Keynesian economics is the economic theory of John Maynard Keynes associated with a stress on the necessity of active government intervention in the direction and control of the economy. The central idea in Keynesian economics is that the business cycle of capitalist economies, irregular alternations of boom and bust, can be smoothed out by government creation of credit, investment activity and income transfers during economic contraction and the raising of revenue surplus during periods of expansion.
Since the mid 1970's, monetarism has challenged and, to some extent, displaced Keynesian economics as the framework for public policy and academic work. Keynesian economics offered insurance against the human cost of mass unemployment and the wastage of productive capacity by economic instability. For several decades, beginning in the 1930's, Keynesian economics was the dominant model for the economic policies of western governments. Keynesian economics is linked to a strong public policy, the welfare state and active state involvement in the economy, while monetarism supports a non-interventionist state, privatization and reliance on the self-regulating forces of the market.
Monetarism is the doctrine or theory that economic stabilization is achieved by tight control of the money supply; control of the money supply according to this doctrine.