Business Glossary

body of economic thought originated by the British economist and government adviser, John Maynard Keynes (1883-1946), whose landmark work, The General Theory of Employment, Interest and Money, was published in 1935. Writing during the Great Depression, Keynes took issue with the classical economists, like Adam Smith, who believed that the economy worked best when left alone. Keynes believed that active government intervention in the marketplace was the only method of ensuring economic growth and stability. He held essentially that insufficient demand causes unemployment and that excessive demand results in inflation; government should therefore manipulate the level of aggregate demand by adjusting levels of government expenditure and taxation. For example, to avoid depression Keynes advocated increased government spending and easy money, resulting in more investment, higher employment, and increased consumer spending.

Keynesian economics has had great influence on the public economic policies of industrial nations, including the United States. In the 1980s, however, after repeated recessions, slow growth, and high rates of inflation in the U.S., a contrasting outlook, uniting monetarists and "supply siders," blamed excessive government intervention for troubles in the economy.