Editing Keynesian economics (section)

===Development of ''The General Theory''===
At the time that Keynes wrote the [[The General Theory of Employment, Interest and Money|General Theory]], it had been a tenet of mainstream economic thought that the economy would automatically revert to a state of general equilibrium: it had been assumed that, because the needs of consumers are always greater than the capacity of the producers to satisfy those needs, everything that is produced would eventually be consumed once the appropriate price was found for it. This perception is reflected in [[Say's law]]<ref>{{cite book|title=A Treatise on Political Economy; or the Production Distribution and Consumption of Wealth|last=Say|first=Jean-Baptiste|publisher=Batoche Books|year=2001|location=Kitchener}}</ref> and in the writing of [[David Ricardo]],<ref>{{cite book|title=On The Principles of Political Economy and Taxation|last=Ricardo|first=David|year=1871}}</ref> which states that individuals produce so that they can either consume what they have manufactured or sell their output so that they can buy someone else's output. This argument rests upon the assumption that if a surplus of goods or services exists, they would naturally drop in price to the point where they would be consumed.

Given the backdrop of high and persistent unemployment during the Great Depression, Keynes argued that there was no guarantee that the goods that individuals produce would be met with adequate effective demand, and periods of high unemployment could be expected, especially when the economy was contracting in size. He saw the economy as unable to maintain itself at full employment automatically, and believed that it was necessary for the government to step in and put purchasing power into the hands of the working population through government spending. Thus, according to Keynesian theory, some individually rational [[microeconomics|microeconomic-level]] actions such as not investing savings in the goods and services produced by the economy, if taken collectively by a large proportion of individuals and firms, can lead to outcomes wherein the economy operates below its potential output and growth rate.

Prior to Keynes, a situation in which [[aggregate demand]] for [[good (economics)|goods]] and services did not meet supply was referred to by [[classical economics|classical economists]] as a ''[[general glut]]'', although there was disagreement among them as to whether a general glut was possible. Keynes argued that when a glut occurred, it was the over-reaction of producers and the laying off of workers that led to a fall in demand and perpetuated the problem. Keynesians therefore advocate an active stabilization policy to reduce the amplitude of the business cycle, which they rank among the most serious of economic problems. According to the theory, government spending can be used to increase aggregate demand, thus increasing economic activity, reducing unemployment and [[deflation (economics)|deflation]].