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John Maynard Keynes's When The Great Depression

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One of the most influential and famous debates of economics is perhaps the need for government intervention. While Keynesian school of thought, which advocates government intervention in times of market failure, is the dominant ideology that gains great penetration in the U.S. academia, they face some strong opponents, which is Austrian school of economic thought. During the Great Depression in 1930, Keynesian economics is hugely appreciated in the U.S. as the U.S. government provided bailout for failed large corporations and stimulus programmes with deficit spending in order to boost consumption and investment. This essay hopes to explore the difference between Austrian School of economic thought and Keynesian school of thought on the issue …show more content…

In the Great Depression of 1930, real GDP decreased almost 30% from August 1929 to March 1933 and unemployment rate soared to almost 24%. Stock market collapsed, many business faced foreclosure (Romer, 2003). Seeing the impact of recession is severe and without a vision to improve, Keynes (1923) said, “In the long run, we are all dead”, meaning that even if market as a self-correcting mechanism will adjust over time, it would be more beneficial to intervene in the market and bring back the economy in its full potential. He proposed instead of passively wait for the market to overcome the ‘bust’, monetary and fiscal policies should be implemented to alleviate the inflation plight of the nation. He believed in the macroeconomic concept, aggregate demand and aggregate supply, which set tone for his later …show more content…

Even if the mechanism of price signal is indeed far too complex for politicians to meddle, without the ability to predict future, it would look perhaps ridicule for a politician to rely on the self-correcting mechanism of market, without knowing the duration of the sufferings. If the aim of political economy is to ensure economic growth of a nation, politicians would be rather ridicule to vouch in the middle of a crisis to the populace, that in the belief of laissez-faire approach, one day it will get better, at the expense of millions losing their jobs and

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