The History of Keynesian Economics

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An economist during the 1950s studies Keynesian theory.
An economist during the 1950s studies Keynesian theory. (Image: Image by Flickr.com, courtesy of foundphotoslj)

British economist John Maynard Keynes established Keynesian economics during the first half of the 20th century. His theory is a macroeconomics principle, dealing with the entire economy of a nation or region in its behavior, performance and overall structure.

Function

Keynesian economics identifies the fact that the private sector can occasionally make poor decisions. This requires the intervention by the public sector, sometimes taking the form of monetary control.

Identification

Keynes published his theory for the first time in his 1936 work, “The General Theory of Employment, Interest and Money.” This formed the central thesis of his work throughout his life.

Significance

During the end of the Great Depression and post-World War II era, Keynesian economics served as the principle model for most Western countries, most notably the United States.

Political Ramifications

In the era of the Cold War, Keynesian economic principles served as a midway point for laissez-faire capitalism and socialism. This caused friction between political factions and economists of the era.

Continuing Influence

Following the global financial crisis of the early 21st century, many world leaders adopted the Keynesian concept of economics in order to recover from the downturn. Among these were U.S. President Barack Obama and U.K. Prime Minister Gordon Brown.

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