ABSTRACT
Introduction Modern macroeconomics was founded and tested around the two world wars. The heavy legacies of World War I had prompted a new generation of economists to formalize the conceptualization of national economies as ‘whole economic systems’ so as to better understand new challenges, and better devise policy solutions. By the time World War II was edging toward the end with a victory for the allied powers, Keynes had already used his new theory to shed light on key economic policy matters of the time. His macro-monetary analysis had highlighted the existence of insurmountable challenges leading to the impossibility of Germany fully paying for the requested reparations after World War I. Later, he was able to use the new theory to draw the macroeconomic contours of a ‘war economy’ in his ‘How to Pay for the War’ memorandum published in 1939 (Keynes 1978b). Quite a number of Keynes’s recommendations remained unheeded. Still macroeconomic theory was proving to be a powerful tool able to provide insights into dynamics that economics had until then mostly ignored.
