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John Maynard Keynes, 1st Baron Keynes, ( ; 5 June 1883 – 21 April 1946) was an English
economist An economist is a professional and practitioner in the social science Social science is the branch The branches and leaves of a tree. A branch ( or , ) or tree branch (sometimes referred to in botany Botany, also called , pl ...

economist
, whose ideas fundamentally changed the theory and practice of
macroeconomics Macroeconomics (from the Greek prefix ''makro-'' meaning "large" + ''economics'') is a branch of economics Economics () is a social science Social science is the branch A branch ( or , ) or tree branch (sometimes referred ...
and the
economic policies The economic policy of government A government is the system or group of people governing an organized community, generally a State (polity), state. In the case of its broad associative definition, government normally consists of ...
of governments. Originally trained in mathematics, he built on and greatly refined earlier work on the causes of
business cycle The business cycle, also known as the economic cycle or trade cycle, are the fluctuations of gross domestic product Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced in a sp ...

business cycle
s. One of the most influential economists of the 20th century, * * * his ideas are the basis for the
school of thought A school of thought, or intellectual tradition, is the perspective of a group of people who share common characteristics of opinion or outlook of a philosophy Philosophy (from , ) is the study of general and fundamental questions, such ...
known as
Keynesian economics Keynesian economics ( ; sometimes Keynesianism, named after British economist John Maynard Keynes John Maynard Keynes, 1st Baron Keynes, ( ; 5 June 1883 – 21 April 1946) was an English economist, whose ideas fundamentally changed the t ...
, and its various offshoots. During the
Great Depression The Great Depression was a severe worldwide economic depression An economic depression is a sustained, long-term downturn in economic activity in one or more economies. It is a more severe economic downturn than a economic recession, recess ...
of the 1930s, Keynes spearheaded a revolution in economic thinking, challenging the ideas of
neoclassical economics Neoclassical economics is an approach to economics in which the production, consumption and valuation (pricing) of goods and services are driven by the supply and demand In microeconomics, supply and demand is an economic model In econo ...
that held that
free market In economics Economics () is a social science Social science is the branch A branch ( or , ) or tree branch (sometimes referred to in botany Botany, also called , plant biology or phytology, is the science of pl ...
s 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 In macroeconomics, aggregate demand (AD) or domestic final demand (DFD) is the total demand for final goods and services in an economy at a given time. It is often called effective demand, though at other times this term is distinguished. This i ...
(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 Unemployment, according to the (Organisation for Economic Co-operation and Development), is people above a specified age (usually 15) not being in paid or but currently available for work during the . Unemployment is measured by the unemplo ...
, and that labour costs and wages were rigid downwards, which means the economy will not automatically rebound to full employment. Keynes advocated the use of and
monetary policies Monetary policy is the policy adopted by the monetary authority In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management o ...
to mitigate the adverse effects of economic
recession In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods ...
s and
depressions Depression may refer to: Mental health * Depression (mood), a state of low mood and aversion to activity * Mood disorders characterized by depression are commonly referred to as simply ''depression'', including: ** Dysthymia ** Major depressive ...
. He detailed these ideas in his magnum opus, ''
The General Theory of Employment, Interest and Money ''The General Theory of Employment, Interest and Money'' of 1936 is a book by English economist John Maynard Keynes John Maynard Keynes, 1st Baron Keynes, ( ; 5 June 1883 – 21 April 1946) was an English economist, whose ideas fundamenta ...
'', published in late 1936. By the late 1930s, leading Western economies had begun adopting Keynes's policy recommendations. Almost all
capitalist Capitalism is an economic system based on the private ownership of the means of production and their operation for Profit (economics), profit. Central characteristics of capitalism include capital accumulation, competitive markets, a price s ...
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 World War II or the Second World War, often abbreviated as WWII or WW2, was a global war A world war is "a war War is an intense armed conflict between states State may refer to: Arts, entertainment, and media Literatur ...
but was overruled by the American delegation on several aspects. Keynes's influence started to wane in the 1970s, partly as a result of the
stagflation In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods ...
that plagued the
Anglo Anglo is a prefix indicating a relation to, or descent from, the Angles, England, English culture, the English people or the English language, such as in the term ''Anglo-Saxon language''. It is often used alone, somewhat loosely, to refer to ...
- American economies during that decade, and partly because of criticism of Keynesian policies by
Milton Friedman Milton Friedman (; July 31, 1912 – November 16, 2006) was an American economist An economist is a practitioner in the social sciences, social science discipline of economics. The individual may also study, develop, and apply theories and c ...

