ABSTRACT
J. M. Keynes and the protagonists of Regulated Capitalism were not unaware of the role of government, but underrated its function when more and more collective services became necessary to sustain the increasingly complex economic structure. They overrated its powers to exercise control over an economy which was rapidly becoming internationalized. Sir John Hicks and A. Hansen provided a diagram detailing the simultaneous determination of equilibrium values of the interest rate and the level of national income as a result of conditions in the goods and money markets, the ISLM model. The shortcomings of the neoclassical theory are obvious: their underlying assumptions simply do not accord with present day reality. The Keynesian approach depends too much on the effectiveness of educated democracy and the power of national governments. IMF practice came somewhat closer to the Keynesian proposal but the underlying thought remained that in the long run international trade and balance of payments tend toward equilibrium.
