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Keynesian economics, or Keynesianism
Keynesian economics, or Keynesianism, is an economic theory based on the ideas of
John Maynard Keynes, as put forward in his book “ The General Theory of Employment,
Interest and Money”, published in 1936. ...
Keynes developed these ideas in response to debate about the British economy that
had started even before the Great Depression began in 1929. The nation had not achieved full
employment since the end of World War I, as the neoclassical theory (referred to as Classical
by Keynes) suggested that it should have. ...
Keynes theory
Keynes explained the level of output and employment in the economy as being
determined by Aggregate Demand. ...
Keynes analysis suggested that these tendencies would be weak or non-existent. ...
In Keynes view, this analysis offered no way out of a system-wide collapse. ...
Keynes theory suggested that active government policy could be effective in managing the
economy. Keynes advocated counter-cyclical fiscal policies: deficit spending when a nations
economy was sluggish and the suppression of inflation in boom times by either increasing
taxes or cutting back on government spending. ...
Two details of Keynes model had implications for policy: First, there is the
"Keynesian multiplier." In his way of tracking aggregate national production, Keynes argued
that increases in consumption do not equal increases in production. ... Second, Keynes re-analyzed the effect of the
interest rate on investment. ... For Keynes, the supply depends on the productivity of the
system, the very thing that his fiscal proposals were intended to affect. ...
Before Keynes it was well known that there was a regular pattern of boom and slump but it
was assumed that economies quickly righted themselves without government intervention.
Keynes denied this. ... So Keynes questioned the then prevailing views about the nature and
cause of unemployment. ... This distinction was one of the most
controversial elements in Keynes’s economics and was much disputed then and ever since. ...
3) According to Keynes this failure to maintain the workforce in full employment was due to
a lack of total spending. ...
In the post-WWII years, Keynes policy ideas were widely accepted. ...
Laissez Faire Capitalism & Keynes
"Laissez Faire" is French for "leave alone" which means that the government leaves
the people alone regarding all economic activities. ...
"Laissez Faire Capitalism" is actually redundant, due to the nature of Capitalism. Therefore,
simply "Capitalism" is sufficient to get the point across although historically it has been
misrepresented as compatible with government economic interference. ...
Laissez-faire capitalism is a system based on four "laws of nature. ... Under laissez-
faire capitalism, unemployment is voluntary because rational individuals prefer leisure to the
"disutility" of work.
The birth of laissez-faire in the 19th century and its rebirth in the 1970’s is not a
natural phenomenon that emerged out of capitalism. ... Laissez-
faire itself was enforced by the state. ... Laissez-faire was not a method to achieve a thing, it
was the thing to be achieved" [Polanyi 1957, 139]. Laissez-faire did not come out of
capitalism as a "natural" mode of functioning of society.
Approximate Word count = 2472
Approximate Pages = 9.9
(250 words per page double spaced)
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