Construction Economics: Implications of Keynesian School of Thought on the Construction Industry

The report discusses the Keynesian School of Thought and its implications on the construction industry. It highlights the need for government intervention during economic downturns to maintain full employment in the industry.

Running head: CONSTRUCTION ECONOMICS
Construction Economics
Name of the Student
Name of the University
Author Note

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Table of Contents
Introduction................................................................................................................................2
Keynes and Keynesian School of Thought................................................................................2
Assertions of the Keynesian School of Thought........................................................................2
Application of Keynes Theory in Construction Industry...........................................................3
References..................................................................................................................................5

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Introduction
Over the years, the conceptual and theoretical framework of economics have
experienced considerable dynamics and different schools of thought have evolved in the
global economic scenario under different perceptions and notions of the founding fathers of
these school of thoughts, who primarily include eminent economists like Adam Smith, John
Maynard Keynes, Karl Marx and many others (Brue and Grant 2012). The ideals and
assertions put forward by these founding fathers of economics are found to be relevant and
applicable even in the real economic scenario of the contemporary period. Keeping this into
context, the report tries to the school of thought which evolved under John Maynard Keynes
and also tries to discuss its implications on the construction industry in general (Johnson
2017).
Keynes and Keynesian School of Thought
John Maynard Keynes (5th June, 1883-21st April, 1946), was one of the most eminent
European economists of his time who revolutionized the economic way of thinking, which in
many ways contradicted the existing conceptual framework of economics which is popularly
known as the Classical School of Thought in economics (Sebastiani 2016). Being the author
of the famous book, named “The Economic Consequence of the Peace”, Keynes was a strong
supporter of monetarism and highlighted the role of price levels in stabilizing the economies
and was also famous for his assertions regarding the role played by the governing authorities
and state itself in controlling and facilitating the dynamics of economies in the global
scenario.
Assertions of the Keynesian School of Thought
Before evolution of this school, the primary school of thought prevailing in the global
economics framework was that of the Classical School of Thought, the most important

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assertion of the school being that the economy grows optimally if it is left in the hands of the
market forces, with very little or no government intervention. However, the flaws of this
theory became more prominent with the several recessionary and depression situations in the
global economy due to the lack of presence of government intervention and monitoring.
Keynes, keeping this into consideration, highlighted the need for presence of government and
state authorities in an economy in order to ensure welfare of all sector of the society,
especially at the times of crisis and downturns as if in these periods the economy is left in the
hands of the market forces, then it may hamper one section of the society in order to benefit
the other (Davidson 2017). Keynes also highlighted the need to stabilize wage in an economy
in order to ensure a better standard of living, which in turn can help in increasing
consumption, investment, aggregate demand and thereby leading to higher economic growth
in the countries.
The Keynesian school of thought also supports the idea of deficit spending on parts of
the government especially at the times of economic stagnation as a robust measure to
maintain full employment in the economy, which the market forces cannot ensure. In his
“The General Theory of Full Employment”, Keynes asserted that for existence of full
employment in an economy, government intervention and assistance is required. All these
assertions can be found to be relevant to the contemporary construction industry in the
countries.
Application of Keynes Theory in Construction Industry
The primary assertion of Keynes which seem to be applicable in the construction
sector of different economies is that during various economic fluctuations and downturns, to
maintain full employment in these sectors, the government intervention is needed. The
primary reason behind this assertion is that during the times of recession and economic
downfalls, if the construction industry is left to the market forces then it can lead to slow

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down of the productive activities due to the stagnation of many infrastructural and
construction projects and also shut down of some of the companies, which can lead to loss of
employment of many workers, especially the low skilled and vulnerable worker (Pressman
2013).
In such situation, the presence of considerable government intervention can help in
maintaining full employment though increased government spending as Keynes takes
government spending as a part of the aggregate demand.
Figure 1: Full employment by deficit financing of government
(Source: Stiglitz and Rosengard 2015)
This can happen in the construction sector in the form of construction ventures taken
up by the government, which can lead to increase in the employment scopes for the workers
in this sector, especially at the times of economic slowdown.
Conclusion
Thus, it can be asserted that different school of thoughts in economics assert theories
which are relevant to the activities in the construction sectors of the economy. While the
theory of Adam Smith talks about the Invisible Hand which determines the wages and
material prices in the construction economy, the Marxian economy talks about the problems

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with the distribution of welfare and economic resources and the class struggle between the
class having all the resources and the working class who are usually deprived by the former.
From the above discussion it can be asserted that the assertions put forward by the Keynesian
school of thought is relevant to a construction industry in the contemporary period, especially
at the times of economic downturns and recessionary situations when leaving the industry in
the hands of free markets can lead to loss of employment and welfare. In such cases, the
intervention of government in the form of deficit financing can lead to creation of job
opportunities thereby helping in maintaining full employment in the industry.

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References
Brue, S. and Grant, R., 2012. The evolution of economic thought. Cengage Learning.
Davidson, P., 2017. John Maynard Keynes. Springer.
Johnson, H.G., 2017. Macroeconomics and monetary theory. Routledge.
Pressman, S., 2013. Fifty major economists. Routledge.
Sebastiani, M. ed., 2016. The Notion of Equilibrium in the Keynesian Theory. Springer.

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Stiglitz, J.E. and Rosengard, J.K., 2015. Economics of the Public Sector: Fourth
International Student Edition. WW Norton & Company.