause great harm to businessmen, investors, and workers. According to Keynes, when the value of money changes it results in redistribution of wealth. He goes on to explain how it affects the investing class, the business class, and the wage earner. He also discusses the effects of change in the value of money on production.

To explain the effect of inflation on investors, Keynes delves into the history of inflation through the nineteenth century and tries to explain the complacency of investors at the beginning of the First World War when a sudden devaluation of bonds resulted in many people losing their entire savings. He explains how for a hundred years in the nineteenth century, the value of currency did not change, encouraging most of the middle classes to invest their money in bonds. But after the First World War, the currency depreciated and the entire savings of many middle-class investors were wiped out.

On the other hand, the devaluation of money can increase the profits of the business class in two ways. First, if they are obliged to pay the investors a fixed amount annually, this fixed amount will constitute a smaller proportion of the businessman’s turnover as a result of inflation. Second, as the prices rise on a month-to-month basis, the businessman ends up buying goods at a lower price and selling it at a higher price, thus seeing a sudden increase in its fortunes.

As far as the wage earners are concerned, the wages lag behind the price rise and so inflation results in them being even worse. However, Keynes also mentions the fact that in the years following the First World War, certain classes of wage earners were able to negotiate good salaries from their businessmen employers.

Thus having explained how inflation results in redistribution of wealth, Keynes goes on to discuss the effect of change in the value of money on production. He explains that since there is a considerable time before a business can make profits from production, it brings about an element of speculation to production. When prices are expected to rise, production is over-stimulated and fear of deflation inhibits the production process, resulting in job loss. Keynes concludes that both inflation and deflation have their disadvantages and should be avoided.

The essay was written in the years following the First World War and Keynes used examples from the economic turmoil of the period to explain the effects of inflation and deflation on society. This focus on a particular time period is perhaps the biggest weakness of the essay. Although he uses simple terminology and layman language to explain complex economic concepts and successfully explains the various disadvantages related to the change in the value of money, he tends to stray away from the topic every now and then and seems to be confused about what he really wants to discuss.

Keynes starts the essay in a straightforward manner and spends considerable time explaining the effects of inflation on the investment class. He first discusses the factors which led to the rise of investment class and adds a touch of humor when he says that “the morals, the politics, the literature and the religion of the age joined in the grand conspiracy for the promotion of saving” and brings out the irony of the situation when he quotes that “It is curious to observe how, through the wise and beneficent arrangement of Providence, men thus do great service to the public, when they are thinking of nothing but their own gain” (p. 388). The history of the origins of the investment class is engaging and helps the reader understand why so many people had invested their entire savings in bonds. However, after this initial good start, Keynes seems to lose his way. For example, discussing the benefits of inflation to governments, farmers and debtors was wholly unnecessary in the middle of the reasons which led to the rise of the investment class and could have been mentioned elsewhere.

In discussing the effects of inflation on business class, Keynes seems to be confused about whether to show inflation as a benefit or as a problem. After explaining in detail the benefits of inflation to the business class, he does an about-turn and tries to say that businessmen would be made to feel guilty by society for making money. He seems to imply that a businessman has certain obligations to society when he says that “The businessman is only tolerable so long as his gains can be held to bear some relation to what roughly and in some sense, his activities have contributed to the society” (p.394). He reiterates this stand when he explains why certain classes of workers have managed to negotiate better salaries when he says that “it was worth his (businessman) while to pay the ransom, and to share with his workman the good fortune of the day” (p. 395). It was completely unnecessary to get into such moral preaching. Besides, the reader never finds out whether inflation is good or bad for the wage earner.

Although Keynes concludes that both inflation and deflation have disadvantages, his use of words such as “unjust” and “evil” makes it a philosophical essay rather than one about economics.

There is indeed no doubt that Keynes tackles some complex economic terms like inflation and deflation in simple layman language and explains their consequences with help of concrete examples. He has also done considerable research, especially on the nineteenth-century economy. However, he keeps straying from the topic and often fails to take a stand. He also tends to intersperse the text with definitions and explanations which could have been taken care of in the beginning, rather than in the middle of an example. This can distract the reader who often does not know what stand Keynes is trying to take.

Overall, although the essay uses simple language and tries to incorporate some humor and give examples to bring across its point, it tends to get confusing and preachy at places. The issue of morals of a businessman is best left to a moral science essay and is completely misplaced in an economics essay. It simply reduces the brilliance of the piece.

This essay on Change in the Value of Money According to Keynes was written and submitted by your fellow student. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly.
Removal Request
If you are the copyright owner of this paper and no longer wish to have your work published on IvyPanda.
Request the removal

Need a custom Essay sample written from scratch by
professional specifically for you?

801 certified writers online

Cite This paper
Select a referencing style:

Reference

IvyPanda. (2021, December 4). Change in the Value of Money According to Keynes. https://ivypanda.com/essays/change-in-the-value-of-money-according-to-keynes/

Reference

IvyPanda. (2021, December 4). Change in the Value of Money According to Keynes. Retrieved from https://ivypanda.com/essays/change-in-the-value-of-money-according-to-keynes/

Work Cited

"Change in the Value of Money According to Keynes." IvyPanda, 4 Dec. 2021, ivypanda.com/essays/change-in-the-value-of-money-according-to-keynes/.

1. IvyPanda. "Change in the Value of Money According to Keynes." December 4, 2021. https://ivypanda.com/essays/change-in-the-value-of-money-according-to-keynes/.


Bibliography


IvyPanda. "Change in the Value of Money According to Keynes." December 4, 2021. https://ivypanda.com/essays/change-in-the-value-of-money-according-to-keynes/.

References

IvyPanda. 2021. "Change in the Value of Money According to Keynes." December 4, 2021. https://ivypanda.com/essays/change-in-the-value-of-money-according-to-keynes/.

References

IvyPanda. (2021) 'Change in the Value of Money According to Keynes'. 4 December.

Powered by CiteTotal, the best reference maker
More related papers