The early 1900’s can be described as a time of chaos in the world. Both World Wars and the Great Depression happened in a span of less than forty years. Anyways, the economy struggled during this time period and nobody knew the reason to why the economy was tanking, better yet, it was unknown how to stop this prolonged depression. Not until bright, young pupil out of King’s College, Cambridge would publish his ideas to stop a economic depression. Going against the theories of other economists which used the effects of sunspots or mental disorders of the economy, Keynes claimed that people saving their money results in depression and used the elevator concept to explain the business cycle and prolonged depressions. To solve the problem, he said that the government needs to take on heavy investment during times of depression to help stimulate the economy.
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Keynes basically said that, “it is by this process of handing money around… that the economy is constantly revitalized” (Heilbroner, 265). He said that the national income is the biggest indicator of how wealthy a nation is, and the income of a nation is determined by its flow via people buying and selling goods. Also, in A Treatise on Money Keynes disproved the see-saw theory, which stated that when savings goes up, investment goes down and vice versa. The see-saw theory was invalid because it didn’t have an explanation for prolonged depressions such as the Great Depression. To replace the see-saw theory he introduced the elevator theory which he said that the economy can stall at any level, just like an elevator. Keynes said that this is because to avoid recession, the economy must constantly expand, but that is impossible because the capital expansion of businesses are restricted by the business market. So, depressions can last for a long time and if nothing is done, can be
Keynes basically said that, “it is by this process of handing money around… that the economy is constantly revitalized” (Heilbroner, 265). He said that the national income is the biggest indicator of how wealthy a nation is, and the income of a nation is determined by its flow via people buying and selling goods. Also, in A Treatise on Money Keynes disproved the see-saw theory, which stated that when savings goes up, investment goes down and vice versa. The see-saw theory was invalid because it didn’t have an explanation for prolonged depressions such as the Great Depression. To replace the see-saw theory he introduced the elevator theory which he said that the economy can stall at any level, just like an elevator. Keynes said that this is because to avoid recession, the economy must constantly expand, but that is impossible because the capital expansion of businesses are restricted by the business market. So, depressions can last for a long time and if nothing is done, can be