Empirical and Normative Macroeconomic Theory and Monetary/Fiscal Policy in the Twentieth Century: A Case of Keynes, Laski, Hayek

Abstract

This historical case study analyzes the practical application of normative economic theory. Throughout the twentieth century, such theory significantly influenced both fiscal and monetary policies in Britain and the United States. Key empirical events that shaped the theory included the monetary inflation in Germany following the First World War, the subsequent stock market crash in the United States, and the economic depression that spread globally. Additionally, the rise of communism in Russia and the emergence of fascism in Italy and Germany were critical factors during this period. During these tumultuous times, three influential economists in Britain—John Maynard Keynes, Harold Laski, and Friedrich Hayek—played crucial roles in bridging normative economic theory and monetary policy. This study will provide a brief review of their contributions to transforming theoretical frameworks into actionable policies. Following this overview, we will develop an analytical technique for examining the interaction between economic theory and public policy.