ABSTRACT
This chapter discusses Keynesian economics, the policy framework which successive Conservative and Labour governments used and the performance of the British economy from 1945 down to 1979. It reviews the evolution of monetary and exchange-rate policy between 1945 and 1979. The chapter assesses the British economic policy post-1945 from a broader perspective and focuses on the Keynesian era. The main thrust of Keynesianism can be found in J. M. Keynes’s tome, The General Theory of Employment, Interest and Money, and which can be explained without recourse to IS-LM diagrams or national income equations. Keynes wrote the General Theory to rescue capitalism from demise during the inter-war years, but the legacy of Keynesianism by the 1970s was stagflation, which paradoxically, threatened to destroy many capitalist economies. In direct contrast to the classical economists Keynes was concerned that an economy could be caught in a situation of underemployment equilibrium, with low levels of economic activity as a consequence.
