“The Great Depression, like most other periods of severe unemployment,” wrote American economist Milton Friedman, “was produced by government mismanagement rather than by any inherent instability of the private economy.” Friedman’s early career was defined by his support of the Keynesian principles that embraced large-scale government intervention through spending in order to stimulate a depressive economy. The Keynesian Revolution enjoyed success in the aftermath of the Great Depression and World War II where governments around the world circulated money into their economies by investing in rebuilding infrastructure and boosting employment. As the economic growth the world enjoyed from the Keynesian fiscal policies melted into an environment of stagflation of the 1970s (which involves low growth and high inflation), Friedman began to investigate the flaws in the Keynesian philosophy of dealing with economics. His epiphany set the groundwork for the development of a new branch of neoclassical economics: monetarism.
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“The difficulty lies not in the new ideas, but in escaping from the old ones,” wrote British economist John Maynard Keynes in his 1935 text The General Theory of Employment, Interest and Money. “As these old ideas ramify, for those brought up as most of us have been, into every corner of our minds.” Keynes was a maverick economist. The popular school of economic thought in the early 20th century stressed the importance of the micro level and private sector of economics in influencing the public and macro level institutions of the economy. The popular thought was that because humans were rational in their pursuit to maximize their commodities and satisfaction, the free market would remain efficient and operate properly because it offered the best opportunity for individuals to create an economy that could insure maximum utility. In the wake of an economic collapse during the Great Depression, John Keynes launched what would be known as an economic “Keynesian Revolution” that stressed the importance of the mixed economy: one that valued the neoclassical importance of the micro level, with the need for accountability and stability protected by the macro level. The story of the rise of Keynesian economics is fascinating. From the late 19th century onwards, neoclassical economics theory dominated the mainstream discourse of macro and microeconomics. Under the assumption that humans are rationale and their decisions are rooted in efforts to maximize the utility of their purchasing power, neoclassical economics theory stressed the importance of microeconomics influence on macro level markets. Heavily reliant on mathematical models and statistics, neoclassical economics theory asserted that a free market and a focus on individualistic methodology offered reliable foundations by which to navigate and forecast maximum utility in a marketplace. Yet, neoclassical economists’ belief in the fixed behaviors of individuals desire to maximize profit in their daily life has felt increased scrutiny as the global economy has shown itself to be more |
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