Keynesian Economics

In the midst of the Great Depression, John Maynard Keynes (1883–1946) wrote The General Theory of Employment, Interest, and Money. Due to its real-world relevance and its revolutionary impact on macroeconomic research, Keynes has since been regarded as the founder of modern macroeconomics.

Prior to Keynes, mainstream, classical economists believed that supply creates its own demand (Say’s Law)—whatever is supplied would ultimately be demanded at some (“the” equilibrium) price. Under perfect price flexibility, there is absolutely no room for excess production and surplus labor.

However, Keynes warns about the possibility of supply-demand imbalances, exhibiting especially in the form of unemployment. Goods produced may be left unsold, however cheaply producers are willing to sell them. Workers may not be able to get a job, however big a pay ...