ABSTRACT
In the best tradition of classical Political Economy Keynes laid down the basic principles of mixed statecraft. For he broke with the neo classical tradition of atomistic ‘economics’ in order to restore the aggregative spirit of Mercantilism1 and the aggregative sensibilities of classical Political Economists. But unlike Mercantilists who made foreign trade the principal weapon of domestic statecraft, Keynes made public finance the go-between in the new marriage of economics and politics.2 Keynesian economics, with its emphasis on fiscal policy as the star in the new drama of mixed-economic fife, has rendered laissez-faire capitalism obsolete and doctrinaire socialism obsolescent. Keynes’ thema that the State should function as a ‘balancing factor’ in the determination and distribution of national income3 has found practical expression in the 1944 British White Paper on Employment as well as in the 1946 American Employment Act. To elucidate the working principles of mixed statecraft, it will
be necessary to introduce the government sector into the discussion of national income determination in a dynamic as well as static setting. This involves appropriate modifications of Keynes’ General Theory in a post-Keynesian manner, as will be attempted subse quently. In this chapter we shall deal specifically with fiscal policy for stability and welfare-in order to illustrate the Keynesian principles
of mixed statecraft within the institutional framework of democratic society. Keynes’ General Theory is the theoretical basis of modern fiscal
policy in most mixed economies today, for there he indicated the possibility and desirability of influencing the behavior of economic aggregates through the deliberate manipulation of government expenditure and taxes.4 Let us proceed with the modus operandi of this compensatory fiscal theory.
