John Maynard Keynes

John Maynard Keynes, 1st Baron Keynes CB, FBA (/keɪnz/ KAYNZ; 5 June 1883 – 21 April 1946), was an English economist whose writings are the basis for the school of thought known as Keynesian economics, as well as its various offshoots. Originally trained in mathematics, he built on and greatly refined earlier work on the causes of business cycles. His ideas, reformulated as New Keynesianism, are fundamental to mainstream macroeconomics. He is known as the "father of macroeconomics" and is one of the most influential economists of the 20th century.

Keynes was educated at King's College at the University of Cambridge, where he graduated in 1904 with a B.A. in mathematics. During the Great Depression of the 1930s, Keynes spearheaded a revolution in economic thinking, challenging the ideas of neoclassical economics that held that free markets would, in the short to medium term, automatically provide full employment, as long as workers were flexible in their wage demands. He argued that aggregate demand (total spending in the economy) determined the overall level of economic activity, and that inadequate aggregate demand could lead to prolonged periods of high unemployment, and since wages and labour costs are rigid downwards, the economy will not automatically rebound to full employment. Keynes advocated the use of fiscal and monetary policies to mitigate the adverse effects of economic recessions and depressions.

After the 1929 crisis, Keynes also turned away from free trade, a fundamental pillar of neoclassical economics. He criticized Ricardian comparative advantage theory (the foundation of free trade), considering the theory's initial assumptions unrealistic, and became definitively protectionist. He detailed these ideas in his magnum opus, The General Theory of Employment, Interest and Money, published in early 1936. By the late 1930s, leading Western economies had begun adopting Keynes's policy recommendations. Almost all capitalist governments had done so by the end of the two decades following Keynes's death in 1946. As a leader of the British delegation, Keynes participated in the design of the international economic institutions established after the end of World War II but was overruled by the American delegation on several aspects.

Early life and education

John Maynard Keynes was born in Cambridge, England, on 5 June 1883, into a loving and supportive family. His father, John Neville Keynes, was an economist, and his mother, Florence Ada Keynes, was a social reformer who later became the town’s second female mayor. Keynes grew up with two siblings, Margaret Neville Keynes and Geoffrey Keynes, who both achieved success in their own fields.

Keynes began his education at a young age and showed great talent in mathematics. He attended Eton College, where he excelled in many subjects, and later went to King's College, Cambridge to study mathematics. During his time at Cambridge, he became involved in various activities and societies, developing interests in philosophy and economics. His early experiences and family background helped shape his confidence and belief in the power of government to improve society.

Career

John Maynard Keynes began his career in 1906 as a clerk in the India Office. He later returned to Cambridge to study probability theory and became a fellow of King's College in 1909. He published his first economics article in 1911 and founded the Political Economy Club.

During the First World War, Keynes advised the British government. He took an official position at the Treasury in 1915, focusing on financial arrangements with allies and managing scarce currencies. He was appointed to the Versailles peace conference in 1919, where he worked to prevent excessively high reparations on Germany, though his efforts were largely unsuccessful.

In the 1920s, Keynes completed "A Treatise on Probability" and continued to write on economic issues, advocating for reduced reparations on Germany and criticizing Britain’s return to the gold standard. During the Great Depression, he argued for government spending to stimulate the economy and published his major work, "The General Theory of Employment, Interest and Money," in 1936. This book challenged traditional economic theories and laid the groundwork for modern macroeconomics.

During the Second World War, Keynes advised on financing the war effort through taxation and saving rather than deficit spending. After the war, he played a key role in establishing the Bretton Woods system, which created the World Bank and the International Monetary Fund.

Economic viewpoint

John Maynard Keynes changed how we think about economics, especially during tough times like the Great Depression. He believed that countries should not always rely on trading freely with others. He thought that if a country imports more than it exports, it can hurt that country's economy. He suggested taxing goods from other countries to help balance trade and support local jobs.

Keynes started his career supporting free trade but later changed his mind. He argued that during economic downturns, it might be better to protect local industries and control trade to help the economy recover. He believed that governments should take active steps to manage trade and employment, especially when times were hard. His ideas influenced many economic policies after his time.

Main article: The Economic Consequences of the Peace

Influence and legacy

Main article: Keynesian Revolution

From the end of the Great Depression until the mid-1970s, John Maynard Keynes's ideas guided economic policies around the world. After World War II began, governments started borrowing money to spend on large projects, which helped reduce unemployment. Keynes's ideas became very popular and were linked to the rise of modern liberalism in Western countries.

Main article: Neo-Keynesian economics

In the 1930s and 1940s, economists tried to understand Keynes's ideas using math. They mixed his theories with other economic thoughts to create neo-Keynesian economics, which became a major part of economic studies for many years. By the 1950s and 1960s, many countries used Keynes's ideas, leading to strong economic growth and low unemployment.

Main article: Post-war displacement of Keynesianism

By the late 1970s, some economists began to question Keynes's ideas. They thought his theories didn't match what was happening in the economy anymore. New ideas, like monetarism, started to become more popular. However, some people still believed in Keynes's ideas, and they kept using them in different ways.

Main article: 2008–09 Keynesian resurgence

When the 2008 financial crisis hit, many people started to think that Keynes's ideas might be useful again. Leaders around the world used Keynesian ideas to help their economies recover. They spent money on projects to create jobs and support businesses. This showed that Keynes's ideas were still important, even many years after he passed away.

Main article: New Keynesian economics

In the 1990s and 2000s, economists developed New Keynesian economics. This approach tried to combine Keynes's ideas with modern economic theory. It explained why prices and wages sometimes don't change quickly and why government action can help the economy work better.

Reception

John Maynard Keynes was known for his charm and was well-liked wherever he went. Even people who disagreed with him respected his achievements. After his speech at the Bretton Woods negotiations, he received a rare standing ovation, showing how much people valued his work despite his health problems.

Keynes had many notable critics, including economist Friedrich Hayek, who later admitted great admiration for Keynes. Others, like Lionel Robbins, praised Keynes’s sharp mind and persuasive speaking. Even with criticism from different sides, many recognized Keynes as one of the most remarkable people ever known.

Personal life

Keynes had many close friendships throughout his life, including within the Bloomsbury Group, a circle of writers and artists known for their lively discussions and support for the arts. He was married to Lydia Lopokova, a famous Russian ballerina, in 1925. Their marriage was happy and supportive, though they did not have children.

Keynes believed in using wealth to support good causes. He donated money to help fund theaters and music schools, including the Cambridge Arts Theatre, the Royal Opera House, and the Ballet Company at Sadler’s Wells. He also collected art and books, including important works by artists like Paul Cézanne and Edgar Degas, and papers belonging to the scientist Isaac Newton.

Publications

John Maynard Keynes wrote many important books and articles that helped shape our understanding of economics. Some of his most famous books include The Economic Consequences of the Peace, A Treatise on Probability, and The General Theory of Employment, Interest and Money. These works explored topics like money, war economies, and how economies grow or slow down.

He also wrote many articles and pamphlets on issues like inflation, liberalism, and the Great Slump of the 1930s. His writings continue to influence how we think about economics today.