Keynes publishes The General Theory

The Great Depression produced prolonged mass unemployment. Lower wages and expectations of market adjustment did not bring a rapid solution. Keynes revised his analysis while participating in financial and monetary debate. The General Theory appeared in 1936 and asked why an economy might remain below full employment. Household spending, business investment, and government activity needed to be studied as connected parts of aggregate demand rather than separate decisions alone.

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Income affects consumption, while investment depends on expected returns and financial conditions. More saving need not immediately produce matching investment. Inadequate demand can reduce output and employment. Liquidity preferences, interest, and uncertainty entered the explanation. Price changes did not guarantee a return to full employment. Public expenditure could address a demand gap, with effects depending on resources and arrangements. Analysis therefore followed flows of income through the broader economy.

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Postwar economists developed models and textbooks, and governments used budgets, employment programmes, and monetary policy. Interpretations disagreed over expenditure, inflation, and adjustment. Difficulties in the 1970s and later crises prompted revisions. Practices varied across countries and combined with welfare and investment politics. The General Theory supplied a framework for persistent unemployment, while subsequent research used additional evidence and mechanisms to examine when policy could change actual production and the availability of work.

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