Milton Friedman
and other
monetarists Monetarism is a school of thought A school of thought, or intellectual tradition, is the perspective of a group of people who share common characteristics of opinion or outlook of a philosophy Philosophy (from , ) is the study of gen ...
, who disputed the ability of government to favourably regulate the business cycle with
fiscal policy In economics Economics () is a social science Social science is the Branches of science, branch of science devoted to the study of society, societies and the Social relation, relationships among individuals within those societies ...

fiscal policy
. However, the advent of the global
financial crisis of 2007–2008 The financial crisis of 2007–2008, or global financial crisis (GFC), was a severe worldwide economic crisis An economy (from Greek οίκος – "household" and νέμoμαι – "manage") is an area of the production, distribution and t ...
sparked a resurgence in Keynesian thought. Keynesian economics provided the theoretical underpinning for economic policies undertaken in response to the financial crisis of 2007–2008 by
President President most commonly refers to: *President (corporate title) A president is a leader of an organization, company, community, club, trade union, university or other group. The relationship between a president and a Chief Executive Officer, chi ...

President
Barack Obama Barack Hussein Obama II ( ; born August 4, 1961) is an American politician and attorney who served as the 44th president of the United States The president of the United States (POTUS) is the head of state and head of government ...

Barack Obama
of the United States, Prime Minister
Gordon Brown James Gordon Brown (born 20 February 1951) is a British politician who served as Prime Minister of the United Kingdom The prime minister of the United Kingdom is the head of government The head of government is either the h ...

Gordon Brown
of the United Kingdom, and other heads of governments. When ''
Time Time is the continued sequence of existence and event (philosophy), events that occurs in an apparently irreversible process, irreversible succession from the past, through the present, into the future. It is a component quantity of various me ...
'' magazine included Keynes among its Most Important People of the Century in 1999, it stated that "his radical idea that governments should spend money they don't have may have saved capitalism." ''
The Economist ''The Economist'' is an international weekly newspaper A weekly newspaper is a general-news or current affairsCurrent affairs may refer to: Media * Current Affairs (magazine), ''Current Affairs'' (magazine), a bimonthly magazine of cult ...
'' has described Keynes as "Britain's most famous 20th-century economist." In addition to being an economist, Keynes was also a
civil servant The civil service is a collective term for a sector of government composed mainly of career civil servants hired on professional merit rather than appointed or elected, whose institutional tenure typically survives transitions of political leader ...
, a director of the
Bank of England The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the Kingdom of England, English Government's banker, and still one of the bankers for t ...

Bank of England
, and a part of the
Bloomsbury Group The Bloomsbury Group—or Bloomsbury Set—was a group of associated English writers, intellectuals, philosophers and artists in the first half of the 20th century, including Virginia Woolf Adeline Virginia Woolf (; ; 25 January 1882 2 ...
of intellectuals.


Early life and education

John Maynard Keynes was born in
Cambridge Cambridge ( ) is a university city and the county town In the United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain,Usage is mixed. The Guardian' and Telegraph' ...

Cambridge
,
Cambridgeshire Cambridgeshire (abbreviated Cambs.) is a county A county is a geographical region of a country used for administrative or other purposesChambers Dictionary The ''Chambers Dictionary'' (''TCD'') was first published by William Chamber ...

Cambridgeshire
,
England England is a Countries of the United Kingdom, country that is part of the United Kingdom. It shares land borders with Wales to its west and Scotland to its north. The Irish Sea lies northwest of England and the Celtic Sea to the southwest. E ...

