A new front in the battle of ideas..Only one of these two men, though, has been heeded as knowledgeable in the halls of government power. And that man is Keynes. As time has shown, the theory of the role that government should play in the marketplace from Hayek has been long overlooked and only used as a tool from central planners to demean bad economic outcomes from the Keynesian economic policies that have been put in place. Beginning in the Great Depression era, policy makers in Washington latched on to Keynes’ new theories of stimulating the economy through high levels of government spending. The government should increase public works projects and stimulus spending, as Keynes theorized, that would increase the nation’s aggregate demand (AD), meaning an increase of the total demand for final goods and services. Followers of Keynes, known as Keynesians, believed that if they could pump out enough money through government run projects and programs, people who received the benefits of these projects would spend the money and the economy would come roaring back to life. As time would tell, this theory was incorrect.
The Great Depression continued on as project after project and program after program failed to yield the results that Keynesians had hoped for. Even when faced with the data that proved the Keynesian theory incorrect, the policy makers argued that spending was just not high enough. On the other side of the argument was Friedrich Hayek, who argued that government planning the economy would never work. As Hayek argued in his book The Fatal Conceit, “the curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” Central planners can try day and night to make the economy work perfectly, but they never have the perfect information that would yield the results they hope for.
The Essay on The Keynesian Theory Great Depression
Keynesian Theory The Great Depression can be greatly understood by the Keynesian Theory. It is actually crucial to understanding the Great Depression. To begin, when the Great Depression hit worldwide, it fell on economists to explain it and devise a cure. Most economists were convinced that something as large and intractable as the Great Depression must have complicated causes. Keynes came up ...
