Historical context of the KEYNESIAN ECONOMICS AND SYNTHESIS
emergence of ECONOMICS KEYNESIANISM, Keynes, Tabin, Samuelson,
1710-The European enlightenment era provided a
boost to the scientific inquiry. Thinkers began to
apply scientific principles not only to the natural
world, but also to society. Scholars set out to
discover “laws” of human interaction, in order to be
able to explain how human society works.
(PHYSIOCRACY, Quesnay and Cantillon)
1735- Classical economics is widely regarded as the
first modern school of economic thought. Classical
economist shared the belief that markets regulate
themselves, when free of any intervention. ( Smith,
Say, Ricardo,Maithus and Mill)
1820- Industrial Revolution, people moved away
from their farms and into the factory, where
production as done with the use of machines that
ran on steam power or coal. Although inequality
was brutally high, growth reached unprecedented
levels. (Neoclassical Economics and Marginalism,
Marshall, Pareto, Jevons and Walras)
1867-Marxism paints a dim picture of capitalism.
Demonstrating the inevitable exploitation of the
working class, this school of thought inspired
workers around the world to unite. ( Marx and
Engels)
1914- The war itself was over in 1918, but the
implications were not. Because the pound had
inflated, Britain went back to the gold standard in
an attempt to restore the international purchasing
power, but it did not work. (INSTITUTIONAL
ECONOMICS AND OLD INSTITUTIONALIST, Veblen ,
Galbraith, Kuznets and List)
1929- Great Depression, after stock prices started
falling in the US, the market crashed globally on
Black Tuesday. The Great depression had
devastating effects in countries rich and poor.
Personal income, tax revenue, profits and price
dropped, international trade plunged by more than
50% and unemployment in the US, rose to 25%.
(NEW INSTITUTIONALIST).
1939- The gold standard was intended to keep
government spending and inflation in check. If the
global gold supply could only grow slowly then so
would spending levels and prices. But with time, it
became clear that the gold standard significantly
restricts the possibilities for policy making.(
Mundell)
1944- Bretton Woods was established to create a
set rules of commercial and financial relations
between the US, Canada, Western Europe, Australia
and Japan, each nation was required to tie their
currency to gold, thus maintaining a stable
exchange rate. The IMF was created to bridge
temporary imbalances of payments. (CAMBRIDGE
SCHOOL, Robinson, Kaldor, Lerner and Sraffa)
1970- The 1970s saw a great period of Stagflation
(unemployment plus inflation) which Keynesian
theory could not explain. That’s because Keynesian
theory had argued inflation was caused by tight
labor markets, and that mass unemployment
should be accompanied by price deflation, not
inflation. This made it easy for the Chicago school
to take over. (Monetarism and New Classical
Economics, Friedman and Lucas)
1976- The end of Bretton Woods was formally
ratified by the Jamaica Accords in 1976. By the early
1980s, all industrialized nations were using floating
currencies. (NEW KEYNESIAN, Mankiw, Taylor,
Krugman, Stiglitz)
1981-Reanonomics alongside Thatcherism attempts
to promote low inflation, the small state and free
markets though tight control of the money supply,
privatization and constraints on the labour
movement. Both formed key part of the worldwide
economic liberal movement.
(BEHAVIORAL ECONOMICS,Kahnermann, Thaler
and Rabin)
2008-The great recession, bad mortages,
inaccurate, credit rating and fraudulent banking
practices fuelled a housing bubble and a vast web
of bad debt, which came to collapse in 2008. The
result was the greatest economic downturn since
the great depression in 1929.