England
, to an upper-middle-class family. His father,
John Neville Keynes John Neville Keynes ( ; 31 August 1852 – 15 November 1949) was a British economist An economist is a practitioner in the social sciences, social science discipline of economics. The individual may also study, develop, and apply theories an ...
, was an economist and a lecturer in
moral science Human science (or human sciences in the plural) studies the philosophical, biological, social, and cultural aspects of human life. Human science aims to expand our understanding of the human Humans (''Homo sapiens'') are the most populous ...
s at the University of Cambridge and his mother,
Florence Ada Keynes Florence Ada Keynes (née Brown; 10 March 1861 – 13 February 1958) was an English author, historian and politician. Career Keynes was an early graduate of Newnham College, Cambridge, Newnham College, Cambridge University, Cambridge. She estab ...
, a local social reformer. Keynes was the first born, and was followed by two more children – Margaret Neville Keynes in 1885 and
Geoffrey Keynes Sir Geoffrey Langdon Keynes ( ; 25 March 1887, Cambridge Cambridge ( ) is a College town, university city and the county town of Cambridgeshire, England, on the River Cam approximately north of London. At the United Kingdom Census 2011, th ...
in 1887. Geoffrey became a surgeon and Margaret married the Nobel Prize–winning physiologist
Archibald Hill Archibald Vivian Hill (26 September 1886 – 3 June 1977), known as A. V. Hill, was a British physiologist, one of the founders of the diverse disciplines of biophysics and operations research. He shared the 1922 Nobel Prize in Physiology or Med ...
, although she had many affairs with women, notably
Eglantyne Jebb Eglantyne Jebb (25 August 1876 – 17 December 1928) was a British reform movement, social reformer who founded the Save the Children organisation at the end of the First World War to relieve the effects of famine in Austria-Hungary and Germany ...
. According to the
economic historian An economy (from Greek language, Greek οίκος – "household" and νέμoμαι – "manage") is an area of the Production (economics), production, Distribution (economics), distribution and trade, as well as Consumption (economics), consum ...
and biographer
Robert Skidelsky Robert Jacob Alexander, Baron Skidelsky, (born 25 April 1939) is a British Economic history, economic historian. He is the author of a three-volume award-winning biography of British economist John Maynard Keynes (1883–1946). Skidelsky read hi ...
, Keynes's parents were loving and attentive. They remained in the same house throughout their lives, where the children were always welcome to return. Keynes would receive considerable support from his father, including expert coaching to help him pass his scholarship exams and financial help both as a young man and when his assets were nearly wiped out at the onset of
Great Depression The Great Depression was a severe worldwide economic depression An economic depression is a sustained, long-term downturn in economic activity in one or more economies. It is a more severe economic downturn than a economic recession, recess ...
in 1929. Keynes's mother made her children's interests her own, and according to Skidelsky, "because she could grow up with her children, they never outgrew home". In January 1889 at the age of five and a half, Keynes started at the kindergarten of the
Perse School for Girls The Stephen Perse Foundation is a family of independent Independent or Independents may refer to: Arts, entertainment, and media Artist groups * Independents (artist group), a group of modernist painters based in the New Hope, Pennsylvania, ar ...
for five mornings a week. He quickly showed a talent for arithmetic, but his health was poor leading to several long absences. He was tutored at home by a governess, Beatrice Mackintosh, and his mother. In January 1892, at eight and a half, he started as a day pupil at St Faith's preparatory school. By 1894, Keynes was top of his class and excelling at mathematics. In 1896, St Faith's headmaster, Ralph Goodchild, wrote that Keynes was "head and shoulders above all the other boys in the school" and was confident that Keynes could get a scholarship to Eton. In 1897, Keynes won a King's Scholarship to
Eton College Eton College () is a public school (private sector) for boys in Eton, Berkshire Eton ( ) is a town in Berkshire, England, on the opposite bank of the River Thames to Windsor, connected to it by Windsor Bridge. The civil parish In ...

Eton College
, where he displayed talent in a wide range of subjects, particularly mathematics,
classics Classics or classical studies is the study of classical antiquity Classical antiquity (also the classical era, classical period or classical age) is the period of cultural history History (from Greek#REDIRECT Greek Greek may refer ...

classics
and history: in 1901, he was awarded the Tomline Prize for mathematics. At Eton, Keynes experienced the first "love of his life" in Dan Macmillan, older brother of the future Prime Minister
Harold Macmillan Maurice Harold Macmillan, 1st Earl of Stockton, (10 February 1894 – 29 December 1986) was a British Conservative Conservatism is an aesthetic Aesthetics, or esthetics (), is a branch of philosophy that deals with the nat ...

Harold Macmillan
. Despite his middle-class background, Keynes mixed easily with upper-class pupils. In 1902 Keynes left Eton for
King's College, Cambridge King's College is a constituent college of the University of Cambridge in Cambridge Cambridge ( ) is a College town, university city and the county town of Cambridgeshire, England, on the River Cam approximately north of London. At the Un ...

King's College, Cambridge
, after receiving a scholarship for this also to read mathematics.
Alfred Marshall Alfred Marshall (26 July 1842 – 13 July 1924) was an English economist, who was one of the most influential economists of his time. His book, '' Principles of Economics'' (1890), was the dominant economic textbook in England for many years. ...

