Final answer:
The new economic theory of the early twentieth century held that economic progress relied on the system of capitalism, while Keynes' theory argued that economic downturns were caused by a lack of demand. The market revolution in America transitioned the nation from home production to factory production, with a shift towards market transactions.
Step-by-step explanation:
The new economic theory of the early twentieth century held that economic progress relied on the system of capitalism. However, many thinkers in the early 19th century blamed capitalism for producing human suffering. They embraced Marxism, which advocated for a communist revolution placing the working class in control of the government and economy. However, the predictions of communism creating a society devoid of major social problems were not realized.
Another economic theory, proposed by Keynes during the Great Depression, argued that economic downturns were caused by a lack of demand, rather than a drop in the economy's ability to supply goods and services. Keynes emphasized that recessions occurred when firms lacked incentives to produce due to insufficient demand in the economy. In this theory, the level of GDP was primarily determined by the amount of total demand.
During the early nineteenth century, the market revolution in America transitioned the nation from home production to factory production. This period saw a shift from traditional controls over production to market transactions. Supply, demand, and price became more important in economic transactions than social relationships, and customary social practices no longer played a significant role in economic transactions.