Re: Chapter 8 THE PROPENSITY TO CONSUME I. THE OBJECTIVE FACTORS
In chapter 8, Keynes argues that the actual propensity to consume is a functional relationship between the income () of a given community and that community’s expenditure on consumption (), expressed as (see Chapter 8, Section I). This actual propensity to consume is what entrepreneurs attempt to approximate via the component of in , the aggregate demand function, where is the expectation of . He also shows that the actual propensity to consume depends primarily on e ployment volume and income (see Chapter 8, Section II), in addition to some other factors. This all goes to show how dynamic and expectations-based these feedback loops are, loops which need to be understood in order to prudently assess and promote/up-regulate employment volume. Keynes also shows that consumption rises with income, but at a lesser rate generally.
Seeing as Keynes previously argued that savings equals investment, it follows that any excess of income beyond what is spent on consumption must constitute investment (unresolved ) of some kind (see Chapter 6, Section II. Saving and Investment). Thus, in order to promote employment, we must understand how value (as real ages represented by money wages) flows from producer to employees according to producer’s expectations of demand, and how that income then, in turn, manifests as actual demand, in the form of expenditure on consumption and as investment. This feedback loop is thus critical in the determination of employment volume, but in the last section (see Chapter 8, Section IV) Keynes shows that the existing macroeconomic assessments and projections do not adequately account for these complex dynamics, which Keynes designates as the “objective factors” driving the actual propensity to consume.