"During the economic depression that affected the
whole Western world in the 1930s, with its mass
unemployment, poverty and other social ills,
governments, for the most part, did nothing. The
accepted wisdom was that, given time, the free
market would solve its own problems and that
government interference would only make things
worse. John Maynard Keynes, the British economist
who challenged this belief, argued that it was the
proper responsibility of governments to prevent both
booms and recessions in order to maintain gradual
economic growth and permanent full employment. He
maintained that this could be done by manipulating
taxation, credit and public expenditure. If the
economy was growing too fast, then money and,
therefore, demand could be taken out of the economy
by higher taxes, lower government spending and by
making it harder to borrow money. If there was
recession and growing unemployment, then the
government could put money into the economy
through lower taxes, higher public expenditure and
easier credit. Thus, demand could be encouraged. If,
as a result, there was money in people's pockets,
then more would be spent on goods and more people
would be needed to make the goods to fulfil the extra
demand, and this would reduce unemployment."
