Today’s spotlight is on John Maynard Keynes, the British economist who revolutionized our understanding of national economies. Through his groundbreaking book, The General Theory of Employment, Interest and Money (1936), Keynes laid the foundation for modern macroeconomics.
The Problem: Great Depression
During the Great Depression, unemployment soared and demand collapsed. Classical economists believed markets would self-correct — but they didn’t. Keynes argued that this crisis called for a new way of thinking.
Keynesian Revolution
Keynes rejected the idea that supply creates its own demand (“Say’s Law”). Instead, he proposed that aggregate demand — total spending in the economy — determines output and employment.
If people aren’t spending, businesses don’t produce. If businesses don’t produce, workers lose jobs.
The Role of Government
To break the vicious cycle of recession, Keynes recommended:
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Public spending to stimulate demand
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Monetary policies to lower interest rates
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Deficit spending during downturns, followed by repayment in good times
This was radical: it meant the government could and should intervene to stabilize the economy.
Long-Term Impact
Keynesian economics shaped economic policy for decades, especially after World War II. Major contributions include:
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Fiscal policy tools like stimulus packages
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Creation of the IMF and World Bank
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A more balanced view of inflation vs unemployment
Though challenged by monetarists in the 1970s, Keynesian thought saw a revival after the 2008 financial crisis and during the COVID-19 pandemic.
Final Thoughts
Keynes didn’t just change theory — he changed policy and saved capitalism from itself. His bold ideas gave governments the tools to fight recessions and preserve social stability.
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