ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Anatomy of the Financial Crisis: Between Keynes and Schumpeter

It is instructive to see how the issue of business cycles was looked upon by John Maynard Keynes and Joseph Schumpeter, each of whom wrote masterly tracts on the subject in the 1930s. Though Keynes was concerned with a short-run problem, Schumpeter was concerned with the long-run dynamics of the capitalist system. Given the present financial crisis, it is possible to argue that the true rationale of a stimulus package in countries such as India that are still low in terms of their average level of living ought to be to address fundamental, long-term, rather than short-term, issues.

I t is widely agreed that the western capitalist world is at present undergoing its severest nancial crisis since the Wall Street crash of 1929. The fallout of the crash snowballed into the Great Depression which substantially crippled the economies of the United States (US), the United Kingdom (UK) and western Europe. By 1933, the aggregate unemployment rate in the US had peaked to about 25%, with the rates in parts of the mid-west of the country being considerably higher. The US manufacturing output fell to around 54% of its 1929 level. Being closely linked with the US economy, the UK and Germany were also particularly badly hit.

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