In the 1960s, and early 1970s, John Maynard Keyes’ economic principles, known as Keynesian economics, achieved a high level of influence. It gained the reputation of being the solution for capitalism. Much of this stronghold came from the destruction of the economy because of the Depression. Capitalism was revered as the savior of the economy and would do so without any assistance from the government. This resulted in the government standing in the wings while the economy worsened. However, since this worked in the past, many traditional economists at the time were huge supporters of this method. Many people thought socialism was the solution to the problems, but Keyes made the argument that capitalism would only last longer as the changes attempted to happen to traditional policies in government and the central banks. Thus, Keyes threw his support behind is own economic principles and denounced socialism as a solution.
The solution that Keyes presented was that the government had to acquire a large enough deficit to make up any gap that came from spending in the private sector. This would allow for the high unemployment numbers to start decreasing. However, this would not alleviate the unemployment issue, but would simply appease the trade unions whom were in an uproar regarding the unemployment numbers. The Keynesian economists supported that government spending prior to the Depression was a preventative measure. Since, during Eisenhower’s presidency, the Keynesian economics was only somewhat adopted, caused a ripple effect of recessions.
The Keynesian approach to capitalism provides a solution for preventative measures to keep recessions from repeatedly occurring. At the time of the Great Depression, it was the best way to run the economy because it allowed for more deficit spending by the government with decreased interest rates from central banks. Then, if inflation was a problem, the government could reduce their deficits to slow down the growth rate and raise taxes. Yes, Keynesian economics can be an effective way to run our economy, if and only if, it is fully adopted, as evidenced above.