This chapter covers: the return to unrestrained laissez faire in the 1920s; realization by some economists of some failures in the functioning of free markets; the discovery of monopolistic competition and of potential shortcoming in aggregate demand; Keynes proposes countercyclical fiscal policy to support demand; conservative resistance to changes and views that governmental intervention would inevitably corrupt the role and the efficiency of free markets; fear of contamination from the “Russian communist revolution”; race riots in the United States, fascism in Italy and Nazism in Germany; the impact of the Great Depression on employment and production; growing doubts about free market policies; realization that market operators might not always be constrained by competition but might create cartels and engage in other abuses; Hayek’s Road to Serfdom and his influence; increasingly, many begin to see in a new light a potential role of the government; should the government correct only presumed allocation problems, or also problems in the distribution of income?; the policies of the New Deal in the United States in the 1930s, and the Beverage proposed reforms in the United Kingdom in 1942; making income distribution less unequal became more acceptable; taxes became more progressive; and conservative opposition continued.

Chapter 4 moves between the era of classic capitalism (up to the Great Crash), and the present era of neoliberal capitalism. The first was somewhat reined in by the New Deal and the second is still generating the One Percent condition of enormous inequalities. Symptomatic of economic derangement during neoliberalism is the growing impact of financial institutions, which produce little but profit greatly.