The early-summer
national and international efforts against the currently cruel
economic recession that began around the world about four years ago
often seem—at least to this observer—to feature ideas notably
ignorant of victorious anti-depression combat eight decades ago.
The historic victories
featured the powerful governmental fight against the punishing 1930s
depression promoted by British economist John Maynard Keynes and U.S.
President Franklin D. Roosevelt. Take a look.
John
Maynard Keynes
(1883-1946)
The
most prominent 20th century economist, Keynes (pronounced like
"Canes," not "Keens," as in "The Keynes
Mutiny" below) was also a financial genius. Like David Ricardo,
he could predict the stock market with great accuracy. Before Keynes,
most economists still followed Adam Smith's idea of laissez-faire:
leave the market alone and it (or rather the invisible
hand)
will run itself. No need for government intervention. If the
government would only stay out of the economy, it would run great.
Right? Sure, at least until the Great Depression came
along. The
Great Depression showed that, in times of severe economic crisis, it
may become necessary for the government to give the economy a boost,
in order to get it back on its feet.
In 1936, Keynes published one of the most influential economics
texts ever written: The
General Theory of Employment, Interest, and
Money,
usually called simply The
General Theory.
Until this time the area of microeconomics
was basically all there was to economics: economists delt with the
market, supply vs. demand, and generally small-scale issues. Keynes
emphasized a broader view, macroeconomics,
which views the relationships between markets, foreign trade, private
and public (i.e. government) spending--in short, the combined effect
of every aspect of the economy.
. . .
John
Maynard Keynes and
the Revolution in Economic Thought
British
economist John Maynard Keynes believed that classical economic theory
did not provide a way to end depressions. He argued that uncertainty
caused individuals and businesses to stop spending and investing, and
government
must step in and spend money to get the economy back on track. His
ideas led to a revolution in economic thought.
. . .
During
early days of the Great Depression, President Herbert Hoover resisted
calls for government intervention on behalf of individuals. He
reiterated his belief that if left alone the economy would right
itself and argued that direct government assistance to individuals
would weaken the moral fiber of the American people. . . .
Hoover
was easily defeated in the presidential election of 1932 by Democrat
Franklin D. Roosevelt. . . . many facets of the New Deal--Social
Security, the Federal Deposit Insurance Corporation and the
Securities and Exchange Commission to name only three--have remained
features of American life from the 1930s until the present. . .
.
This
huge expansion in the role, size and power of government in American
social and economic life is aptly summed up in Republican President
Richard Nixon's famous 1971 remark, "We're all Keynesians now."
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