John Maynard Keynes (1883–1946) was a British economist who was closely involved with practical politics in the 1920s and 1930s, especially with the Liberal Party and their senior political leaders both at the Versailles Peace Conference and later during the inter-war slump. In his economic works, particularly his classical General Theory of Employment, Interest and Money (1936), he advocated a theory of how governments could control and manipulate the economy to avoid the worst of slumps and inflationary booms. This involved the idea of using budget deficits or surpluses to counter cyclical trends in the economy by pumping money into the economy during a slump, thus increasing purchasing power and raising demand, or raising taxes during an inflationary period in order to take excess demand out of the economy. During the 1930s and 1940s these ideas rather slowly became accepted in government circles through much of the Western world, eventually forming the basis of government policy in post-war economic debate. For example, even the highly conservative US President Richard Nixon announced, in 1972, that he was a Keynesian.
The main features of Keynes’ theory were commitments to full employment and stable currency, and above all the idea that economic performance was controllable without recourse to socialist methods of nationalization and direct state control of economic decisions. Instead governments could leave all detailed decisions in the hands of individual firms, and operate through setting tax levels and interest rates to ‘fine tune’ the overall economy. Until the late 1970s this was a more or less consensual policy among most important political parties and the vast majority of professional economists. Thereafter the ideas came under more and more pressure from ‘right-wing’ alternatives, especially monetarism associated with American economic theorists like Milton Friedman of the Chicago School, which, by the late 1980s, gained a dominance in Western societies equivalent to Keynesianism’s earlier sway. There are very few professional economists who would now identify themselves as Keynesian, and fewer politicians. The extent to which his doctrines are actually contradicted by the dominant monetarist school is, however, unclear.
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