The father of Keynesian Economics, John Maynard Keynes, was an economist in the early-mid 1900's. During the Great Depression, he felt that the neoclassical theory had faltered in correcting to full employment as the theory should. According to the neoclassical theory, if wages dropped, prices would fall to equal out the buying power of a worker. Keynes thought this was the opposite of what should happen. He felt that by lowering wage, you were lowering the money in circulation, which would reduce the demand. What would basically happen was that there would be less money available to invest.

His solution was to have the government run with deficit spending during hard times. By having deficit spending, businesses are encouraged to increase wages. This is counter to what the neoclassical theory is. He also felt that consumption drove investment. So, with more government spending, there would be more money in the market, and there would be more purchases by consumers, thus stimulating the economy.

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