DEFINITION: Keynesian economics, or “Keynesianism,” advocates the partially centralized control of the economy. More specifically, it maintains that governments ought to spend as much money as necessary to “stimulate” the economy until full employment is achieved, without worrying about any possible negative effects stemming from commodity-price inflation or government indebtedness.
ETYMOLOGY: Keynesian economics derives from the work of the British economist John Maynard Keynes (1883–1946), in particular the ideas presented in his 1936 classic, The General Theory of Employment, Interest, and Money.
USAGE: Apart from a partial rollback during the 1980s and 1990s under the influence of “neoliberal” ideas, Keynesianism has been the dominant school of economic thought in developed countries around the world since World War II.
In fact, Keynes’s name was already being invoked during the late 1930s by government officials in Europe and the US charged with combatting the Great Depression. In this sense, one might say that the “New Deal” program of President Franklin D. Roosevelt was a form of Keynesian economics avant la lettre.
Keynesianism has sometimes been characterized by its critics as a form of “socialism.” However, this is not technically correct. Socialism is usually defined as involving government ownership of the principal means of production.
While this has never been a feature of Keynesianism as such, it is true that the government control of the economy that Keynesian economics does recommend—also known as dirigisme—has been historically associated with the implementation of limited socialist measures.
Specifically, in the immediate aftermath of World War II a form of near-socialism arose in a number of Western countries—perhaps most notably in the United Kingdom—which combined Keynesian dirigisme with the nationalization of certain major industries, such as coal mining, gas, electrical power, and steel production, banking, telecommunications, railroads, aviation, and healthcare.
The resulting combination of Keynesian dirigisme and limited state ownership of the means of production came to be known as the “mixed economy.”
Between the 1950s and the late 1970s, the mixed-economy model of semi-socialist Keynesianism spread to many countries throughout the developing world, especially those politically aligned with the communist countries.
However, in the developed capitalist countries, the model ran into strong political opposition, which restricted its further proliferation. Even in the UK itself, after 1980 state ownership fell from favor and many nationalized industries were sold off.
Then, with the collapse of the USSR in 1991, it seemed as though socialism, whether in full-strength or diluted form, had been relegated to the trash heap of history. Moreover, by this time Keynesian dirigisme had itself been beating a retreat for two decades under the assault of neoliberalism, as already mentioned. Or, so it seemed to most observers.
However, a closer examination of the period after about 1980—when Keynesian dirigisme became decoupled from socialism and free-market ideas seemed ascendant—reveals that Keynesian economics never really went away. It is more accurate to say that the developed capitalist countries’ supposed conversion to laissez-faire was more in the nature of a dialing down than a full-throated renunciation of Keynesianism.
In any case, since the worldwide asset-price bubble and stock market crash of 2008, as well as the sovereign-debt crisis of Greece and other European Union member states a few years later, it has become clear that the neoliberal experiment with moderating the dirigiste Keynesian consensus was little more than a passing phase.
From today’s perspective, it appears that the underlying reality all along was the universal triumph of the Keynesian vision.
Looking back at the 85+ years since the publication of Keynes’s General Theory, it would be more accurate to say, not only that, “We are all Keynesians now,” but also, “At heart, we always have been.”