Keynesian Economics

An economic theory by British economist and government adviser, John Maynard Keynes. In "The General Theory of Employment, Interest and Money," published in 1935, Keynes argued that, in contrast to Adam Smith's idea of little government involvement, active government intervention in the marketplace was the only method of ensuring economic growth and stability. He believed that insufficient demand causes unemployment and that excessive demand results in inflation; government should therefore manipulate the level of aggregate demand by adjusting levels of government expenditure and taxation. He believed that to avoid depression increased government spending and easy money was needed, resulting in more investment, higher employment, and increased consumer spending.