British economist John Maynard Keynes (1883 to 1946) gave his name to his theory of the need for government intervention in a mixed economy, which was influential in the United States in the 1930s when President Franklin D. Roosevelt applied his New Deal policy as a response to the financial collapse of the Great Depression. Keynesian theory became reconsidered and re-examined by politicians in many nations following the 2007 economic meltdown.
Keynesian economics sees national governments as having a stabilizing role in the economy, complementing the private sector's freedom to conduct business. According to Keynesian economics, a government needs to intervene to boost overall economic growth, especially at a time of downturn, using government spending on capital projects and by offering tax breaks. The prevailing economic theory and practice before Keynes was "laissez-faire," where the state had little or no role in matters of the economy beyond the raising of taxes for the defense of the nation, in the belief that an economy will operate most effectively if the government does not intervene.
In his work The General Theory of Employment, Interest, and Money, published in 1936, Keynes said government intervention in the economy was important especially in case of chronic unemployment. According to him, an increase in spending on public works by the government could help prevent or alleviate economic depression. He stated that such projects would create more jobs and as a result, national purchasing power would rise. In turn, consumer spending and investment in business would also rise and there will be more jobs beyond the public-work projects.
Keynes was a Cambridge University mathematics graduate who was drawn in to economics work with the British government just before the beginning of World War I in 1914. In 1919, Keynes attended the Versailles peace conference outside Paris as a member of the British delegation, and warned strongly against the imposition of heavy, punitive reparations on the defeated nations, in particular Germany. In later years, historians and economists would look to the burden of reparations on Germany as influential in the collapse of that country's economy in the 1920s and the subsequent rise of Nazism.
Keynesian economics emphasizes the role of demand in an economy. According to Keynes, the main cause of unemployment is low consumer demand for goods and services. Excessive consumer demand for products and services creates inflation. Therefore, the government is responsible for managing the total demand for goods and services, known as aggregate demand, by adjusting its spending and taxes.
Keynes was largely responsible for the development of macroeconomics, which examines large-scale economies from the top down. In Keynesian theory, the micro-level decisions and the behaviors of individuals can be outweighed by macro-level trends and for this reason the government should intervene to affect these large-scale factors. The other main branch of economics, the bottom-up approach called microeconomics, studies how individual decisions affect the overall supply and demand for goods and services, which determine prices.
Alternative approaches to macroeconomics started emerging as inflationary pressures, such as the global oil crisis of the early 1970s, were on the rise after a sustained post-war reconstruction period of steady growth and low unemployment in most western economies. One of the alternative theories to Keynes was developed by in the late 1960s by Milton Friedman (1912 to 2006) and others was called monetarism. The monetarists believed that inflation can be controlled by reducing and restricting the amount of money in circulation in the economy.
Through the 1980s and 1990s, Keynesian economics lost some popularity among government finance departments, because it was seen as a short-term fix to economic problems, but not as a long-term solution. Keynes acknowledged that his work owed much to several predecessors and there have been suggestions that major elements of his theory were anticipated by others, most notably by the Polish-born economist Michael Kalecki (1899 to 1970).
List of books and articles about Keynesian Economics | Online Research Library: Questia
https://www.questia.com/ - /keynesian-economics/
Keynesian economics are various macroeconomic theories about how in the short run – and especially during recessions – economic output is strongly influenced by aggregate demand (total spending in the economy). In the Keynesian view, aggregate demand does not necessarily equal the productive capacity of the economy; instead, it is influenced by a host of factors and sometimes behaves erratically, affecting production, employment, and inflation.
Keynesian economics developed during and after the Great Depression from the ideas presented by Keynes in his 1936 book, The General Theory of Employment, Interest and Money. Keynes contrasted his approach to the aggregate supply-focused classical economics that preceded his book. The interpretations of Keynes that followed are contentious and several schools of economic thought claim his legacy.
Keynesian economics served as the standard economic model in the developed nations during the later part of the Great Depression, World War II, and the post-war economic expansion (1945–1973), though it lost some influence following the oil shock and resulting stagflation of the 1970s. The advent of the financial crisis of 2007–08 caused a resurgence in Keynesian thought, which continues as new Keynesian economics.
