The way we conceptualize the world and the assumptions we make influence both the explanations we provide for certain events and the policies we develop in relation to them. Therefore, tracing the history of ideas can help us understand many of our current actions, institutions, theories. This holds true especially in the field of economics where one of the dominant ideas throughout the years has been the concept of laissez-faire – the idea that markets should be unfettered by the government. Even though it might seem that this idea has won the day, revisiting the history of economic thought and more specifically the work of Keynes can contribute a lot in re-evaluating this dominant notion.
The essay presents Keynes’s aim in ‘The end of laissez-faire’ as an attempt to challenge the predominant paradigm of laissez-faire by reconstructing its emergence in the works of the classical political and economics thinkers. Keynes develops this project further 10 years later in The General Theory of Employment, Interest and Money, when he provides new theoretical propositions challenging the axioms of the classical economist made in support of laissez-faire and thus he revolutionizes the study of economics. In 1926 he questions the justifications of laissez-faire. In 1936 he seeks to defeat it by introducing an alternative set of theoretical assumptions. These new assumptions have enriched the field of economics ever since. His policy conclusions were widely accepted until the 1970s’ economic crises that could not be explained by Keynes’s model. Therefore, we can conclude that his final conclusions did not pass the test of time. However, the underlying analysis can still provide important insights to current fiscal policy debates.
Aim of the argument in 1926
Let us start with presenting the argument of ‘The end of laissez-faire’. Keynes seeks to achieve two things. Firstly,
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