Impact of Keynesian Economics on British and American Politics

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The theories pleaded by the classics were later on supported by the economists like J.S. Mill, Pareto, and Meade etc who considered the concept of social welfare or well being. They pleaded for the non-interventionist approach as they found that the market perfection would lead towards efficiency in production, consumption, and distribution to maximize social welfare. Any government intervention was supposed to be distortive, as free market operation along with the existence of perfect competition would maintain the full employment level of equilibrium in the economy. The theories were based on the famous ‘Say’s Law of Market’1 and neutrality of money (explained in the quantity theory of money)2. This school of economic thought is termed as neoclassical macroeconomics, which is nothing but a modified form of the classical macroeconomics. The main propositions of the neoclassical school are:1. The free operation of market forces would always lead towards full employment equilibrium and there would be no existence of involuntary unemployment. Any government intervention would cause a distortion in the system.3. The product and factor markets determine the employment and aggregate level of output and there is no role in the money market. The money market determines the values of the monetary variables only. This is known as the neutrality of money.