The modern world has become economically characterized by the widespread expansion of capitalism through the embrace of competition within the free market. Two ideologies that attempt to achieve economic prosperity are Keynesianism and neoliberalism. Keynesianism, envisioned by John Maynard Keynes, attempts to provide equality of opportunity, in the pursuit of the common good by allowing the government to intervene in the economy (Mintz, Croci, & Close, 2014).
In opposition to Keynesianism, neoliberalism is an ideology whose proponents advocate for limited government intervention with the economy (Mintz et al. 2014). Varying degrees of opinion rise as to the extent to which the government should intervene in the economy. Keynesians would advocate high taxes during economic growth, and high government expenditures during economic decay in order to regulate the economy. In contrast, neoliberals argue that most taxes, tariffs, and government services should be removed in order to allow the “invisible hand” to completely regulate the economy (Mintz et al. , 2014). The neoliberal perspective originates with Fredrich Von Hayek.
It became popular in the 1970s “New Right” movement through Milton Friedman, who held the position that the only purpose for the government was to maintain the rule of law (Friedman, 2002). In order to attain economic prosperity, even if running in a deficit, government involvement is necessary in order to achieve the common good through regulation of the free market. By doing so, the government is providing a basis for the pursuit of Keynesianism, while simultaneously rejecting the principles of neoliberalism. Many influential figures throughout history have utilized Keynesianism.
Two such examples are the policies enacted by American President Franklin D. Roosevelt, as well as Canadian Prime Ministers William Mackenzie King and R. B Bennet, both of which led to sustainable economies. The pursuit of Keynesianism has often shown success in the past. Through government involvement, nations as well as nationstates, have been able to achieve economic revitalization, sometimes even after global market failure such as that of the Great Depression. An example of this idea is clearly evident in the United States before to World War II.
Prior to the New Deal’s enactment, the United States followed a mostly laissez-faire model in order to pursue individualism to a fuller extent. In 1929, Herbert Hoover was elected as the Great Depression began. As his predecessors before him, Hoover pursued minimal taxation. He also believed in little governmental involvement in the free market, which is very similar to that of neoliberalism. However, it was of little benefit. His policies, in coalition with the Great Depression, led to an unemployment rate of 25%, and the gross domestic product (GDP) fell by 30% (Van Giezen, R. , & Shwenk, 2003).
The result was widespread hunger, and destruction of all social culture. Ultimately, the unemployment led to political dissatisfaction with the Republican government, and the election of Franklin D. Roosevelt. Roosevelt introduced reform liberal polices, which were able to stimulate the economy. Influenced by Keynes, Roosevelt set up a series of Keynesian polices collectively known as The New Deal. The New Deal had four major objectives: to stimulate the market system, decrease unemployment, create public works, and to renew a sense of collectiveness within the society. The Great Depression was mainly caused by a series of banking failures.
To repeal these, Roosevelt, and his party, set up the Emergency Banking Act. This legislation was designed to set up stable banking systems under the direction of the United States Treasury; loans could be taken if failure was inevitable (Bryan, 2012). The Emergency Banking Act allowed for extraordinary stability. Prior to its creation, during the bulk of the Great Depression, 500 local banks were closing per annum. After the Act was introduced, it was less than ten (Bryan, 2012). Furthermore, following a Keynesian agenda, Roosevelt’s party enacted the Works Progress Administration, which led to the employment of 8. million individuals, and the creation of over 125,000 public buildings (Norton, 2009).
The New Deal also led to the creation of the Social Security Act of 1935. This Act led to the creation of Unemployment Insurance, which provided relief for people of lower income groups, and by acting as a stimulus to revitalize domestic trade (Krugman, 2008). Some would argue that it was not the New Deal, and its Keynesian policies that brought the United States out of the Great Depression, but rather World War II. However, during World War II, government involvement, and spending actually increased from 20% to 52% of the nation’s GDP (Bennett, 1999).
This meant that World War II was able to stimulate the economy through Keynesian policies such as government investment into industries to su to industries to support the war effort. The legislation ratified by Roosevelt during the Great Depression are comparable to that of Prime Minister R. B Bennet, and William Mackenzie King in Canada during the Great Depression. Nations that pursue neoliberalism, are consistently forced to maintain the status-quo. Often, this leads to high unemployment due to a lack of government intervention within the economy.
This was a prevalent factor of the Great Depression within Canada due to the pursuit of the traditional laissez-faire economic system up until then. In 1930, R. B Bennet’s Conservative Party defeated the Liberal Party, under the basis of introducing large scale tariffs, and government spending. At the peak of the recession (when unemployment was at 30%,) Bennet’s Party refused any welfare programming, and although attempted to enact welfare policies was forced due to lack of Party support to continue to decrease government involvement in the economy (Safarian, 2009).
As a consequence, Bennet lost the 1935 election to Liberal William Mackenzie King. In order to appease the people, King attempted to introduce, and improve the “New Deal like” policies that were created by Bennet. Under this premise, programs were established such as the National Housing Act, Canadian Radio Broadcasting Commission (CRBC), as well as the National Bank of Canada. The National Housing Act which was established in 1935 invested government money into the improvement of living conditions for those in deplorable conditions.
Additionally, the CRBC established in 1932 was meant to unify the people, and allow for a more optimistic view of the future. Government spending allowed for radio stations to be set up nationwide, and due to advertising further allowed for the economy to reach equilibrium (Potts, 2011). Arguably most important, the National Bank of Canada was beneficial not only to individuals, but also to banks. It led to the regulation systems to make sure inflation did not too high, and to make sure that Canadians were able to manage debts on credit (Bank of Canada Act, 1985).
Additionally, the bank allowed for private banks to advise the government on financial matters, while also revitalizing the banks (Bank of Canada Act, 1985). All these programs, just as World War II began, allowed the Canada to stumble out of the Great Depression, on a path to economic prosperity. Some would argue that it was the shift from primary industry to manufacturing that truly led Canada out of the Great Depression. However, the only way Canadian economy was able to make the shift is due to the creation of jobs through government investment during economic crisis (Norrie, K. , & Owram, D. 1991).
Through historical examples in the welfare states of Franklin Delano Roosevelt, as well as William Mackenzie King, it is apparent that the pursuit of Keynesianism allows for economic revitalization in the face of recession as well as surplus. The fundamental focus of neoliberalism is to allow the free market system to self-regulate (through the invisible hand,) in the belief that it will be able to work itself out without government. However In order to achieve economic equilibrium, Keynesianism is a clear choice as it allows for the necessary regulation of the economy, while neoliberalism does not.
