John Maynard Keynes was a complex and very interesting man. He was a brilliant intellectual and the most prominent economist of his era. There is a vast body of literature about him and his economic theories. I am inclined to think that the single best source of information about him is the superb three volume biography by Robert Skidelsky. I read the whole thing and greatly enjoyed it. For people less ambitious, here's a link to the one volume abridged version.
Keynes published his most important work The General Theory of Employment, Interest and Money in 1936. Shortly after that he became seriously ill with a cardiac infection and was hospitalized for an extended period. By the time that he had made a partial recovery Britain was engaged in the crisis of WW II. He devoted his remaining energies to being the principal adviser and negotiator for the Treasury for the remainder of his life until his death in 1946. An important result of this situation was that he never had the opportunity of participating in the discussion and debate about the meaning and implications of his theory. From then until now there have been a range of different versions of Keynesian economics like schismatic religious sects all claiming to be the true voice of the master. In the present day we have New Keynesians, Neo Keynesians and Post Keynesians along with some others.
There is a popular version of economic history that portrays Keynes as an apostle of welfare state social democracy. This tale ties his economic theories closely tied to the new deal in the US. Politically Keynes was a British Liberal. When he was elevated to the House of Lords he sat with the Liberals. His attitude toward the working class was one of mild support. His relations with the Labour Party were often bumpy. The document that launched the British welfare state in 1942 was written by William Beveridge, another Liberal. Keynes, in his capacity as treasury adviser reviewed it for its economic implications, but he was relatively detached about it as social policy. Keynesian economics does not require the existence of a strong social safety net. Keynes' primary focus was on managing capitalist economies to minimize major disruptions.
The major policy achievements of the new deal were all accomplished before Keynes published The General Theory. New deal economic policies were not operating on a Keynesian platform. They were basically fueled by pragmatic experimentation with the hope of avoiding the kind of revolutionary upheavals that were beginning to sweep Europe. In the process they injected significant government spending into the economy resulting in a stimulus effect. By 1936 the economy had returned to slight expansion. They then attempted to placate conservative opinion by reducing programs and it returned to recession in 1937. What eventually returned the US economy to robust prosperity was the war economy which began to pick up in 1938 as Europe began to rearm. The prosperity that much of the American workforce enjoyed during the 50s and 60s had as much to do with the fact that WW II had left the US as the only intact industrial economy as it did with economic policy.
By the late 1940s an American version of Keynesian economics developed under the leadership of Alvin Hansen became established as a standard position for the management of economic policy. It continued to be the dominant view until the 1970s. When the Kennedy/Johnson administration took office it embarked on an economic policy of fairly aggressive expansion under the leadership of Walter Heller as chairman of the Council of Economic Advisers. With the further stimulus of the great society programs and spending on the expanding war in Vietnam the economy began to overheat. LBJ's economic advisers took an orthodox Keynesian approach and advised a tax increase to fund the war and balance the economy. LBJ was afraid of the political consequences of a tax increase and delayed it for an extended period of time. Some economic historians, including Robert Skidelsky mark this as the beginning of the inflationary crises that were to come.
Major economic crises do not result from single causes. That was true of the great depression and it was true of the stagflation crisis of the 1970s. This was a global crisis creating similar problems over the entire industrial world. The Arab oil boycotts and resulting price shocks are generally acknowledged to have been one major cause. The result was a situation of chronic price inflation coupled with persistent unemployment. Keynesian economics as then practiced had solutions for one problem or the other but not the two in tandem.
Eventually Carter appointed Paul Volcker as chairman of the Federal Reserve. His approach was to deal with the inflation while making unemployment worse. He used the traditional tool of tight money by pushing up interest rates to unprecedented levels. The inflation eventually came under control. Volcker does not appear to have been an economist closely allied with a particular economic philosophy. From the Wiki article:
Nobel laureate Joseph Stiglitz said about him in an interview:
Paul Volcker, the previous Fed Chairman known for keeping inflation under control, was fired because the Reagan administration didn't believe he was an adequate de-regulator.
He has now resurfaced with the Volcker rule that is part of the regulatory changes being adopted in the wake of the great recession.
The economic problems of the 1970s lasted over a 10 year period form about 1972 to 1982. They provided an entre for neoliberal economist led by Milton Friedman and his fellow monetarists. I think that it is important to note how closely developments in the UK during this period paralleled those in the US. The Labour government under James Callaghan was struggling with problems of high inflation and union demands for wage increases not unlike those faced by the Carter administration. In 1979 Callaghan's distress opened the door to Thatcherism while Carter's opened it to Reaganism in 1980. The neoliberals had arrived in positions of power.