What Is Known As The Keynesian Revolution?

The influence of Keynes's work on the development of macroeconomic theory is so profound that it is referred to as the Keynesian Revolution. Much of the modern macroeconomic theory is based on Keynes's work and has been developed by the followers of Keynes such as Hicks, Hansen, Modigliani, Klein, Samuelson, etc. Some of the ideas introduced by Keynes have been developed and refined by the post Keynesian economists.

Keynes's theory has policy implications which are completely different from the classical theory. Classical economists were in favour of monetary policy. They did not like excessive government interference in economic activities. On the other hand, Keynes was not in favour of monetary policy. He recommended the use of fiscal policy for full employment and economic stability.

In the post Keynesian period macroeconomic theory has developed in two directions. On the one hand, there has been the resurgence of the classical theory by Don Patinkin in his famous book Money, Interest and Prices. Patinkin has criticised Keynes for neglecting the real balance effect. On the other hand, another school of thought has developed under the leadership of Milton Friedman of Chicago University. Friedman's ideas are known as Monetarism and it is supposed to be an alternative of Keynesianism.