Keynesian vs Monetarist Economy

Topics: Great Depression, Macroeconomics, Keynesian economics Pages: 6 (1957 words) Published: March 26, 2013
Economics for Hospitality,
Tourism and Leisure

Keynesians versus Monetarists

Faculty responsible: J. Heller


Humanity has known in its history long periods of growth with the Agrarian Revolution, the Industrial Revolution, the Oil era and now the Information’s one. From the last period of sustained growth is born the myth of continuous and eternal growth. However, the scarcity of natural resources and the awareness of the negative effects of economic activities suggest that humanity may live a long period of stagnation. In fact, it has already experienced long periods of recession. That is the reason why we should prepare ourselves to sustain growth rather than calling it as our ancestors called rain. In order to achieve this goal, we can follow different economic philosophies such as Keynesianism or Monetarist economies. In this work, we will focus more on Keynesianism. Firstly, we will discover the history of this theory and then define it. In addition, we will analyse and describe all the components of this theory. Finally, we will be comparing the two approaches to demonstrate that Keynesianism is much more effective and brings more advantages than Monetarists.

John Maynard Keynes was born in England in 1883 until his death in April 1946. Keynes was certainly the greatest economist of the twentieth century (Clark, 2008). Even today he returns often in the foreground: the known subprime financial crisis in late 2009 led a great business newspaper to elect him "Man of the Year" (Diever, 2010). Keynes’ thinking was very different from the others, this is the main reason his thoughts were terribly combated by anti-Keynesian. However it is still standing until our day while periods of economic crisis have put his theory in the spotlight again (Diever, 2010). Because it was not only an economist but also a philosopher, mathematician, man of letters, arts and culture, John Maynard Keynes was able to equal in the previous century Karl Marx, Francois Quesnay in the eighteenth or William Petty in the seventeenth. He managed to dominate the economics of his time, knead it, model it, then transformed and enhanced it in the hands of the generations following. He has been for a long time in the protective shadow of Alfred Marshall, the great apostle of market equilibrium; But once out of the traditional ideologies, he runs through his own path with an impressive force. He wrote the book known as "The General Theory of Employment, Interest and Money", which was published in London in 1936. It is the main work of John Maynard Keynes , The General Theory which contain 24 chapters is primarily a theory of employment. It was very well received in 1936 because it offered a plausible solution to the distressing problem of unemployment (unemployment rate of over 10% in Britain) .

The general theory aims to present the operation of the economic system as a whole (also called economic circuit). We can then say that Keynes theory is in a macro-economic level (Pettinger , 2008). The principle of his economic approach was based on a logic and circular flow of money; when the expenses increase, revenues increase as well, which will lead to more spending that will result once again for more income. This flow of money is simple to understand, and to Keynes, the key is to spend. Indeed, each person spending causes the benefit of another person; and the person who perceived the money will in her turn spend it, which will go towards the benefit of a third person, and so on ... After the first signs of the Great Depression in 1929, the nature of people have led them amass their money and let him sleep for fear of being in need. This has lead to a decrease in spending and hence lower flow circulation. In doing so, we maintain the economy at a standstill and depression bursts. Following Keynes’ theory, in order to overcome a critical economic situation, it is necessary for the government to...
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