Once again, there is confusion about what John Maynard Keynes actually said in his General Theory. Let me put it very shortly: if and only if monetary policy fails, government spending must come to the rescue to prop up demand.
The people that were behind Keynesianism have not much in common with the economics of Keynes. Keynes was misinterpreted by people with political goals that used him to build a larger government sector. Keynes himself never said that deficit spending by the government would always be good. Only if monetary policy fails, to repeat that argument, would fiscal policy have to save the day.
So Amity Shlaes is misrepresenting John Maynard Keynes (and yes, Keynesians do so, too). But then, how can Mrs Shlaes write a book about the Great Depression without having read the General Theory? That is really too bad, since the book provides a nice panorama of the Great Depression. I quite like it, but it could be way better if the economic theory behind it would come out better. (I just finished ch. 4, but read all pages mentioning Keynes.)
Let me give you an example: on p. 272 she lets Anderson say that Keynes thought corporate surplusses were bad. This is nonsense. Keynes work is based on investment being driven by financial markets. His chapter 11 – The Marginal Efficiency of Capital – starts like this:
When a man buys an investment or capital-asset, he purchases the right to the series of prospective returns, which he expects to obtain from selling its output, after deducting the running expenses of obtaining that output, during the life of the asset. This series of annuities Q 1 , Q 2 , . . . Q n it is convenient to call the prospective yield of the investment.