The 20th Century Reinvented World Economics

The 20th Century Reinvented World Economics

A worldwide economy created by new technologies and globalization was in ruins after World War I and consist power struggles. The economic system was to blame and needed to be reinvented. During the 20th century a battle between the government and the marketplace was ignited. The ideologies of two men: John Maynard Keynes and Friedrich von Hayek, in opposition of each other, were in the forefront of this prominent battle.

The Englishmen Keynes, seen as the inventor of macroeconomics, noticed the errors of the free market and believed that through certain government control of the economy these errors could be fixed. While, Hayek, from Austria, saw the marketplace as the answer rather than the problem and didn’t see government regulation as necessary. During the 20th century, Hayek’s ideas were very unpopular as Keynes’ ideas were used throughout the globe due to the emphasis on government regulation. The Keynesian idea was adopted by many countries, although in different forms. Capitalist, socialist, communist, and fascist nations all saw the importance of government control in overall improvement of their economic outcome.

After WWI people were in search of a more successful economic idea which resulted in the collapse of capitalism and the beginning of a new era of socialism. However, both Keynes and Hayek opposed this idea. Socialism became the dominant economic system of the world in which Lenin destroyed the free market and the government controlled all of the economy which meant that wages and prices were in fact fixed. The state also controlled the commanding heights or the steel and coal of the country. And Lenin saw these as the two main/only parts of an economy. However, the Soviet Union experienced a great deal of death and famine because of the socialist economic policy. The failing economics of other Europe countries lead to the expansion of socialism into these countries.

The battle of ideas continued on while the world economy thrived with the Keynesian system. The success of this was only temporary due to the creation of stagflation or the combination of inflation and stagnation. This was brought on by the excessive printing of new money. Postwar, countries such as Germany and Austria were dealing with major debts that were impossible to repay due to the weak government systems of the two countries. This resulted in excessive printing of new money thus causing hyperinflation or stagflation. This meant that prices of goods and services were greatly increased while the purchasing value of money decreased at a high rate.

Socialism began to globally spread after World War II. Hitler’s fascist Germany was defeated by the Soviet Union socialist ideologies. Lenin’s death in 1941, lead to Stalin taking power and controlling all aspects of the Soviet Union’s economy. Thus the development of communism. One third