Keynesian School

Keynesian School Reacting to the severity of the worldwide depression, John Maynard Keynes in 1936 broke from the Classical tradition with the publication of the General Theory of Employment, Interest, and Money. The Classical view assumed that in a recession, wages and prices would decline to restore full employment. Keynes held that the opposite was true. Falling prices and wages, by depressing people's incomes, would prevent a revival of spending. He insisted that direct government intervention wasnecessary to increase total spending. Keynes' arguments proved the modern rationale for the use of government spendingand taxing to stabilize the economy. Government would spend and decrease taxes when private spendingwas insufficient and threatened a recession; it would reduce spending andincrease taxes when private spending was too great and threatened inflation. His analytic framework, focusing on the factors that determinetotal spending, remains the core of modern macroeconomic analysis