EssaysForStudent.com - Free Essays, Term Papers & Book Notes
Search

What Was Keynes’ Theory and How Did He Influence the World Economy in the 19th Century?

By:   •  Essay  •  753 Words  •  May 3, 2010  •  849 Views

Page 1 of 4

What Was Keynes’ Theory and How Did He Influence the World Economy in the 19th Century?

What was Keynes’ theory and how did he influence the world| economy in the 19th century?

Before the 1930s the US economy had been ruled by the forces of supply and demand and with as little government interference as possible and it seemed if everything went smooth.

But in reality the system favorite the middle- and the upper-class, so about half of the American population did not participate in the economic growth. Wealth and purchasing power were uneven distributed and over production in industry and agriculture became a severe problem. In addition, speculation in stocks had driven the value of the stocks up to unrealistic heights. All this is said to be some of the causes for the Great Depression that reflects the 1930s. What triggered the depression was the crash on the New York Stock Exchange in October 1929.

John Maynard Keynes, a British economist, was one of many that launched his ideas on how to get the world economy back on track. In the book The General Theory of Employment, Interest and Money, from 1936, he challenges the economists who said that the economic problems would correct it selves and that the government shouldn’t do a thing about it. Other had said that the wages should be reduced, and thereby it would increase the demand after workers and semi-products. Keynes disagreed with these views, and he stated that if the wages were lowered, people’s purchasing power would be even more reduced and this would eventually lead to lower prices on industrial products and other merchandises.

The unemployment grew rapidly all over the world during the Depression, and it is estimated that nearly 50 million people were out of work in the industrialized countries. One of Keynes’ main ideas was an active government. He meant that unemployment was totally meaningless, economically speaking. Because the machines stood there, there were plenty of workers and there were capital but few took the chance of using and investing it. What was missing was purchasing power. If the workers got money then they would spend it and the money would change owner and eventually create willingness to invest. But the government had to start the process, and use money, increase the salary and take up loans even though it could lead to deficit budgets. The most important thing was to get people back at work.

It is clear to see that President Franklin D. Roosevelt and the U.S. administration adopted Keynes’ theory, known as the “General Theory”, in their recovery plan, “New Deal”. The government became actively involved in creating jobs and economic activity. One example is the Tennessee Valley Authority (TVA), where the government built reservoirs and power stations.

Women were now also allowed into the government and the administration. The goal was to get one of

Continue for 3 more pages »  •  Join now to read essay What Was Keynes’ Theory and How Did He Influence the World Economy in the 19th Century?
Download as (for upgraded members)
txt
pdf