| |
John Maynard Keynes, 1st Baron Keynes ( "cains") (5 June 1883 – 21 April 1946) was a British economist whose ideas, called Keynesian economics, have had a major impact on modern economic and political theory as well as on many governments' fiscal policies. He advocated interventionist government policy, by which the government would use fiscal and monetary measures to mitigate the adverse effects of economic recessions, depressions and booms. He is one of the fathers of modern theoretical macroeconomics and considered among the most influential economists of the 20th century.
at 6 Harvey Road, Cambridge, John Maynard Keynes was the son of John Neville Keynes, an economics lecturer at Cambridge University, and Florence Ada Brown, a successful author and a social reformer.
Discussion
Ask a question about 'John Maynard Keynes' Start a new discussion about 'John Maynard Keynes' Answer questions from other users |
Recent Posts
Quotations
A study of the history of opinion is a necessary preliminary to the emancipation of the mind.
The End of Laissez-faire (1926) Ch. 1
I do not know which makes a man more conservative—to know nothing but the present, or nothing but the past.
The End of Laissez-faire (1926) Ch. 1
I should have drunk more Champagne.
Last Words.
On Prices and Production:
Most men love money and security more, and creation and construction less, as they get older.
"The Future", Essays in Persuasion (1931)
Nothing mattered except states of mind, chiefly our own.
On the "Apostles" group at Cambridge University. Essays in Biography (1933) Ch. 39
Words ought to be a little wild for they are the assault of thoughts on the unthinking.
New Statesman and Nation (15 July 1933)
Encyclopedia
John Maynard Keynes, 1st Baron Keynes ( "cains") (5 June 1883 – 21 April 1946) was a British economist whose ideas, called Keynesian economics, have had a major impact on modern economic and political theory as well as on many governments' fiscal policies. He advocated interventionist government policy, by which the government would use fiscal and monetary measures to mitigate the adverse effects of economic recessions, depressions and booms. He is one of the fathers of modern theoretical macroeconomics and considered among the most influential economists of the 20th century.
Biography
Personal and marital life
Born at 6 Harvey Road, Cambridge, John Maynard Keynes was the son of John Neville Keynes, an economics lecturer at Cambridge University, and Florence Ada Brown, a successful author and a social reformer. His younger brother Geoffrey Keynes (1887–1982) was a surgeon and bibliophile and his younger sister Margaret (1890–1974) married the Nobel-prize-winning physiologist Archibald Hill.
Keynes's early romantic and sexual relationships were almost exclusively with men. Attitudes in the Bloomsbury Group, in which Keynes was avidly involved, were relaxed about homosexuality. One of his great loves was the artist Duncan Grant, whom he met in 1908, and he was also involved with the writer Lytton Strachey.
At the beginning of the 1920s, despite casual affairs, Keynes had found no one to take Grant's place in his emotional and sexual life. In 1921 he fell "very much in love" with Lydia Lopokova, a well-known Russian ballerina, and one of the stars of Serge Diaghilev's Ballets Russes. They married in 1925—leading to the widely repeated couplet of unknown authorship: "Oh what a marriage of beauty and brains / The fair Lopokova and John Maynard Keynes". Their union was by all accounts happy, but childless.
Keynes was ultimately a successful investor, building up a very substantial private fortune, and a vast collection of fine art (one of the largest private collections of the twentieth century), including amongst others, notable works by Paul Cézanne, Edgar Degas, Amadeo Modigliani, Georges Braque, Picasso, and Georges-Pierre Seurat. He was nearly wiped out following the Stock Market Crash of 1929, but he soon recouped his fortune. He enjoyed collecting books: for example, he collected and protected many of Isaac Newton's papers. He was interested in literature in general and drama in particular and supported the Cambridge Arts Theatre financially, which allowed the institution to become, at least for a while, a major British stage outside of London.
