According to Keynes’s employment theory, the level of employment is determined by the scale of production, which in turn is determined by effective demand. Effective demand is again determined by consumption expenditure and investment expenditure.
For consumption expenditure, Keynes completely used idealist “psychological analysis” and human nature theory to explain.
First, the era in which Keynes lived forced him to admit that consumption lagged behind production, which was his acceptance of reality. However, he did not mention that this phenomenon of consumption lagging behind production was rooted in the poverty of the working people, nor did he reveal the social roots behind it. Starting from an abstract human nature theory, he believed that when people’s income increases, a part of the income is saved, and this savings is positively correlated with income growth. Thus, as income increases, consumption relatively decreases, leading to a reduction in social demand, overproduction, and consequently, millions of workers losing their jobs.
In reality, there is no such savings psychology as Keynes described. The fundamental premise he proposed—income increase—is fundamentally false. In capitalist society, the laws of relative and absolute impoverishment of the proletariat have been in effect. Even if workers’ incomes appear to increase in form, factors like higher taxes and intensified inflation make them increasingly impoverished. As poverty deepens, workers cannot save much from their wages. With rising unemployment and deteriorating working conditions, many workers cannot even support themselves and their unemployed families, let alone save. Currently, many Chinese workers are forced to rely on high-interest products like Huabei to maintain their daily expenses, living paycheck to paycheck, using this month’s wages to pay off last month’s Huabei debt—what savings do they have? However, the lives of Chinese capitalists are entirely different—they not only have abundant savings but also lead extremely luxurious lives, with their consumption never decreasing. In the big cities of the bourgeoisie, various entertainment venues are everywhere, and some capitalists even feed their pets with expensive food that people cannot afford. Clearly, the overproduction in capitalism is not due to so-called abstract human nature but to the production relations of capitalist exploitation.
Insufficient consumption is indeed a phenomenon in capitalist society, and Marxism does not deny it. However, this is absolutely not enough to explain why capitalist economic crises erupt. Capitalist economic crises are cyclical, following periods of boom. During these times, workers’ wages often increase due to growing demand for labor by capitalists, and consumption also increases. According to the “insufficient consumption theory,” crises should not occur. On the other hand, during periods of crisis and depression, unemployment surges and consumption levels are at their lowest. Yet, this low level of consumption does not prevent the recovery of the economy during the rising and boom phases. It is clear that Keynes’s “insufficient consumption theory” cannot fundamentally explain the outbreak of economic crises.