DSST Money & Banking Part 1

It was his experience with the treaty of versailles

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It was his experience with the Treaty of Versailles which pushed him to make a break with previous theory. His The  Economic Consequences of the Peace (1920) not only recounted the general economics, as he saw them, of the Treaty,  but the individuals involved in making it. The book established him as an economist who had the practical political skills to  influence policy. In the 1920s, Keynes published a series of books and articles which focused on the effects of state  power and large economic trends, developing the idea of monetary policy as something separate from merely maintaining  currency against a fixed peg. He increasingly believed that economic systems would not automatically right themselves to  attain "the optimal level of production." This is expressed in his famous quote, "In the long run, we are all dead," implying  that it does not matter that optimal production levels are attained in the long run, because it would be a very long run  indeed. In the late 1920s, the world economic system began to break down, after the shaky recovery that followed World War I.  With the global drop in production, critics of the gold standard, market self-correction, and production-driven paradigms of  economics moved to the fore. Dozens of different schools contended for influence. Further, some pointed to the Soviet  Union as a successful planned economy which had avoided the disasters of the capitalist world and argued for a move 
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toward socialism. Others pointed to the supposed success of fascism in Mussolini's Italy. Into this tumult stepped Keynes, promising not to institute revolution but to save capitalism. He circulated a simple thesis:  there were more factories and transportation networks than could be used at the current ability of individuals to pay and  that the problem was on the demand side. But many economists insisted that business confidence, not lack of demand, was the root of the problem, and that the  correct course was to slash government expenditures and to cut wages to raise business confidence and willingness to  hire unemployed workers. Yet others simply argued that "nature would make its course," solving the Depression  automatically by "shaking out" unneeded productive capacity. Postwar Keynesianism After Keynes, Keynesian analysis was combined with classical economics to produce what is generally termed "the  neoclassical synthesis" which dominates mainstream macroeconomic thought. Though it was widely held that there was  no strong automatic tendency to full employment, many believed that if government policy were used to ensure it, the 
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It was his experience with the Treaty of Versailles which...

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