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Keynesian theory, in economics, was developed by the English economist, John Maynard Keynes (1883 - 1943), and was presented in 1936 in his book, The General Theory of Employment, Interest and Money. Keynes rejected large parts of neoclassical economics and his ideas have had a profound effect on economic analysis and policy in the Western world. His theory attempts to explain how the level of economic activity is determined. He asserted that economies could be in equilibrium at less than full employment, and that it was therefore for governments, through their taxing and spending policies, to ensure enough effective demand to produce full employment. He believed that monetary policy is ineffective relative to the more direct fiscal policy in efforts to bring an economy out of deep depression. Keynes therefore switched the emphasis of policy from microeconomics to macroeconomics, where it remained for almost 40 years. His influence was enormous; governments everywhere came to accept responsibility for full employment. His critics were not silent, however; as inflation rose in the late 1960s and early 1970s, their claim that Keynesian policies were inevitably inflationary began to receive new attention. From 1973 on, governments ceased to be Keynesian in any literal sense. They allowed unemployment to rise without trying to expand budget deficits enough to prevent it.
Most economists today accept the broad framework of Keynes\' analysis, but have refined and revised the detail and emphases of the theory. Monetary policy (see monetarism) has been restored to a position of importance for coping with the milder recessions experienced since the 1930s. Keynes emphasized aggregate demand, but today some consider the supply side as important for economic policy (see supply-side economics). Many disagree with applying his particular policy recommendations to today\'s economic problems. TF
Further reading A. Leijonhufvud, On Keynesian Economics and the Economics of Keynes. |
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