Keynes and Great Depression

It was during the 1930s, that Keynes' really made his mark as an economist, helping to develop a whole new branch of Economics.

When the Great Depression hit, with unprecedented ferocity, economists were at a loss to explain its causes and how to overcome it. Prevailing economic orthodoxy stuck to the old classical view that Markets will clear in the long run.

At the height of the crisis, the fledgling Labour government was told by Treasury officials that the government must balance the budget to survive the depression. This effectively meant increasing taxes and cutting unemployment benefits. Keynes described this as economic madness and argued for the exact opposite. He argued in a recession of this magnitude, it was necessary for the government to intervene and actively stimulate the economy. Apart from a few half hearted attempts such as the new deal, Keynes' policies were largely ignored in the UK and US; and high levels of unemployment persisted until the start of the second world war.

It was to this backdrop that Keynes wrote his General Theory of Employment, Interest, and Money (1936). Quite a dense work, it still broke the mould of classical economics and created a powerful argument for active demand management. ALthough, his theories were later criticised by Monetarists, much of his thought remain key elements of modern economic theory. Keynes was a great publicist for his theories.

He would say things like:"The government should pay people to dig holes in the ground and then fill them up."

People would reply. "that's stupid, why not pay people to build roads and schools"

Keynes would respond saying "Fine, pay them to build schools. The point is it doesn't matter what they do as long as the government is creating jobs".

He wanted to emphasise the importance of intervening in a recession.

Keynes was a new style of Economist. He wasn't just content to spend hours reading away in the British Library (like Karl Marx) he understood the importance of the soundbite and actually influencing the political process.

Quotes on Keynes
"No one in our age was cleverer than Keynes nor made less attempt to conceal it."
- R. F. Harrod in The Life of John Maynard Keynes (1951)
"We're all Keynesians now."
- US President Richard Nixon (1972)
"If you put two economists in a room, you get two opinions, unless one of them is Lord Keynes, in which case you get three opinions."
- Winston Churchill

Extracted from an internet search - Source . Tejvan Richard Pettinger

http://www.economicshelp.org/