ABSTRACT
This chapter demonstrates that convincing the reader that secular stagnation was real and deeply rooted was John Maynard Keynes’s major theoretical objective in the sections of The General Theory that dealt with underemployment equilibriums. Keynes’s macro theory provides the broad abstract concepts – marginal efficiency of capital, marginal propensity to consume, and interest rate – used to organize all of the “facts” and the logic of causality between them and income and employment. For Keynes, stagnation was not a chronic or universal condition of capitalist economies, but rather a chronic tendency of mature capitalist economies. Capitalists typically respond to the rising power of labor through the use of labor-saving technical change embedded in new machinery. This leads to an increase in what Marx called the “reserve army” of unemployed workers. Keynes reinforced his argument with a hypothetical example that compared two nations with the same level of technology but different-sized capital stocks.
