John Maynard Keynes (1883-1946) was considered one of the great economists of the 20th Century. His most popular economic ideas were incorporated, however imprecisely, in the United States, Britain and other nations during The Great Depression.
The main point Keynes is remembered for--at least as I recall from my college economics-- is the idea that public debt must be enlarged in times of economic crisis because the normal process of investment dries up. In effect, governments must try to put people to work and create aggregate demand, projects aimed at putting money in people's pockets so they spend more on products that produce more jobs in other sectors, etc.
As opposed to classical economics, where the markets are left alone and "iron laws of wages" determined who gets paid what, Keynes, saw that an economy was govern by "animal spirits". The visceral attitudes caused business to go into thrift mode precisely when the general welfare of a country could least afford it: in bad times.
By increasing the money supply you grow your way out of an economic slump.
Once a certain point of recovery is reached, the private sector "rentier" and corporate groups will step in to boost up the now revived system and the government can go back to a regulatory role to prevent the sort of stock-market/mortgage bubble disaster we have just started slowly recovering from.This can also be called "saving capitalism from the capitalists."
But how do we get in such sticky situations in the USA? And just how rational is the stock market/financial sector in the first place? How does it differ from a bunch of "turf accountants" or a casino or even a beauty contest? This was brought up recently in a report on National Public Radio's "Weekend Edition". A transcript of the story and a link to the audio report is available here: http://www.npr.org/blogs/money/2011/01/14/132906135/ranking-cute-animals-a-stock-market-experiment
“It is not a case of choosing those [faces] that, to the best of one’s judgment, are really the prettiest, nor even those that average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fifth and higher degrees.” (Keynes, General Theory of Employment Interest and Money, 1936).
In other words value-determination is often so far off track in general that investors are placing values on a stock, or a house to use the mortgage market, based not on their private needs but on the hunch that something will grow and grow creating a bubble. When enough investors guess wrong about what demand for housing or a tech company is really worth, we get a economic recession...or worse.
Whether you agree with Keynes theories or not, he did a service to breaking up the idea that markets couldn't be steered away from troubled times, but had to be "free", as the economist F.A. Hayak and Milton Friedman in later times believed and expounded upon. There was a role for the public sector, an idea that today is under attack again as further regulation is sought to prevent another boondoggle that only ends with banks getting paid off by the government for their follies while giving many of these CEOs and their minions big bonuses for their gross misjudgements.
For this idea alone, and for stripping away the notion of markets as best guided by "invisible hands", Keynes "beauty contest" is worth remembering.