Bertrand Russell named Keynes one of the most intelligent people he had ever known, commenting, "Every time I argued with Keynes, I felt that I took my life in my hands and I seldom emerged without feeling something of a fool."
Education
Keynes enjoyed an elite education at Eton, where he displayed talent in a wide range of subjects; particularly mathematics, classics and history. His abilities were remarkable for their sheer diversity. He entered King's College, Cambridge, in 1902, to study mathematics, but the famous Alfred Marshall begged Keynes to become an economist. It was at this time when Keynes became the President of the Cambridge University Liberal Club. Keynes received his B.A. in 1905 in mathematics.
Career
Keynes accepted a lectureship at Cambridge in economics funded personally by Alfred Marshall, from which position he began to build his reputation. Soon he was appointed to the Royal Commission on Indian Currency and Finance, where he showed his considerable talent at applying economic theory to practical problems.
His expertise was in demand during the First World War. He worked for the Adviser to the Chancellor of the Exchequer and to the Treasury on Financial and Economic Questions. Among his responsibilities were the design of terms of credit between Britain and its continental allies during the war, and the acquisition of scarce currencies.
At this latter endeavour Keynes' "nerve and mastery became legendary", in the words of economist Robert Lekachman, as in the case where he managed to put together—with difficulty—a small supply of Spanish pesetas. On hearing the news the secretary of the Treasury was delighted that Keynes had amassed enough to provide a temporary solution for the British Government. But Keynes did not hand the pesetas over, instead he sold them all to break the market: it worked, and pesetas became much less scarce and expensive. These accomplishments led eventually to the appointment that would have a huge effect on Keynes' life and career: financial representative for the Treasury to the 1919 Paris Peace Conference.
Keynes's career lifted off as an adviser to the British finance department from 1915–1919 during World War I, and their representative at the Versailles peace conference in 1919. His observations appeared in the highly influential book The Economic Consequences of the Peace in 1919, followed by A Revision of the Treaty in 1922. Using statistics provided to him by the German delegation, he argued that the reparations which Germany was forced to pay to the victors in the war were too large, would lead to the ruin of the German economy and result in further conflict in Europe. These predictions were borne out when the German economy suffered in the hyperinflation of 1923. Only a fraction of reparations were ever paid.
Keynes published his Treatise on Probability in 1921, a notable contribution to the philosophical and mathematical underpinnings of probability theory, championing the important view that probabilities were no more or less than truth values intermediate between simple truth and falsity.Keynes developed the first upper-lower probabilistic interval approach to probability in chapters 15 and 17 of this book, as well as having developed the first decision weight approach with his conventional coefficient of risk and weight,c, in chapter 26. He attacked the deflation policies of the 1920s with A Tract on Monetary Reform in 1923, a trenchant argument that countries should target stability of domestic prices and propose flexible exchange rates. The Treatise on Money (1930) (2 volumes) effectively set out his Wicksellian theory of the credit cycle.
As Keynes recognises in his magnum opus, which was published in 1936, the General Theory of Employment, Interest and Money, his efforts challenged the economic paradigm. In the foreword to the German edition of the General Theory, Keynes states that "the theory of aggregated production, which is the point of the following book, nevertheless can be much easier adapted to the conditions of a totalitarian state (eines totalen Staates) than the theory of production and distribution of a given production put forth under conditions of free competition and a large degree of laissez-faire."
In this book Keynes put forward a theory based upon the notion of aggregate demand to explain variations in the overall level of economic activity, such as were observed in the Great Depression. The total income in a society is defined by the sum of consumption and investment; and in a state of unemployment and unused production capacity, one can only enhance employment and total income by first increasing expenditures for either consumption or investment. The book was indexed by Keynes's student, later the economist David Bensusan-Butt.
