Before the 1930s the US economy had been ruled by the forces of supply and demand and with as little government interference as possible and it seemed if everything went smooth.
But in reality the system favorite the middle- and the upper-class, so about half of the American population did not participate in the economic growth. Wealth and purchasing power were uneven distributed and over production in industry and agriculture became a severe problem. In addition, speculation in stocks had driven the value of the stocks up to unrealistic heights. All this is said to be some of the causes for the Great Depression that reflects the 1930s. What triggered the depression was the crash on the New York Stock Exchange in October 1929.
John Maynard Keynes, a British economist, was one of many that launched his ideas on how to get the world economy back on track. In the book The General Theory of Employment, Interest and Money, from 1936, he challenges the economists who said that the economic problems would correct it selves and that the government shouldn't do a thing about it. Other had said that the wages should be reduced, and thereby it would increase the demand after workers and semi-products. Keynes disagreed with these views, and he stated that if the wages were lowered, people's purchasing power would be even more reduced and this would eventually lead to lower prices on industrial products and other merchandises.
The unemployment grew rapidly all over the world during the Depression, and it is estimated that nearly 50 million people were out of work in the industrialized countries. One of Keynes' main ideas was an active government. He...
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...ent should intervene and manage the economy. They should take up loans and start new activity so that unemployment would be reduced and people would get purchasing power. But he also meant that the government should also intervene when there was economic growth as well, to create a balance.
USA was on of the first countries to adopt Keynes' views in the 1930s, but many countries followed in the post war era.
During the WW 2 he was one of Britain representatives in the Bretton Woods conference were currency and system of payment were discussed.
But in the 1970s a new problem arose; stagflation. This is an unfortunate combination of inflation and stagnation, and proved that Keynes' ideas weren't the only solution. USA returned to the system of supply and demand, and Britain followed as well. But many countries, such as Norway, have kept Keynes' ideas to some degree.
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