John Maynard Keynes: The Principles of Keynesian Management

Prior to Keynes, the consensus was that the natural balance of demand and supply in the economy would keep the economy in equilibrium, and the Government need not manage demand. This consensus was called into question when in the Great Depression there was a period of time where there appeared to be radically low demand in the economy.

In this film, Dr. John Gathergood explores what happened to demand during the Great Depression and explores the idea of Keynesian demand management. Demand management essentially means that the government makes up for the demand that is lacking from the private sector (from those households and firms).

John identified two main risks to enacting a policy of demand management:

1. The Government not knowing what the balanced positon in the demand and supply in the economy should be and therefore spending potentially too little or too much money

2. Deficit financing to facilitate demand management causing a deterioration in the Government’s fiscal position and reducing the ability of the Government to borrow

Share below in the comments which risk you think is more important and give some suggestions as to how the Government can best manage this risk.