Economic Growth And StabilityIn the 1930s with the United States reeling from the Depression, the U.S. government began to take an active role to promote economic growth and stability. An important influence was that of John Maynard Keynes, an English economist who developed a way to analyze and explain economic depressions. His influential work, The General Theory of Employment, Interest and Money (1936), seemed for a time to revolutionize economic thinking in America. Keynes observed the interrelationships among income, savings, consumption, investment and interest rates; he believed that the amount of private investment taking place in an economy dictates whether or not the system stagnates or expands. Keynes was one of the first to argue that it was the special duty of government to actively influence the economy through fiscal policies. He saw government spending or tax reduction as the primary instrument for meeting the twin goals of expansion and stability.
Many of Keynes's ideas were included in President Franklin D. Roosevelt's New Deal program. After World War II, Keynes's full-employment policies were accepted by the United States as well as many other nations. During the Great Depression of the 1930s, Keynes said that nations should "spend their way back to prosperity." He believed the unemployed should be put to work and that incomes should be redistributed so the poor could have money to spend.
This perspective on how to deal with the economy proposed a much larger role for government than had been acceptable up to that time. Since the 1930s, the cleavage dividing American economists often has been related to the extent of validity they are willing to accord the Keynesian analysis. In the 1970s and 1980s Keynesian policies came under attack as allegedly responsible for contributing to the era of "stagflation," which was an undesirable combination of high inflation and slow growth. In the anti-big-government reaction that resulted, Keynesianism did not disappear, but began to play a much less influential role in formulation of economic policies, particularly in times when conservative administrations were in power.