Alfred Marshall
begged Keynes to become an economist, although Keynes's own inclinations drew him towards philosophy – especially the ethical system of G. E. Moore. Keynes was elected to the University Pitt Club and was an active member of the semi-secretive
Cambridge Apostles The Cambridge Apostles (also known as '' Conversazione Society'') is an intellectual society at the University of Cambridge founded in 1820 by George Tomlinson (bishop), George Tomlinson, a Cambridge student who went on to become the first Bishop ...
society, a debating club largely reserved for the brightest students. Like many members, Keynes retained a bond to the club after graduating and continued to attend occasional meetings throughout his life. Before leaving Cambridge, Keynes became the President of the
Cambridge Union Society The Cambridge Union Society, also known as the Cambridge Union, is a debating and free speech society in Cambridge Cambridge ( ) is a College town, university city and the county town of Cambridgeshire, England, on the River Cam approximat ...

Cambridge Union Society
and
Cambridge University Liberal Club Cambridge University Liberal Association is the student branch of the Liberal Democrats (UK), Liberal Democrats for students at University of Cambridge, Cambridge University. It is the successor to the Cambridge Student Liberal Democrats, which in ...
. He was said to be an atheist. In May 1904, he received a first-class BA in mathematics. Aside from a few months spent on holidays with family and friends, Keynes continued to involve himself with the university over the next two years. He took part in debates, further studied philosophy and attended economics lectures informally as a graduate student for one term, which constituted his only formal education in the subject. He took civil service exams in 1906. The economist Harry Johnson wrote that the optimism imparted by Keynes's early life is a key to understanding his later thinking. Keynes was always confident he could find a solution to whatever problem he turned his attention to and retained a lasting faith in the ability of government officials to do good. Keynes's optimism was also cultural, in two senses: he was of the last generation raised by still at the height of its power and was also of the last generation who felt entitled to govern by culture, rather than by expertise. According to Skidelsky, the sense of cultural unity current in Britain from the 19th century to the end of
World War I World War I, often abbreviated as WWI or WW1, also known as the First World War or the Great War, was a global war A world war is "a war engaged in by all or most of the principal nations of the world". The term is usually reserved for ...

World War I
provided a framework with which the well-educated could set various spheres of knowledge in relation to each other and life, enabling them to confidently draw from different fields when addressing practical problems.


Career

In October 1906 Keynes's
Civil Service The civil service is a collective term for a sector of government composed mainly of career civil servants hired on professional merit rather than appointed or elected, whose institutional tenure typically survives transitions of political leader ...
career began as a clerk in the
India Office 275px, The western or park end of the Foreign and Commonwealth Office's building in 1866. It was then occupied by the Foreign and India Offices, while the Home and Colonial Offices occupied the Whitehall Whitehall is a road and area in the C ...
. He enjoyed his work at first, but by 1908 had become bored and resigned his position to return to Cambridge and work on
probability theory Probability theory is the branch of mathematics Mathematics (from Greek: ) includes the study of such topics as numbers (arithmetic and number theory), formulas and related structures (algebra), shapes and spaces in which they are containe ...
, through a lectureship in economics at first funded personally by economists
Alfred Marshall Alfred Marshall (26 July 1842 – 13 July 1924) was an English economist, who was one of the most influential economists of his time. His book, '' Principles of Economics'' (1890), was the dominant economic textbook in England for many years. ...

Alfred Marshall
and
Arthur Pigou Arthur Cecil Pigou (; 18 November 1877 – 7 March 1959) was an English economist An economist is a practitioner in the social sciences, social science discipline of economics. The individual may also study, develop, and apply theories and c ...
; he became a fellow of in 1909. By 1909 Keynes had also published his first professional economics article in ''
The Economic Journal ''The Economic Journal'' (EJ) is a peer-reviewed academic journal An academic or scholarly journal is a periodical publication in which Scholarly method, scholarship relating to a particular list of academic disciplines, academic discipline is pu ...
'', about the effect of a recent global economic downturn on India. He founded the
Political Economy Club The Political Economy Club is the world's oldest economics association founded by James Mill James Mill (born James Milne, 6 April 1773 – 23 June 1836) was a Scottish historian ( 484– 425 BC) was a Greek historian who lived in the 5th centur ...
, a weekly discussion group. Keynes's earnings rose further as he began to take on pupils for private tuition. In 1911 Keynes was made the editor of ''The Economic Journal''. By 1913 he had published his first book, ''Indian Currency and Finance''. He was then appointed to the
Royal Commission A royal commission is a major ad-hoc formal public inquiry A tribunal of inquiry is an official review of events or actions ordered by a government body. In many common law countries, such as the United Kingdom The United Kingdom of ...
on Indian Currency and Finance – the same topic as his book – where Keynes showed considerable talent at applying economic theory to practical problems. His written work was published under the name "J M Keynes", though to his family and friends he was known as Maynard. (His father, John Neville Keynes, was also always known by his middle name).