The total amount of saving in a society is determined by the total income and thus, the economy could achieve an increase of total saving, even if the interest rates were lowered to increase the expenditures for investment. The book advocated activist economic policy by government to stimulate demand in times of high unemployment, for example by spending on public works. The book is often viewed as the foundation of modern macroeconomics. Historians agree that Keynes influenced U.S. president Roosevelt's New Deal, but disagree as to what extent. Deficit spending of the sort the New Deal began in 1938 had previously been called "pump priming" and had been endorsed by President Herbert Hoover. Few senior economists in the U.S. agreed with Keynes in the 1930s. With time, however, his ideas became more widely accepted.
In 1942, Keynes was a highly recognised economist and was raised to the House of Lords as Baron Keynes, of Tilton in the County of Sussex, where he sat on the Liberal benches. During World War II, Keynes argued in How to Pay for the War (published in 1940) that the war effort should be largely financed by higher taxation, rather than deficit spending, in order to avoid inflation. As Allied victory began to look certain, Keynes was heavily involved, as leader of the British delegation and chairman of the World Bank commission, in the mid-1944 negotiations that established the Bretton Woods system. The Keynes-plan, concerning an international clearing-union argued for a radical system for the management of currencies. He proposed the creation of a common world unit of currency, the Bancor and of new global institutions—a world central bank and the International Clearing Union. Keynes envisaged these institutions managing an international trade and payments system with strong incentives for countries to avoid substantial trade deficits or surpluses. The USA's greater negotiating strength, however, meant that the final outcomes accorded more closely to the less radical plans of Harry Dexter White. The two new institutions were founded, and would later be known as the World Bank and IMF, but there would be no incentives for states to avoid a large trade surplus. Keynes' was still pleased when accepting the final agreement, saying that if the institutions stay true to their founding principles "the brotherhood of man will have become more than a phrase." But later senior positions in both the world bank and IMF were increasingly filled with economists influenced by Keynes' great rival Milton Friedman.
Keynes wrote Essays in Biography and Essays in Persuasion, the former giving portraits of economists and notables, whilst the latter presents some of Keynes's attempts to influence decision-makers during the Great Depression. Keynes was editor in chief for the Economic journal from 1912. He was also a member of the Liberal Party.
Economic thought
In his magnum opus, The General Theory of Employment, Interest, and Money (1936), Keynes laid the foundation for the branch of economics termed "Macroeconomics" today. Based on the methods devised by Alfred Marshall, he argued that macroeconomic relationships differ from their microeconomic counterparts because the ceteris paribus clauses ("all other things being equal") are not uniform across levels of aggregation. The innovation in his core argument is to stop taking prices and wages as perfectly flexible, arguing instead for a certain degree of stickiness. Thanks to stickiness, it is established that the interaction of "aggregate demand" (in his sense) and "aggregate supply" (in his sense) may lead to stable unemployment equilibria. His work on employment went against the idea that the market ultimately settles at a state of full employment—a central tenet of Classical economists. Instead he argued that there exists a continuum of equilibria, the full employment equilibrium position being just one of them. (This idea underlies the choice of the title "General Theory": the classical theory being just a special case.)
His main contribution can be seen in establishing an approach to macroeconomics that maintains its relationship to the underlying microeconomic behaviors, but assumes a form qualitatively different from microeconomic models. (This contrasts with the assumption made in New Classical Economics where macro relationships are modelled analogously to micro-relationships, ?Robert Lucas, Jr.).
He assumed that (marginal) labour productivity decreases with expanding employment. This is incompatible with the empirical findings summarised in Okun's Law. He combined this position with the marginal productivity theory of wages, implying that real wages decrease with increasing employment. This was shown to be empirically incorrect by the economist Dunlop, and Keynes accepted this. Keynes also suggested in the General Theory that inflation would occur only near "full employment" (in his sense), but it has been observed in many cases that inflation creeps up in states of severe underemployment (Stagflation). The assumption entertained by Keynes that inflation can only occur near full employment is still maintained in modern macroeconomics (?NAIRU). Keynes held that the cause of unemployment is a too high rate of savings, or insufficient investment expenditure. He conjectured that the amount of labour supplied is different when the decrease in real wages is due to a decrease in the money wage, than when it is due to an increase in the price level, assuming money wages stay constant. This conjecture relates to the "actual attitudes of workers" and is "not theoretically fundamental", although the New Keynesian economics emphasises this point.
