DSST Money & Banking Part 1

It was his experience with the treaty of versailles

Info icon This preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
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 
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
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 
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern