153
President Franklin D. Roosevelt to
kick-start the US economy with the
stimulus policies known as the
New Deal. Government money was
used to fund huge infrastructure
projects, and all banks were placed
under federal control. The New Deal
formed the basis for economic
policy in America and Europe
following World War II.
Norwegian economist Ragnar
Frisch (p.336) drew attention to the
two different ways in which an
economy could be studied—in part
(microeconomics) or as a whole
system (macroeconomics). The new
field of econometrics (mathematical
analysis of economic data) emerged
as a useful tool in economic
planning and forecasting. Modern
macroeconomics took its approach
from Keynes, and his approach was
widely admired. However, despite
the Keynesian solution to the
depression of the 1930s, the idea of
state intervention was still seen by
many economists as unhealthy
interference with the market
economy. Some Americans saw it
as alien to the “American way,”
while European economists
associated it with socialism.
Keynes himself saw it as part of a
British Liberal tradition, in which
the hard facts of economics are
tempered by social considerations.Global differences
Economics developed certain
national characteristics, with
different schools of thought
developing along broadly cultural
lines. In Austria a radical school
of thought evolved that supported
an absolutely free market, based
largely on the work of FriedrichHayek (p.177). His stance was
as much anti-communist as it was
pro-capitalist. He argued that the
freedom and democracy of the West
was bound up with its free market
economies, while the tyranny of
communist regimes, with their
planned, centralized economies,
removed this freedom. Others took
this view further, arguing that
competitive markets are essential
to growth, as evidenced by the
higher standards of living in
Western capitalist countries.
The migration of many German
and Austrian thinkers to Britain and
the US during the 1930s led these
ideas to become widespread. Later
on, as faith in Keynesian economics
began to wane, a new generation of
economists reintroduced the idea
that markets should be left to their
own devices. ■WAR AND DEPRESSIONS
1936
1933 1937 1940 S 1944
1939 1944 1945
President Franklin
D. Roosevelt introduces
the New Deal—
a package of state
intervention policies to
reinvigorate the economy.
John Hicks describes
the ISLM model,
mathematically
modeling the
Keynesian multiplier.Simon Kuznets
identifies business
cycles and lays the
foundations for the field
of development
economics.Keynes publishes The
General Theory, setting
out his approach to
macroeconomics and the
vital role of the state
in the economy.Outbreak of World
War II in Europe.Karl Polanyi
challenges traditional
economic thought
by approaching
economics from a
cultural perspective.World War II ends
and a period of
economic
rebuilding
begins.The Bretton Woods
agreements are signed,
regulating the post-war
financial relations of the
major industrial states.