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.