Keynesian v Monetarism

Keynesian Economics
Keynesian economics is an economic theory named after John Maynard Keynes, a British economist who lived from 1883 to 1946. He is most well-known for his simple explanation for the cause of the Great Depression. His economic theory was based on a circular flow of money, which refers to the idea that when spending increases in an economy, earnings also increase, which can lead to even more spending and earnings. Keynes' ideas spawned numerous interventionist economic policies during the Great Depression.

In Keynes' theory, one person's spending goes towards another person's earnings, and when that person spends his or her earnings, he or she is, in effect, supporting another person's earnings. This cycle continues on and helps support a normal, functioning economy. When the Great Depression hit, people's natural reaction was to hoard their money. Under Keynes' theory, this stopped the circular flow of money, keeping the economy at a standstill.
Keynes' solution to this poor economic state was to "prime the pump." He argued that the government should step in to increase spending, either by increasing the money supply or by actually buying things itself. During the Great Depression, however, this was not a popular solution. It is said, however, that the massive defence spending that United States president Franklin Delano Roosevelt initiated helped revive the U.S. economy.
Keynesian economics advocates for the public sector to step in to assist the economy generally, which is a significant departure from popular economic thought that preceded it (Laissez-faire capitalism). Laissez-faire capitalism supported the exclusion of the public sector in the market. The belief was that an unfettered market would achieve balance on its own.
The proponents of free-market capitalism include the Austrian School of economic thought. One of its founders, Friedrich von Hayek, lived in England at the same time as Keynes. The two men had a public rivalry for many years because of their opposing thoughts on the role of the state in the economic lives of individuals.
Keynesian economics warns against the practice of too much saving and not enough consumption, or spending, in an economy. It also supports considerable redistribution of wealth, when needed. Keynesian economics further concludes that there is a pragmatic reason for the massive redistribution of wealth: if the poorer segments of society are given sums of money, they will likely spend it, rather than save it, thus promoting economic growth. Another central idea of Keynesian economics is that trends in the macroeconomic level can disproportionately influence consumer behavior at the micro-level.

Monetarism Economics
A monetarist is an individual who holds to the understanding that fluctuations in economic conditions are created as the supply of money within that economy increases or decreases. The general concept of monetarism is often attributed to the work of Milton Friedman, who related the flow of money in an economy to government efforts to control that flow. It is not unusual for a monetarist to also make note of unemployment levels as a factor that impacts the flow of money and thus exerts considerable impact on how a government structures its monetary policy.

In the most simplistic terms, a monetarist usually accepts the theory that the level of social spending has a direct effect on the level of inflation that is experienced within a given economy. This means that in situations where social spending is higher, the potential for inflation to rise is greater. Should social spending be curbed in some manner, this will help to lessen the possibility of inflation taking place, since there is less money being freely distributed through the economy.

As by products of an increase in inflation, a monetarist will often also state that the logical outcome of this economic condition is that there is less flexibility in the labor market. In other words, people will find it harder to locate and secure jobs that make it possible to earn enough money to maintain their buying power during the inflationary period. At the same time, this period of inflation can undermine productivity, due to increased costs that may lead to companies cutting back on production, and the number of workers needed to maintain that production. With less disposable income to feed the economy, it grows stale and the inflation is likely to continue, unless steps are taken to correct the imbalance.

A monetarist will tend to promote the creation of specific strategies that have the effect of stimulating the money supply within an economy. This in turn has the effect of restoring flexibility to the labour market, making it easier for displaced workers to find jobs that pay equitably and make it possible to enjoy a decent standard of living. At the same time, inflation begins to ebb as productivity rises and competition is restored to the marketplace. While the theory of monetarism may be employed in rather simple and straightforward ways, there are also many adaptations of the basic theory that a monetarist may develop in light of specific conditions that exist within a given economy. Those approaches can further be adapted to fit a localised economy, such as within a state or parish; apply to a national economy; or even be utilised to address issues in the world economy.

Which works?
You can see over the past years how different governments have used the different economic models to their advantage...Labour wanted us to spend, spend, spend and that worked our economy was booming however only to bursting point. The coalition took over and want to cut,cut,cut but is is really working? Do we need a happy medium to balance a stable economy?