Keynes’s Middle Way: Liberalism is Truly a New Way

The question of whether unfettered individual self-interest decision making in economic affairs can promote the social good has vexed philosophers and economic thinkers for a long time. Based on Adam Smith’s 1776 writings about the “invisible hand” in the Wealth of Nations, classical economic theory had developed a large superstructure to explain that a system of laissez-faire, where the role of government was not to interfere with the economic activities of the marketplace, would result in the maximum welfare of the community. The worldly wisdom of economists and politicians during the Victorian age was that an economy prospers best when market forces are unhampered by government actions. Government may raise taxes to pay for a military defense and to enforce law and order on the community, but the State should never try to influence total economic activity.