John Maynard Keynes was a 20th century British economist, founder of Keynesian economics, who strongly advocated the need for government intervention in the capitalist economy, as a way to curb unemployment and resulting recession.
Keynes’s masterpiece titled “The General Theory of Employment, Interest and Money” gave the solution to the prolonged recession of 1930s known as Great Depression and propagated that government should intervene, in order to boost the market economy. The apostate that invisible hand would take the economy out of recession on its own was prevalent at that time and there was no need for any government action. Keynes, in contrast, argued that recession or depression was due to demand falling short of the productive capacity of the economy, and the remedy was to stimulate demand by some external factor. Real problem of unemployment lies in lack of demand, which was not taken into consideration by classical economists but it became the linchpin of Keynesians economic theory. Keynes’ emphasis was on how aggregate demand could be influenced by government spending and taxation in the economy in order to break the cycle of recession, restore growth and reduce unemployment. Keynes contended, then, that the appropriate fiscal policy, by running a budget deficit during periods of high unemployment, can counter recession.
The other key element of Keynesian economics was the phenomenon whereby a given changein government spending, causes a larger change in gross domestic product, which came to be known as the’ Multiplier effect’. Thus, increased government spending, on the other hand, would not only boost demand directly but would also set off a chain reaction of increased demand from workers and suppliers whose incomes would have been increased by the government’s expenditure.
Keynesian fiscal policy, the management of government spending and taxation with the objective of promoting maximum employment, production, and purchasing power, became the centerpiece of macroeconomics both in academic research and in the public debate over national policy. Thus Keynes revolutionized the way in which capitalist economies use to work and frame their macroeconomic policies.
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John Maynard Keynes
-Kimpreet Kaur Walia
Beyond Assumptions 