The General Theory of Employment, Interest, and Money

This is a foundational text in modern economics that revolutionized the understanding of macroeconomic theory during the Great Depression. Keynes challenges classical economics by arguing that aggregate demand determines overall economic activity and that insufficient demand can lead to prolonged periods of high unemployment. He introduces the concept of the Keynesian beauty contest to explain how investors make decisions based not on fundamental values but on their expectations of others' behavior, likening it to a newspaper contest where participants select the faces they think others will find most attractive. This illustrates how market psychology and collective expectations can drive financial markets away from intrinsic values. Keynes also develops the theory of liquidity preference, suggesting that interest rates are determined by the demand for liquidity versus the supply of money, rather than solely by savings and investment balances. He advocates for active government intervention through fiscal and monetary policies to manage economic cycles and achieve full employment. By presenting these groundbreaking ideas, the book offers valuable insights into the functioning of economies, the importance of demand management, and the psychological factors influencing investment decisions, making it essential reading for understanding modern macroeconomic policy and personal finance.