In his Theory of Money, Keynes said that savings and investment were independently determined. The amount saved had little to do with variations in interest rates which in turn had little to do with how much was invested. Keynes thought that changes in saving depended on the changes in the predisposition to consume which resulted from marginal, incremental changes to income. Therefore, investment was determined by the relationship between expected rates of return on investment and the rate of interest.
Arts Council of Great Britain
Keynes's personal interest in Classical Opera and Dance focused on his support of the Royal Opera House, Covent Garden and the Ballet Company at Sadler's Wells. During the War as a member of CEMA (Council for the Encouragement of Music and the Arts) Keynes helped secure government funds to maintain both companies while their venues were shut. Following the War Keynes was instrumental in establishing the Arts Council of Great Britain and was the founding Chairman in 1946. Unsurprisingly from the start the two organisations that received the largest grant from the new body were the Royal Opera House and Sadler's Wells.
Death
Keynes died of a heart attack at his holiday home in Tilton, East Sussex on 21 April 1946. He died soon after arranging a guarantee of an Anglo-American loan to Great Britain, a process he described as "absolute hell". Keynes's father, John Neville Keynes (1852–1949) outlived his son by three years. Keynes's brother Sir Geoffrey Keynes (1887–1982) was a distinguished surgeon, scholar and bibliophile. His nephews include Richard Keynes (born 1919) a physiologist; and Quentin Keynes (1921–2003) an adventurer and bibliophile.
Personality and beliefs
Character
Even as a young man Keynes possessed the easy self assurance that an Eton education often imparts. Yet he was convinced he was ugly from an early age. Keynes was often mocked by his more sophisticated and elegant friends, yet he invariably retained a lifelong loyalty for them.
Keynes could sometimes appear cruel in the course of advancing his ideas. For example, his General Theory contains several personal attacks on the economist Arthur Cecil Pigou. An economist with few allies to defend him, Pigou had become eccentric and reclusive after harrowing experiences in World War I. As a seminal influence on both welfare and environmental economists, Pigou was far from being a cold hearted advocate of raw laissez faire capitalism and according to sources favourable to Keynes, Pigou was chosen as a victim for Keynes' attacks due to his being a soft target.
Keynes was said to have an unequalled capacity for rudeness and a shattering wit, yet he showed no malice no matter how heated the debate and was so charming that even those he attacked rarely bore a grudge.
Throughout his life Keynes worked energetically for the benefit both of the public and his friends – even when his health was poor he laboured to sort out the finances of his old college, to help Great Britain in her post war negotiations with the U.S., suffering his final series of fatal heart attacks during negotiations on the Bretton Woods system. Since his death at Easter 1946, Keynes has been described several times as a saviour.
Religious views
Keynes attended church up to his teens, but by university he had become an agnostic, which he remained until his death.
Influence
Keynes's theories were so influential, even when disputed, that a subfield of macroeconomics called Keynesian economics is further developing and discussing his theories and their applications.
Economics: The Keynesian Ascendancy 1933–1979
Keynes provided the main inspiration for European and American economic policy makers from about 1933–1979. In late 1965 Time magazine ran a cover article with the title inspired by a tongue-in-cheek comment by Milton Friedman, that "We Are All Keynesians Now". The article described the exceptionally favourable economic conditions then prevailing, and reported that "Washington's economic managers scaled these heights by their adherence to Keynes's central theme: the modern capitalist economy does not automatically work at top efficiency, but can be raised to that level by the intervention and influence of the government." The article also states that Keynes was one of the three most important economists ever, and that his General Theory was more influential than the magna opera of other famous volumes—Smith's The Wealth of Nations and Marx's Das Kapital.
