Lepenies, Robert and Lepenies, Philipp. 2012. Keynesian Economics. n Mark Juergensmeyer and Helmut K. Anheier (eds) Encyclopedia of Global Studies: Sage Publications.
Keynesian economics has played an important role in global economic systems during the 20th century—revived during the global economics downturn in the first decade of the 21st century—because of its policy prescriptions in response to periods of inter-related worldwide economic recession. It is an economic doctrine based on the work of British economist John Maynard Keynes. Keynesian economics starts from the assumption that a market-based economic system does not automatically tend towards a full-employment equilibrium. Keynesian economics challenged the dominant laissez-faire approach of classical economics in which the forces of free markets were assumed to be self-correcting. According to Keynesian economics, governments should intervene in the economy to correct market deficiencies by stimulating aggregate demand, often with the aim of combating unemployment. Keynes’s magnum opus The General Theory of Employment, Interest, and Money (1936) is regarded as the foundation of modern macroeconomics.
Keynesian economics not only revived the still ongoing debate about the proper role of government in economic policy but also caused the clear ideological separation of modern economists into two opposing schools: Keynesians and free-market advocates. Keynesianism, understood as the political application of Keynesian economics, was the dominant economic policy paradigm of the Western world between the 1940s and 1970s. Although free-market and neoliberal policies dominated the last quarter century, the recent economic crisis has led to a forceful renaissance of Keynesian economics.