create public substitutes for the shortfalls in private investment. In mild economic contractions, easy credit and low interest rates, which would involve monetary policy, might stimulate business investments and restore aggregate demand to a figure consistent with full employment. More severe contractions required the sterner remedy of deliberate budget deficits either in the form of spending on public works or subsidies to afflicted groups. Neoclassical EconomicsThe following section will speak of the economic theory that Keynes was contradicting. Neoclassical economics was the new economics of the 1870's, and one of the things that was new about it was the wide role it assigned to the principles of supply and demand and market equilibrium. Keynes would say that it was too dependent upon the natural progression of the market of supply and demand and that that natural progression did not always produce equilibrium. Economists had thought in terms of supply and demand from the first, but until the reformulation of the late 1800's, these were rough intuitive concepts and were not thoroughly suitable for any very precise and scientific economics. Neoclassical economists were able to make these intuitive ideas more precise and to give them more definition. The were even precise enough in their development to begin work on statistical economics. The Neoclassicists refined these ideas and made them the central ideas of their new economics. Many neoclassical economists envisioned a world in which supply and demand were in equilibrium in every market, and almost everything important was determined by the equilibrium of supply and demand: relative prices and production, but also total production, the employment of labor, saving, consumption, and growth of the national economy. After 1929, however, the real world didn't seem much like that. What happened in 1929, of course, was the crisis that led to "the Great Depression." One of the re...