Newsweek magazine parodied this headline with the title "We are all Socialists now" on 16 February 2009, comparing the United States Congressional Republican minority's unfavourable reaction to President Barack Obama's bail-outs to Friedman's response to popular Keynesianism.
Economics: out of favour 1979–2007
The adverse economic conditions of the seventies, most especially the 1973 oil crisis and the recession that followed, unleashed a swelling tide of criticism for Keynesian Economics, most notably from the ideas of Monetarism plus the Lucas Critique both born in the Chicago school of economics and also from Friedrich von Hayek's Austrian School. By 1979 Monetarist principles had displaced Keynes as the primary influence on Anglo-American economic policy. However many officials and economists on both sides of the Atlantic retained a preference for Keynes, and in 1984 the Federal Reserve officially discarded monetarism, after which Keynesian principles made a partial comeback. Yet free market doctrine remained strong in powerful institutions like the World Bank, IMF and US Treasury, as well as the foremost opinion forming media such as the Financial Times and The Economist.
Economics: The Keynesian Resurgence of 2008–2009
The financial crisis of 2007–2009 led to public scepticism about the free market consensus even from some on the economic right. In March 2008, Martin Wolf, chief economics commentator at the Financial Times, announced the death of the dream of global free-market capitalism, and quoted Josef Ackermann, chief executive of Deutsche Bank, as saying "I no longer believe in the market's self-healing power." Shortly afterward influential Economist Robert Shiller began advocating robust government intervention to tackle the financial crises, specifically citing Keynes. A series of major bail-outs followed starting on 7 September with the announcement that the U.S. government was to nationalize the two firms which oversaw most of the U.S. subprime mortgage market—Fannie Mae and Freddie Mac. In October, the British Chancellor of the Exchequer referred to Keynes as he announced plans for substantial fiscal stimulus to head off the worst effects of recession, in accordance with Keynesian economic thought. Similar policies have been announced in other European countries, by the U.S., and by China. This is in stark contrast to the action permitted to Indonesia during its financial crisis of 1997, when it was forced by the IMF to close 16 banks at the same time, prompting a bank run.
Prominent Keynesian economists include Paul Krugman and arguably, Greg Mankiw, Robert Reich and Joseph Stiglitz. The works on Keynes of Hyman Minsky, Robert Skidelsky, and Donald Markwell were widely cited. Much recent discussion reflected Keynes's advocacy of international coordination of fiscal or monetary stimulus, and of international economic institutions such as the International Monetary Fund and World Bank, which he had helped to create at Bretton Woods in 1944, and which many argued should be reformed at a "new Bretton Woods". This was evident at the G20 and APEC meetings in Washington, D.C., and Lima, Peru, in November 2008, and in coordinated reductions of interest rates by many countries in November and December 2008. IMF and United Nations economists advocated a coordinated international approach to fiscal stimulus.
Keynesian intervention was employed to aid US financial institutions by the creation of the $700 billion Troubled Assets Relief Program (TARP) spearheaded by Bush Finance Secretary Henry Paulson in October 2008. In reference to TARP injections of federal money into private enterprise, President Bush said: "To make sure the economy doesn't collapse, I've abandoned free market principles to save the free market system." By the end of December 2008, the Financial Times reported that "the sudden resurgence of Keynesian policy is a stunning reversal of the orthodoxy of the past several decades" and that of all the modern economies "only Germany remains publicly sceptical that fiscal stimulus will work" Keynesian thinking was also reflected in the appointment by U.S. President Barack Obama of Lawrence Summers, Timothy F. Geithner, and Christina Romer to the principal economic positions in his administration. In a speech on 8 January 2009, then President Elect Obama unveiled a plan for extensive domestic spending to combat recession (a stimulus package close to $1 trillion) thus further reflecting Keynesian thinking.
