Keynesianism

Keynesianism, also known as Keynesian economics, or Keynesian mode, deals with an economic theory that was enunciated by the economist John Maynard Keynes, hence its name.

But What is Keynesianism? What does your model refer to and what is the economist's vision of the economy? This is what we are going to talk about next.

Who is John Maynard Keynes?

John Maynard Keynes He was one of the most important economists in the world. Born in Cambridge in 1883, and died in 1946 in Sussex, he is one of the most influential British economists of the twentieth century, so much so that his theories and way of thinking had an impact (and still do) on both economic policies and policies. own theories.

His first job, as a civil servant for Home Civil Services, took him to India, where he was able to learn in depth what the Indian financial system was like. However, it did not stop there. Tired of his job, he decided to quit and returned to Cambridge University to be a professor, something he practiced throughout his life.

Despite this, he did collaborate, as an advisor, in the British Ministry of Finance, designing credit contracts between the United Kingdom and other countries allied to his (in times of war). He was also a member of different boards of directors of insurance companies and financial companies, and even directed an economic weekly.

Thus, it can be seen that this character was not only a great contribution to the economy, but also his participation in politics, although from a second or third place, influenced his life.

What is Keynesianism

Keynesianism, also known as Keynes's theory or model, is actually a economic theory based on state intervention. For this, it had to influence an economic policy in order to reactivate demand and help consumption to be promoted.

In other words, what the author intended was for the State itself to invest in spending to, in turn, improve citizens who, due to having money to spend, would do so, thus managing to reactivate the entire economy of a country. For this reason, it is one of the theories that, in times of crisis, tend to be very much on everyone's lips.

Keynesianism was born at the end of the 1936th century; and he did it with the aim of getting the country out of a crisis. It was published in the General Theory of Employment, Interest, and Money in XNUMX, just after the Great Depression.

How Keynesian Theory Should Be Understood

Imagine that you have a country in crisis. Normally, what the State thinks is to raise taxes to raise more money so that it does not get into debt. But it's the best? If you do that, what you will do is that people are even poorer, that companies are more drowned and many end up closing. In short, you impoverish the country to get money for the State (which in the end does not affect the lives of citizens).

Instead, Keynesianism was based on another way of dealing with the problem. Of course, we speak in the short term because, if it is done in the long term there is a great risk of making the crisis much greater.

What did Keynes say? He established that, in times of crisis, States had to increase public spending, either through Gross Domestic Product (GDP), by issuing foreign debt ... (but not by increasing taxes or decreasing wages. , not affecting citizens). This served so that the State had money that must be invested, for example in public works, with the objective that that money that it has is paid to the companies that have been awarded the works.

But these companies do not keep all the money, they pay their workers, suppliers, etc. with it. These workers already have money, and therefore can spend in other companies. In this way, these other companies need workers to meet the demand, products to sell, etc. and, in this way, the economy is reactivated, causing more hiring, more demand for products. In other words, the unemployed and the machines stop being unemployed and start generating.

Now, as we have told you before, this only has short-term benefits. And it is that, when each of those involved spend, they will do so, but not all, but a portion. The problem is that, little by little, that portion of the expense is getting smaller and smaller.

Keynes considered that crises could not be solved at the expense of consumers, but that it was the State that went into debt to raise demand, and at the moment in which an improvement is seen, to slow down that model to avoid greater consequences (a greater crisis).

Characteristics of Keynesianism

To make the Keynesian theory clear to you, the main points you have to master are the following:

• The main tool to fight a crisis is economic policy. This is the key to reactivate a country, both in the short term and in the medium and long term.
• It is very necessary to stimulate demand, but to do it by investing that money in resources for companies, which in turn invest part of that money in others, in such a way that you are generating work and demand.
• It is important that, together with economic policy, a fiscal policy is carried out that balances and regulate the economy at the same time.
• For Keynes, the main danger in a country is unemployment. The more people stopped, the more machines stopped. That implies that companies are stopped and therefore, nobody gets money with which to be able to spend so that the economy moves.

In conclusion, the Keynesian model gives us a vision of how increasing public spending, without having an impact on consumers' pockets, can help a country emerge from a crisis in the short term. But it is not the solution that should govern the economy of a country (because, in the long run, it will end up exploding and will generate an even greater crisis (the country is in debt and living beyond its means).