Today, we’ll study Keynes who solved Great Depression in 1933.
He have been knowing as one of the best economist who changed the world economy to the present.
Best economists is known as Adam Smith, Karl Marx, and Keynes.
Especially, Keynes solved Great Depression of World Economy.
His accomplishment was newly released theory.
He denied theory of mainstream economists at that time.
So, in that present, mainstream economists criticized his theory.
Why they criticized his theory? What is that theory?
Let’s start studying this theory together!!
1. Enjoyable Genius Keynes
Keynes was bored in 1883. this year was year that Karl Marx was gone.
Keynes was influenced on Karl Marx.
He had a good friend. his friend was George Bernard Shaw who was famous dramatist and socialist.
One day, George gave Keynes “Das Kapital” Karl Marx’s book.
But after one week, Keynes returned this book to George. and he said “i have never seen this difficult book before”
In 1936, Keynes wrote a economy book “general theory” but this book is more difficult than “Das Kapital” now.
Keynes family was noble family.
His father was economist and his mother was mayor of Cambridge city.
He married Rusian ballerina.
He was government employee and eared much money through investing the stock and collected many art work and managed theater and clearly died as nobleman in final.
I envy him!!
2. England savior in the World War 1
He was the minister of finance in 1914.
He saved much money earned through overseas export and invested the stock.
So, England could earn much money.
Keynes role was very brilliant.
Many England people said Keynes saved England in World War 1.
At that time his age was just 30!! It prove Keynes was genius and superstar.
3. Keynes predicted Adolf Hitler
After finish the World War 1, victory countries were assembled in Paris and hold conference about war criminal countries.
Keynes was also participated in this summit and assisted England prime minister.
Keynes insisted “if we imposed too much compensation to Germany, revolution happen in Germany and leader of revolution will destroy the our world and progress again”
Keynes predicted appearance of Hitler.
How he predicted that?
This is very simple if you know economy.
If victorious countries imposed too much compensation to Germany, Germany have no choice but to make money.
As a result, Germany will occur hyperinflation, phenomenon that value of money become value of waste paper.
Germany have to raise up interest rate to solve hyperinflation because high interest rate can drag in money and can bring in much foreign capitals.
If Germany have much foreign capitals, Germany plants occur excess supply.
Excess supply could make economy depression and occur high unemployment rate and contraction of investment and consumption.
Finally, Germany economy will be depressed and happen revolution of labor.
The leader of revolution will be dictator of Germany.
Dictatorship will destroy civilization and progress.
Price anxiety and high unemployment rate will make uncomfortable society.
So, at this time, many young people demonstrate on street in USA and Greece, England, Korea.
Revolution can occur when young people occupy many population in total population.
But Korea and Japan is becoming ageing. So it is not easy to occur revolution in Korea and Japan.
4. Great Depression is normal thing.
Keynes was Great Depression solver.
He proposed “New Deal” policy and solved economy crime.
Above was graph of Great Depression period.
If anyone see this graph, everyone tell it manipulation.
Most people thought that peak was abnormal thing.
But Keynes thought precipitous line was normal but flat line was abnormal.
He looked different from the viewpoint of economy.
Mainstream economists insisted balance state was normal and aimed that.
And they thought all price depended on demand and supply curves and no exist unemployment.
Unemployment and excess supply are temporary thing and will disappear automatically someday.
That was suggestion of mainstream economists “Say” , “Hayek”.
According to their suggestion, Great Depression should disappear soon.
But it’s not.
US stock was dropped down to bottom and persisted dropping.
Unemployment rate was above 25%.
But mainstream economists said Great Depression was not getting better because people was poor.
Keynes criticized them.
He said if someone was sick, we had to cure someone.
He insisted government have to invest society to solve this problem.
He said the cause of this problem was contraction of consumption and government should swell priming water to solve this problem.
His theory was that “economy depression -> contraction of consumption -> contraction of investment -> unemployment”.
On the other hands, Say’s theory was that “savings(excess supply) -> decrease interest rate -> increase loan -> activation of investment -> activation of economy again”
But in this theory have a problem.
That is savings is not same to investment.
Keynes broke their theory and US president Roosevelt announced “I will follow Keynes theory and begin New Deal policy”
Roosevelt made labor union law and increased organization rate of labor unit.
That was Great Compression!! and invested society and welfare.
As a result, US productivity and employment-population ratio and income were increased highly and activated consumption.
So, US GDP breached 1 trillion $ and was top of the world in 1940.
This economy growth enable US to be winner in the World War 2.
Since that, Keynes have been known as the greatest economist in the world.
At now, many economists follow and study his theory.
We call them Keynesian!!
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