Other cultural and political influence
John Maynard Keynes had several cultural interests and was a central figure in the so-called Bloomsbury group, consisting of prominent artists and authors in Britain. His autobiographical essays Two Memoirs appeared in 1949. His important contribution to thinking about international relations—including economic causes of war and economic means of promoting peace—has been neglected until recently.
Criticism
From Hayek
Friedrich von Hayek extensively critiqued Keynes's 1930 Treatise on Money, only to have Keynes assert that the Treatise no longer reflected his thinking. However, after reading Hayek's The Road to Serfdom Keynes said, "In my opinion it is a grand book ... Morally and philosophically I find myself in agreement with virtually the whole of it: and not only in agreement with it, but in deeply moved agreement." Keynes was known, however, to open his letters with such complimentary language. He concluded the same letter with the prophecy, "What we need therefore, in my opinion, is not a change in our economic programmes, which would only lead in practice to disillusion with the results of your philosophy; but perhaps even the contrary, namely, an enlargement of them. Your greatest danger is the probable practical failure of the application of your philosophy in the United States." On the pressing issue of the time, whether deficit spending could lift a country from depression, Keynes replied to Hayek's criticism in the following way,
Hayek explained the first section of the letter saying that this is "because Keynes believed that he was fundamentally still a classical English liberal and wasn't quite aware of how far he had moved away from it. His basic ideas were still those of individual freedom. He did not think systematically enough to see the conflicts."
The Keynes-Hayek conflict was but one battle in the Cambridge-LSE war. Hayek also felt that application of Keynes's policies would give too much power to the state and would lead to socialism.
From Friedman
While Milton Friedman described The General Theory as 'a great book', he argues that its implicit separation of nominal from real magnitudes is neither possible nor desirable; macroeconomic policy, Friedman argues, can reliably influence only the nominal. He and other monetarists have consequently argued that Keynesian economics can result in stagflation, the combination of low growth and high inflation that developed economies suffered in the early 1970s. More to Friedman's taste was the Tract on Monetary Reform (1923), which he regarded as Keynes's best work because of its focus on maintaining domestic price stability.
Other notes
- On inflation within a fixed nominal exchange rate, such as the Gold Standard, Keynes wrote in The Economic Consequences of the Peace: "Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose."
- On Karl Marx's work, Keynes wrote in 1931, "How can I accept the [Communist] doctrine, which sets up as its bible, above and beyond criticism, an obsolete textbook which I know not only to be scientifically erroneous but without interest or application to the modern world? How can I adopt a creed which, preferring the mud to the fish, exalts the boorish proletariat above the bourgeoisie and the intelligentsia, who with all their faults, are the quality of life and surely carry the seeds of all human achievement? Even if we need a religion, how can we find it in the turbid rubbish of the red bookshop? It is hard for an educated, decent, intelligent son of Western Europe to find his ideals here, unless he has first suffered some strange and horrid process of conversion which has changed all his values."
- Winston Churchill was quoted as saying: "If you put two economists in a room, you get two opinions, unless one of them is Lord Keynes, in which case you get three opinions."
- On his friend Ludwig Wittgenstein's return to Cambridge, Keynes famously wrote: "Well, God has arrived. I met him on the 5.15 train."
- Keynes had much to say on the importance of international co-ordination of economic policies, the development of international economic institutions (such as the IMF and World Bank, which he helped to found), the ways in which economic factors could lead to war or promote peace, the importance of managing capitalism to promote peace, and the desirability of free trade if this were done.
- Keynes wrote, "The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back... soon or late, it is ideas, not vested interests, which are dangerous for good or evil."
See also
General
External links
by Paul Davidson (Oct. 2, 2007)
-
-
-
- (1919)
- (1926)
- (1933)
- (1936)
- Donald Markwell, Keynes and Australia, Reserve Bank of Australia, 2000
-
-
-
- by Reuben L. Norman Jr., Ph.D. ( 1998-2007 )
- by Reuben L. Norman Jr., Ph.D. ( June 6, 1998 )
-
-
|
