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Applicability Of Keynesian Theory

 Keynesian Postulations and Underdeveloped Countries


       The Keynesian thesis is not appropriate to all socio-economic groups. It is applicable to sophisticated democratic capitalist fiscal systems. Schumpeter has defined as follows: “Practical Keynesianism is a seedling which cannot be transplanted into foreign soil; it dies there and becomes poisonous before it dies. But left in English soil this seedling is a healthy thing and promises both fruit and shade. All this applies to every bit of advice that Keynes ever offered.”

Keynesian Postulations and Underdeveloped Countries

The Keynesian economics depends on the subsequent postulations which restricts its appropriateness to underdeveloped countries.

  1. Keynesian thesis depends on the subsistence of cyclical redundancy which happens during recession. It is due to insufficiency in effective demand. Redundancy can be eliminated by an enhancement in the level of valuable demand. But the nature of redundancy in an under developed nation is quite diverse than that in a developed nation.

    In such fiscal systems redundancy is unremitting somewhat than recurring. It is not caused by the insufficient effectual demand but consequently due to insufficiency in capital resources.
    Besides unremitting redundancy, underdeveloped nations suffer from camouflaged redundancy. Keynes was apprehensive with the elimination of in-deliberate redundancy and the difficulty of fiscal unsteadiness. So he did not refer to camouflaged redundancy and its solution.

    The remedy for the unremitting and camouflaged redundancy is fiscal growth to which Keynes had no concentration at all. Therefore, the Keynesian postulations of recurring redundancy and fiscal instability are hardly tenable in an underdeveloped fiscal system.

  1. The Keynesian financial system is a short period analysis in which Keynes takes “as given the subsisting techniques and volume of obtainable worker, the subsisting volume and excellence of obtainable tool, the subsisting skill, the degree of competition, the tastes and habits of the consumer, the disutility of diverse forces of labour and of the performances of supervision and organisation as well as social structure.”

                The development economies nevertheless is a long period study in which all the basic aspects believed by Keynes as given, change over time.

  1. The Keynesian Thesis depends on the postulations of closed financial system. But underdeveloped nations are not closed financial systems. They are open financial systems in which overseas trade acts a leading role in developing them. Such financial systems foremost depends on the exports of farming and industrial inputs and the imports of capital goods. Therefore, the Keynesian financial system has little significance to underdeveloped nations in this respect.
  1. The Keynesian thesis presumes a surplus supply of labour and other complementary resources in the financial system. This study refers to a recession fiscal system where “the industries, machines, managers and workers as well as consumption habits are all there only waiting to resume their temporarily suspended functions and roles.”

    But in under developed financial systems there is permanent suspension of fiscal activity. Fiscal activity is static, capital, skills aspect supplies and fiscal infrastructure are woefully lacking.

  1. Additionally, it can be deduced from the above presumption that labour and capital are redundant concurrently as per Keynesian study. When labour is redundant capital and tool are also not entirely employed or there is surplus capacity in them.

    But this is not so under developed nations. When labour is redundant there is no query of capital being unutilised for the reason that there is acute deficiency of capital equipment.

The Keynesian Instruments and Underdeveloped Nations

       Therefore the assumptions on which the Keynesian thesis depends are not appropriate to the conditions prevailing in under developed nations.

  1. Effective Demand

    Redundancy is due to insufficiency of effective demand and to get over it, Keynes suggested the stepping up of consumption and non-consumption outlays. In an under developed nation, nevertheless, there is no in-deliberate redundancy but camouflaged redundancy. Redundancy is not due to insufficiency of harmonizing resources.

    The concept of effective demand is appropriate to that financial system where redundancy is due to surplus thrift. In such a condition the antidote lies in stepping up the levels of consumption and investment through assorted monetary and fiscal instruments. But in under developed financial system earnings levels are extremely low, the inclination to consume is very huge and cutbacks are almost zero.

    All labours to enhance money earnings through monetary and fiscal instruments will, in the non-presence of harmonizing resources lead to price inflation. Here the difficulty is not one of raising the effective demand but one of raising the levels of employment and per capita earnings in the context of fiscal growth.

  1. Inclination to Consume

    One of the significance equipment of Keynesian fiscal is the propensity to consume which emphasises the correlation amidst consumption and income. When earnings enhances, consumption also enhances but by less than the addition in income. This behaviour of consumption further explains the rise in saving as earnings hikes.

    In under developed nations these correlations amidst earnings, consumption and thrift do not grasp. People are very deprived and with their earnings enhancement, they expend more on consumption goods for the reason that their inclination is to meet their unfulfilled needs. The marginal inclination to consume is very huge in such nations, whereas the marginal inclination to save is very less.

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