Economy as a science, the laws of its functioning and regulation, the principles of development are the subject of scientific research for many generations of scientists. To understand the economy, experiments were carried out, colossal work was organized, on the basis of which theories were born and died, and people argued, challenged each other's ideas. Over a long period of time, all possible factors influencing the development of society and the economy were considered. Behavior stereotypes, habits and patterns of consumption, production, income and savings were considered.
J. M. Keynes
One of these theories was Keynesianism, which was based on the works of the multidisciplinary scientist and outstanding public figure J. M. Keynes. Keynes questioned the entire economic thought of the early 20th century, stating that the economy does not regulate itself, itthere is no striving for balance and overcoming crises. According to the scientist, in order to overcome the crisis, state intervention is necessary with the help of monetary and credit policy.
Law wording
This statement was based on the principles of work and the development of economic processes, namely income, consumption, employment. These concepts were connected with the help of the basic psychological law of Keynes, which reflected the relationship between income and consumption. These two terms were the basis for the development of all other economic factors.
According to Keynes' basic psychological law, as incomes rise, so does consumption, but at a slower pace. The author analyzed many events in a generalized form and received a clearly formed trend, which he later expressed in his writings. Thus, Keynes' basic psychological law also covered the concept of savings, since the received and unspent funds of the population go exactly in this direction.
Economy and employment
The success of the economy, according to the scientist, was achieved only if full employment was organized. An efficient economy is a system that brings the maximum amount of profit. According to the basic psychological law of Keynes, the maximum profit is achieved at full employment, if people are free to part with money. Full employment, in turn, is available at maximum profit. It turns out such a vicious circle in which everyone depends on everyone.
Psychological aspect of consumption
Keynes's Basic Psychological Law described the impact of psychological characteristics of behavior on macroeconomics. The factors under consideration represent the reaction of individuals to the changes taking place in the economy. These reactions turned out to be surprisingly typical for people, which made it possible to describe the direction of movement of society and the economy when certain events occur.
Equilibrium of the economy is considered by scientists through supply and demand, which must balance each other. Demand is formed by consumer spending, which, in turn, is based on the psychology of consumers. A decent level of demand that can give the economy an impetus to development can only be generated if consumers spend all the income they receive, again and again starting the cycle of financial flows in the economy.
Psychology and savings
Keynes's basic psychological law of consumption asserts a less active dynamics of changes in consumer spending with income growth. Accordingly, a certain remnant is formed that is not allowed back into the economy by society. This balance forms savings.
The amount of savings, like consumption, depends on the amount of income. This is the first and main factor that determines the size of all financial transactions.
Equity distribution
The propensity to consume and save, according to the basic psychological law of John. Keynes, is determined by shareindicators. The share of consumer income spent on meeting the daily needs of a person and ensuring his life activity indicates his propensity to consume. By analogy, the basic psychological law of John. M. Keynes defines the propensity to save as the share of consumer income that is not spent on needs, but remains in the balance.
The scientist examined the psychology of expenses and incomes in great detail, therefore, to better argue his law, he introduced the concepts of marginal propensities to consume and save. These concepts do not consider total income, consumption and saving, but the amount by which they have been changed. The rest of the principle remains the same: we consider the share ratios of changes in spending and savings relative to the amount of changes in income.
The distribution of expenses and savings, in addition to income, also depends on many factors that influence the behavior of the population. The first of these will be price factors (changes in the cost of certain necessary products directly affect the amount of money spent even if the volumes remain the same), then there are expectation factors (people psychologically prepare themselves for growth or depression in the economic environment, adjust their spending style). Credit factors are also an important point (the ability to easily take out a loan if necessary will increase costs, since a person will not save "just in case"). Already existing credit obligations accumulated in society will not contribute to an increase in costs. Most likely the population willmore actively cover obligations if income levels are stable and show a positive trend, allowing you to meet daily needs and leaving a balance.
The basic psychological law of D. M. Keynes received public attention and recognition in the 30-60s of the twentieth century. During the Great Depression in the United States, he was a huge discovery that allowed a deeper understanding of the principles of the movement of the economy, the behavior of an individual and the entire population. On the basis of the works of the scientist, a whole scientific direction was created, recommendations were developed for regulating the economy and managing financial flows based on psychological factors.