First World War

The British Government called on Keynes's expertise during the
First World War World War I, often abbreviated as WWI or WW1, also known as the First World War or the Great War, was a global war A world war is "a war War is an intense armed conflict between states State may refer to: Arts, entertainmen ...
. While he did not formally re-join the civil service in 1914, Keynes travelled to London at the government's request a few days before hostilities started. Bankers had been pushing for the suspension of
specie Specie may refer to: * Coin A coin is a small, flat, (usually, depending on the country or value) round piece of metal A metal (from Ancient Greek, Greek μέταλλον ''métallon'', "mine, quarry, metal") is a material that, when fresh ...
payments – the
convertibility Convertibility is the quality that allows money or other financial instruments to be converted into other liquid A liquid is a nearly incompressible fluid In physics, a fluid is a substance that continually Deformation (mechanics), defor ...
of
banknotes A banknote (often known as a bill (in the US and Canada), paper money, or simply a note) is a type of negotiable instrument, negotiable promissory note, made by a bank or other licensed authority, payable to the bearer on demand. Banknotes w ...
into gold – but with Keynes's help the
Chancellor of the Exchequer The chancellor of the Exchequer, often abbreviated to the chancellor, is a senior minister of the Crown within the Government of the United Kingdom, and the chief executive officer of HM Treasury, Her Majesty's Treasury. As one of the four Grea ...
(then
Lloyd George David Lloyd George, 1st Earl Lloyd-George of Dwyfor, (17 January 1863 – 26 March 1945) was a Welsh statesman who served as Prime Minister of the United Kingdom from 1916 to 1922. He was the final Liberal to hold the post of prime ministe ...

Lloyd George
) was persuaded that this would be a bad idea, as it would hurt the future reputation of the city if payments were suspended before it was necessary. In January 1915 Keynes took up an official government position at the
Treasury A treasury is either *A government department related to finance and taxation, a Finance minister, finance ministry. *A place or location where treasure, such as currency or precious items are kept. These can be State ownership, state or roy ...
. 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. According to economist Robert Lekachman, Keynes's "nerve and mastery became legendary" because of his performance of these duties, as in the case where he managed to assemble – with difficulty – a small supply of
Spanish peseta The peseta (, ), * ca, pesseta, was the currency A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" in the most specific sense is money Image:National-Debt-Gillray.jpeg, In a 1786 James ...
s. The secretary of the Treasury was delighted to hear Keynes had amassed enough to provide a temporary solution for the British Government. But Keynes did not hand the pesetas over, choosing instead to sell them all to break the market: his boldness paid off, as pesetas then became much less scarce and expensive. On the introduction of
military conscription Conscription, sometimes called the draft in the United States, is the mandatory enlistment of people in a national service National service is a system of either compulsory or voluntary government service, usually military service. Conscription ...
in 1916, he applied for exemption as a
conscientious objector A conscientious objector (often shortened to conchie) is an "individual who has claimed the right to refuse to perform military service Military service is service by an individual or group in an army or other militia A militia () is ...
, which was effectively granted conditional upon continuing his government work. In the 1917 King's
Birthday Honours The Birthday Honours, in some Commonwealth realms, mark the reigning British monarch's official birthday by granting various individuals appointment into national or dynastic orders or the award of decorations and medals. The honours are presen ...
, Keynes was appointed
Companion of the Order of the Bath Companion may refer to: Relationships Relationships in current terms * Any of several interpersonal relationships such as friend or acquaintance * A domestic partner, akin to a spouse * Sober companion, an addiction treatment coach * Companion (ca ...
for his wartime work, and his success led to the appointment that had a huge effect on Keynes's life and career; Keynes was appointed financial representative for the Treasury to the 1919 Versailles peace conference. He was also appointed Officer of the Belgian Order of Leopold.