Keynesian economists generally argue that as aggregate demand is volatile and unstable, a market economy often experiences inefficient macroeconomic outcomes in the form of economic recessions (when demand is low) and inflation (when demand is high), and that these can be mitigated by economic policy responses, in particular, monetary policy actions by the central bank and fiscal policy actions by the government, which can help stabilize output over the business cycle. Keynesian economists generally advocate a managed market economy – predominantly private sector, but with an active role for government intervention during recessions and depressions.
https://en.wikipedia.org/wiki/Keynesian_economics
Post-Keynesianism
The term "post-Keynesian" was first used to refer to a distinct school of economic thought by Eichner and Kregel (1975) and by the establishment of the Journal of Post Keynesian Economics in 1978. Prior to 1975, and occasionally in more recent work, post-Keynesian could simply mean economics carried out after 1936, the date of Keynes's General Theory.
Post-Keynesian economists are united in maintaining that Keynes' theory is seriously misrepresented by the two other principal Keynesian schools: neo-Keynesian economics, which was orthodox in the 1950s and 60s, and new Keynesian economics, which together with various strands of neoclassical economics has been dominant in mainstream macroeconomics since the 1980s. Post-Keynesian economics can be seen as an attempt to rebuild economic theory in the light of Keynes' ideas and insights. However, even in the early years, post-Keynesians such as Joan Robinson sought to distance themselves from Keynes and much current post-Keynesian thought cannot be found in Keynes. Some post-Keynesians took a more progressive view than Keynes himself, with greater emphases on worker-friendly policies and redistribution. Robinson, Paul Davidson and Hyman Minsky emphasized the effects on the economy of practical differences between different types of investments, in contrast to Keynes' more abstract treatment.
The theoretical foundation of post-Keynesian economics is the principle of effective demand, that demand matters in the long as well as the short run, so that a competitive market economy has no natural or automatic tendency towards full employment. Contrary to the views of new Keynesian economists working in the neoclassical tradition, post-Keynesians do not accept that the theoretical basis of the market's failure to provide full employment is rigid or sticky prices or wages. Post-Keynesians typically reject the IS–LM model of John Hicks, which is very influential in neo-Keynesian economics.[citation needed]
The contribution of post-Keynesian economics has extended beyond the theory of aggregate employment to theories of income distribution, growth, trade and development in which money demand plays a key role, whereas in neoclassical economics these are determined by the forces of technology, preferences and endowment. In the field of monetary theory, post-Keynesian economists were among the first to emphasise that money supply responds to the demand for bank credit, so that a central bank cannot control the quantity of money, but only manage the interest rate by managing the quantity of monetary reserves.
This view has largely been incorporated into monetary policy,[citation needed] which now targets the interest rate as an instrument, rather than the quantity of money. In the field of finance, Hyman Minsky put forward a theory of financial crisis based on financial fragility, which has received renewed attention.
Strands
There are a number of strands to post-Keynesian theory with different emphases. Joan Robinson regarded Michał Kalecki’s theory of effective demand to be superior to Keynes’ theories. Kalecki's theory is based on a class division between workers and capitalists and imperfect competition. Robinson also led the critique of the use of aggregate production functions based on homogeneous capital – the Cambridge capital controversy – winning the argument but not the battle. The writings of Piero Sraffa were a significant influence on the post-Keynesian position in this debate, though Sraffa and his neo-Ricardian followers drew more inspiration from David Ricardo than Keynes. Much of Nicholas Kaldor’s work was based on the ideas of increasing returns to scale, path dependency, and the key differences between the primary and industrial sectors.
Paul Davidson follows Keynes closely in placing time and uncertainty at the centre of theory, from which flow the nature of money and of a monetary economy. Monetary circuit theory, originally developed in continental Europe, places particular emphasis on the distinctive role of money as means of payment. Each of these strands continues to see further development by later generations of economists.
Modern Monetary Theory is a relatively recent offshoot influenced by the macroeconomic modelling of Wynne Godley and Hyman Minsky's ideas on the labour market, as well as chartalism and functional finance.
