The 5 Principal Pillars Upon Which Keynes Founded His “New Economics” Are ALL Badly Flawed

Keynes founded his New Economics on five principal pillars, all of which are faulty:

1. Saving is nonspending, and does not provide the funds for investment spending as the classical economists had explained;
2. Consumption spending sustains and drives economic expansion through a multiplier process;
3. The rate of interest is determined by the supply and demand for money (cash) or liquidity, not by the supply and demand for “capital” or savings;
4. There are no equilibrating tendencies in a monetary economy to restore it to full employment once involuntary unemployment emerges; and
5. The classical theories of interest, the price level, inflation, and the law of markets (or Say's law) are all founded on the premise that full employment always exists.

Keynes successfully persuaded most of his audience, including many economists, of the above claims about classical economics mainly by changing the meaning of some key economic terms, although none of his claims is valid. Neither does a monetary economy work the way Keynes claims, nor are the classical principles founded on the assumption of full employment.

—James C. W. Ahiakpor, “On the Future of Keynesian Economics: Struggling to Sustain a Dimming Light,” American Journal of Economics and Sociology 63, no. 3 (July 2004): 585-586.