10. The Great Crisis and the Theory of Keynes

No other single event has so profoundly transformed the fundamentals of economic thinking as the Great Crash in 1929. In the aftermath of the crisis, academic orthodoxy and policy makers were passively waiting for the economy to automatic return to normality, while Marxist orthodoxy was contemplating the doomsday of capitalism. It took a radical new approach to understand the intricacies of the crisis and mobilize a new type of policies that ultimately succeeded in restoring employment and confidence in the system. The rise of Keynesianism inspired a host of related disciplines on measuring and modeling economic phenomena and ushered in a new period of understanding economics and conducting economic policy. Studying fluctuations became a central theme in economic theory, but views were still in conflict as to whether they can be dampened by policy intervention or should be left to attenuate themselves.