Criticism of Multiplier
Keynes’ concept of multiplier has been severely criticized by many economists.
1. According to Maberler, it is a tautology, i.e., something which is necessarily true by definition. Keynes’ multiplier is defined as below :
K = ∆Y/∆I
It is not surprising that change in the investment in the investment (∆I) times the multiplier, i.e., ∆Y/∆I should be equal to change in total income ∆Y. in other words, it does not make much sense to say that
It is always true and so it does not require any serious attention.
2. Professor A.G. Hart considers that it is a “useless fifth wheel” which adds nothing to our knowledge gained by the use of consumption.
3. Professor Hazlitt dubs it as a myth and asks” what reason is there to suppose that there is any such thing as the multiplier?” He points out that “there is never any precise, predeterminable or mechanical relationship between social income, consumption, investment and extent of employment.” It is, therefore, just a worthless, the type of thing made depressingly familiar by monetary cranks.
4. According to Professor Brooman, “the concept of multiplier seems like nothing, but a cheap way of getting something for nothing and appears to carry with it a spurious numerical accuracy.”
5. Keynes’ concept of multiplier concentrates exclusively on consumption. It is just another name for marginal propensity to consume which is based on the assumption of constancy. The magnitude of marginal propesnity to consume, in fact, does not remain content.
6. Keynes’ concept of multiplier assumes a liner relation between aggregate income and aggregate spending. Empirical evidence, however, does not support this idea. Empirical studies do show that the relationship between aggregate spending and aggregate income is much more complicated which may be of a non-linear type.
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