Keynesian Economics Definition
Keynesian economics is based on the flawed theories of John Maynard Keynes. He was a 20th century British economist whose theories were documented in “The General Theory of Employment, Interest and Money,” published in 1935. His ideas called for a mixed economy where both public and private sectors are involved, and was a proponent of at least some level of centrally planned inflation. While Keynes is loved by many who support strong centralized planning in the economy, his understanding of economics was weak at best. Of all of the quotes by Keynes, perhaps the most revealing regarding his understanding of economics is the following, in 1927: “We will not have any more crashes in our time.”
He theorized that an economy based on private sectors solely, would not be productive. There had to be at least some regulatory input from the public sector. Meaning that government intervention into fiscal and monetary policies would have to take place to provide a stable economy. The ideas of Keynesian economics provided the basis for economic models used in the Great Depression, World War II, and the expansion that followered the war. Keynesian economic theory went in the opposite direction from the laissez-faire theories that preceeded it. Laissez-faire economic theory called for no intervention by the government into the economy. The market was to stabilize itself without government interference. Keynesian economics also proposed the concept of the circular flow of money. What one person spends, another earns and what that person spends, yet another earns. This created the “circular flow.” Saving money totally disrupts this circular flow of money by taking money out of the cycle and diminishing the total. Under Keynesian economics, this is where government would take action to increase spending by putting more money into the market or increasing the money supply. This was the Keynesian theory to what happened in the Great...
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