Redefining Reality - The Intellectual Implications of Modern Science

Under the classical model, this should not be possible. High
allow the economy to stabilize. But in the 1930s, nothing
seemed economically stable anywhere.
The old approach in which the rational self-interest of
individuals would create a system that was stable in the large
became untenable.
The British economist John Maynard Keynes argued that contrary
to the classical picture of a single equilibrium point, there are
multiple possible equilibrium points, and it is possible for the
economy to become stuck at an undesirable point.
Aggregate demand, the amount of goods and services required
by the economy, is such that it cannot accelerate the economy
when it is stuck on an undesirable equilibrium point. Because
people are unemployed, they don’t have money to make
purchases, and because people aren’t buying, businesses don’t
down, preventing growth.
The defenders of the classical view argued that things would
straighten themselves out if given enough time. But Keynes
contended that aggregate demand needed a boost, and if the
business community could not supply it, the government should.
If the government increased spending, even if it meant running
into the economy to restore it to its former healthy state.
Between the New Deal programs and the spending for World
War II, the stimulation generated by governmental spending
created enough new demand in the economy to nudge it away
from its depressed equilibrium and back to its normal place.
Keynes changed our understanding of the nature of reality when
large-scale picture of the economy was determined by small-
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