Question

In your own words, please explain the essay by John Keynes wrote "The End of Laissez Faire" means?

Answer 1

The end of  Laissez Faire, as written by Keynes, means that there is a need of strong government intervention in economy to make it work properly and achieve full employment level. It is based on the premise that demand creates its own supply and it is the government spending or reduction in the taxation (or vice versa) can stimulate the spending, based on spending multiplier and taxation multiplier. When spending increases, then AD shifts to the right and to cater this increase in AD, supply also increases. In this process, new jobs are also created that further facilitates the spending and increase in real output.  It is the mechanism that led to the end of great depression of 1930s. Before that, it was Laissez Faire system in the US economy that led to the prolonged continuation of first recession and then, depression in 1930s of the US economy.  Hence, Keynes stated that there should be an end of Laissez Faire system and bring in the government intervention in the economy to stimulate it and drive it towards the full employment level.