ABSTRACT
This chapter examines John Maynard Keynes’s initial presentation and defense of public investment as the key policy tool to be used to restore and sustain full employment in an economic system otherwise incapable of this objective. Keynes suggested that full employment or a “sustainable minimum” unemployment rate, was about 3 percent unemployment. Given the significance of structural unemployment, he argued that a transition to full employment required a combination of macroeconomic stimulus and industrial policies – large-scale public investment to create jobs on the one hand and targeted industrial and labor market policy on the other. Keynes proposed that the state should commit itself to increasing public investment by a substantial amount for a long period of time to stimulate an increase in general employment large enough to solve the jobs problem centered in the export sector. Large-scale public investment would increase the general demand for labor in the country and, simultaneously, create employment for export industry workers.
