The General Theory of Employment, Interest, and Money

When The General Theory of Employment, Interest, and Money was published in 1936, much of the world was grappling with the devastating effects of the Great Depression. Widespread unemployment, plummeting production, and severe deflation left classical economists struggling to explain—or solve—the crisis. Classical economic thought had long championed the idea that markets naturally self-correct through flexible prices and wages, yet the realities of the Depression told a different story. Factories remained idle, workers remained unemployed, and confidence in unregulated markets eroded. In this environment, Keynes’s proposals seemed both radical and urgently relevant. His argument that insufficient aggregate demand could cause prolonged underemployment gained immediate traction among policymakers who were desperate for new strategies.

The 1930s was also a time of significant political realignments. Many democratic governments were under pressure to address rising social discontent, leading them to experiment with large-scale public works programs and increased state intervention. President Franklin Roosevelt’s New Deal in the United States, for instance, is often seen as an early, albeit partial, application of Keynesian principles. Meanwhile, totalitarian regimes in Germany and the Soviet Union were pursuing their own aggressive economic and political strategies. This global upheaval highlighted the need for effective, workable theories of economic management. Keynes’s focus on the role of government in stabilizing markets contrasted with the laissez-faire doctrine that had dominated the early 20th century. In addition, the rapid spread of his ideas was fueled by a growing sense that traditional solutions were inadequate to meet the extraordinary challenges of the time.

In this historical context, The General Theory was not just an academic text but a beacon of hope for reform-minded politicians and economists. Keynes’s skepticism about unregulated capitalism resonated with a public angry at financial institutions and fearful of continued economic decline. His redefinition of the state’s role in managing economic cycles laid the groundwork for a new era in macroeconomic policy. The practical application of Keynesian policies in the aftermath of the Great Depression and during post-WWII reconstruction cemented his influence on economic thought. Governments worldwide adopted variants of Keynes’s proposals, culminating in decades of policy shaped by his emphasis on demand management.