What was Keynesian economics?
Keynesian economics was a system of economic development that arose in response to the Great Depression. It stated that the cause of the Great Depression was the inadequate demand of the consumers, and therefore the government should step in and help by increasing money supply, provide jobs and redistribute incomes. Keynes theories were not put into action until after World War II under president Franklin D. Roosevelt, and it proved to start a social reform, however the massive military spending during World War II brought the end of the Great Depression.
Economic Experimentation
- The economic crisis brought by the Great Depression was dealt with in one of two ways, governments either took active roles to prevent deflation or they did nothing in hopes that the crisis would resolve itself
- Neither way was effective in lifting the economies back up, and instead caused the problems to worsen
- John Maynard Kayes created a revision of economic thought, which later became known as Keynesian economics
- In his published work, The General Theory of Employment, Interest, and Money, Keynes proposed his answer to the depression, underemployment and an inability for people to find jobs
- To resolve this problem, Keynes urged for governments to stimulate the economy by increasing the money supply, and advised governments to provide jobs for the unemployed and redistribute incomes
- He said that these measures were necessary even though they would cause government deficits, and that they would lead to economic revival
- Keynes methods were not taken into consideration until after the end of World War II, and were partially implemented by president Franklin D. Roosevelt
- Roosevelt took steps to inflate the economy, known as the New Deal, such as a new legislation to prevent deflation, providing jobs and farm lands, guaranteeing minimum wages for all workers, and providing social security for people in old age
- The fundamental goal of this was to protect the social and economic welfare of the people, which caused a reform legislation that continued on for many decades after
- However, these reform efforts proved to be unsuccessful, and it turned out to be the massive military spending of the government during World War II that brought the country out of depression
- This same technique was what brought countries other than the U.S. out of depression, and was useful everywhere except for in Germany and Japan, since they had different approaches
- In Japan, they responded to the depression using social unrest and violence, but eventually they focused on rebuilding the economy, establishing public works, relief programs, subsidies, and devaluation of the currency which recovered the economy by 1931
- In Germany, Hitler intervened forcefully and created public works projects such as the Autobahn, which increased industrial production and quickly recovered the economy by the mid-1930's