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Kerala PSC Indian Economy Book Study Materials Page 25Book's First Page
ntrod tion 1.7 and wages are not flexible enough to provide supplying some basic goods and services which employment to all. It means there will be some are known as ‘public goods’. These goods basically people unemployed when the economy will be intended to guarantee minimum level of nutrition at its full potential. Ultimately, a fall in demand to all, healthcare, sanitation, education, social will be imminent resulting in recession and if security, etc. The expenditure on public goods unchecked, in depression which happened in were incurred on the public exchequer even if it 1929. Questioning the limitations of the market required deficit financing. Starting from 1930s mechanism, Keynes suggested strong government upto 1950s, almost 50 per cent of the GDP in intervention in the economy. To get the economy the Euro-America was spent by the governments out of the depression, he suggested an increase on public goods which also become popular as in government expenditures, discretionary fiscal the social sector. The essential goods and services policy (fiscal deficit, lower interest rates, cheap which were till date being purchased by the people money supply, etc.) to boost the demand of goods as ‘private goods’, were soon made available by and services as this was the reason behind the the state ‘free-of-costs’, giving people more spare depression. As Keynesian policies were followed, money to create demand for the goods and services the concerned economies were successfully pulled which were part of the market. out of the Great Depression. The above instance has been cited here just to While Keynes was inquiring into the causes show the process as to how capitalism redefined and cures of the Great Depression he questioned itself by including some useful traits of the non- the capitalist economic system being practised market economy, i.e., the state economy. The throughout Euro-America. He suggested the mixed economy arrived in this way and the capitalistic order to assimilate the goals of the classical capitalistic economy was challenged by it. socialistic economy (economic ideals of the On the margins of these developments, it is socialists, i.e., the ex-USSR). In the capitalist interesting to note the developments that occured economies of the time, all the basic goods and in the state economies of the time. It was Oscar services were part of the market mechanism, i.e., Lange (1904–65), the Polish philosopher, being produced and supplied by the private sector. who in 1950s suggested the same things for the It meant that almost everything the people required socialist economy as Keynes had suggested for was supplied by the private enterprises via the the capitalist economy. Lange praised the state market which was ultimately an undimensional economy for many of its good things, but also movement of money and wealth (from the mass of suggested inclusion of some of the good things people to the few who controlled the production of the capitalistic economy.3 He advised the and supply chain) and the masses were going state economies to adopt ‘market socialism’ (the through the process of pauperisation every day, thereby weakening their purchasing power. In the term was coined by him). His suggestions were end, it affected overall demand and culminated in outrightly rejected by the state economies as such the Great Depression. compromises in the socialistic economic order were blasphemous at that time (this was taken as a As a follow up to the Keynesian advices, many suggestion towards democracy from dictatorship). trendsetting economic policies were initiated throughout the capitalist economies. One very As Keynes has suggested that the capitalist important initiative which came out was the economy should move few steps towards socialistic government’s active role in the economy. The 3. Galbraith, J.K., A History of Economics, Penguin governments of the time started producing and Books, London, 1991, pp. 188–89.