Thursday, December 13, 2012

Social no more


Is Keynes’ theory relevant today?

Nobel laureate Paul Samuelson wrote, “Economists have correctly predicted nine of the last five recessions.” Poor John Maynard Keynes. Falling to gallery criticism, his theory has been much criticised over the years.

Keynes’ ‘The General Theory of Employment, Interest and Money’, which was published in 1936, states that there is a chance of aggregate demand to be insufficient during a downturn, and this leads to high unemployment and low output. In such a situation, government intervention by lowering interest rates and increasing investment to increase aggregate demand will help recover the economy. Franklin Roosevelt was amongst the more famous leaders who were influenced by this theory. He adopted some aspects of this theory amidst The Great Depression. The success of Keynesian theory was further witnessed after the World War II in rebuilding war ravaged countries. It became more prevalent in socialist-democratic European countries and even in the US in 1960s.


 Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri

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