ABSTRACT
This chapter illustrates the mutual interaction by examining the influence of John Maynard Keynes's theories on the development of British economic policy from World War II on. The theory and practice of economic policy in Britain since the war fall into four distinct phases: the war economy and reconstruction, 1939–51; the resurgence of the market, 1951–61; planning discredited, 1961–76; the triumph of monetarism, 1976 to the present. Keynes's theory of effective demand rests on the denial of a mechanism by which supply-and-demand theory ensures the mutual adjustment of savings and investment and of demand to capacity. The Keynesian resistance was theoretically weak primarily because the Keynesians of the neoclassical synthesis shared the underlying theoretical conceptions of the monetarists. The failure of Keynesianism, indeed the contribution of Keynesianism to its own demise, derived from a failure to elucidate the truly radical theoretical propositions implicit in Keynes's analysis.
