Re-conceptualisation of Optimal Relationships between the State and the Market - Keynesianism - Research Paper Example

Keynesianism or Keynesian economics is an economic theory based on the ideas John Maynard Keynes, as put forward in his book The General Theory of Employment, Interest and Money, available in 1936 as an answer to the Great Depression of the 1930s. Keynesianism advocates for a mixed economy, in which the state, as well as the market or the private sector, have both significant functions to operate. It should be noted that the advent and eventual rise of Keynesianism saw the collapse of laissez-faire economics which was of the view that both the state and the market could function, each on its own.

Keynesianism also emphasizes the significance of aggregate demand for goods as the lashing factor of the economy, particularly in periods of recession. For this reason, government plans or policies could be made use of to promote demand at a macro level, to counter high unemployment as well as deflation. A significant conclusion of Keynesianism is that there is not a tough and automatic propensity for output and employment to move to full employment levels. Effective demand is, therefore, the fundamental idea underlying Keynesianism.

After Keynes, a good amount of concentration has been dedicated to the problem of probability and uncertainty in Keynes’s General Theory by a set of economists frequently called ‘Post-Keynesians’. Over the years, there have risen a lot of economic theories and propositions which no longer see Keynesianism as a spur. As Chick and Tily (2004) mention in mainstream economics, Keynes is dead1. Leijonhufvud (2008)2 gives explanations on the hypothetical blindness of the economic profession vis a vis interpretations from Keynesianism of the present financial crisis to conventional reliance on market efficiency theory, expectations based on reason as well as the representative agents3.

Wray and Teymogne (2008) make us reminiscent of the fact that “the efficient market hypothesis, like all approaches derived from the old neoclassical theory, relegates money.