Versailles peace conference

Keynes's experience at
Versailles The Palace of Versailles ( ; french: Château de Versailles ) is a former royal residence located in Versailles, about west of Paris Paris () is the Capital city, capital and List of communes in France with over 20,000 inhabitants, mo ...
was influential in shaping his future outlook, yet it was not a successful one. Keynes's main interest had been in trying to prevent Germany's compensation payments being set so high it would traumatize innocent German people, damage the nation's ability to pay and sharply limit its ability to buy exports from other countries – thus hurting not just Germany's economy but that of the wider world. Unfortunately for Keynes, conservative powers in the coalition that emerged from the were able to ensure that both Keynes himself and the Treasury were largely excluded from formal high-level talks concerning reparations. Their place was taken by the Heavenly Twins – the judge Lord Sumner and the banker Lord Cunliffe whose nickname derived from the "astronomically" high war compensation they wanted to demand from Germany. Keynes was forced to try to exert influence mostly from behind the scenes. The three principal players at Versailles were Britain's Lloyd George, France's and America's . It was only Lloyd George to whom Keynes had much direct access; until the 1918 election he had some sympathy with Keynes's view but while campaigning had found his speeches were only well received by the public if he promised to harshly punish Germany, and had therefore committed his delegation to extracting high payments. Lloyd George did, however, win some loyalty from Keynes with his actions at the Paris conference by intervening against the French to ensure the dispatch of much-needed food supplies to German civilians. Clemenceau also pushed for substantial reparations, though not as high as those proposed by the British, while on security grounds, France argued for an even more severe settlement than Britain. Wilson initially favoured relatively lenient treatment of Germany – he feared too harsh conditions could foment the rise of extremism and wanted Germany to be left sufficient capital to pay for imports. To Keynes's dismay, Lloyd George and Clemenceau were able to pressure Wilson to agree to include pensions in the reparations bill. Towards the end of the conference, Keynes came up with a plan that he argued would not only help Germany and other impoverished central European powers but also be good for the world economy as a whole. It involved the radical writing down of war debts, which would have had the possible effect of increasing international trade all round, but at the same time thrown over two thirds of the cost of European reconstruction on the United States. Lloyd George agreed it might be acceptable to the British electorate. However, America was against the plan; the US was then the largest creditor, and by this time Wilson had started to believe in the merits of a harsh peace and thought that his country had already made excessive sacrifices. Hence despite his best efforts, the result of the conference was a treaty which disgusted Keynes both on moral and economic grounds and led to his resignation from the Treasury. In June 1919 he turned down an offer to become chairman of the British Bank of Northern Commerce, a job that promised a salary of £2000 in return for a morning per week of work. Keynes's analysis on the predicted damaging effects of the treaty appeared in the highly influential book, '' The Economic Consequences of the Peace'', published in 1919. This work has been described as Keynes's best book, where he was able to bring all his gifts to bear – his passion as well as his skill as an economist. In addition to economic analysis, the book contained appeals to the reader's sense of
compassion Compassion motivates people to go out of their way to help the physical, mental, or emotional pains of another and themselves. Compassion is often regarded as having sensitivity, which is an emotional aspect to suffering. Though, when based on cer ...
: Also present was striking imagery such as "year by year Germany must be kept impoverished and her children starved and crippled" along with bold predictions which were later justified by events: Keynes's followers assert that his predictions of disaster were borne out when the German economy suffered the hyperinflation of 1923, and again by the collapse of the
Weimar Republic The Weimar Republic (german: Weimarer Republik ) was the German state from 1918 to 1933 when it functioned as a federal constitutional republic. The state was officially named the German Reich (german: Deutsches Reich, link=no, label=none), ...
and the outbreak of the Second World War. However, historian Ruth Henig claims that "most historians of the Paris peace conference now take the view that, in economic terms, the treaty was not unduly harsh on Germany and that, while obligations and damages were inevitably much stressed in the debates at Paris to satisfy electors reading the daily newspapers, the intention was quietly to give Germany substantial help towards paying her bills, and to meet many of the German objections by amendments to the way the reparations schedule was in practice carried out". Only a small fraction of reparations was ever paid. In fact, historian Stephen A. Schuker demonstrates in ''American 'Reparations' to Germany, 1919–33'', that the capital inflow from American loans substantially exceeded German out payments so that, on a net basis, Germany received support equal to four times the amount of the post-Second World War Marshall Plan. Schuker also shows that, in the years after Versailles, Keynes became an informal reparations adviser to the German government, wrote one of the major German reparation notes, and supported the hyperinflation on political grounds. Nevertheless, ''The Economic Consequences of the Peace'' gained Keynes international fame, even though it also caused him to be regarded as anti-establishment – it was not until after the outbreak of the Second World War that Keynes was offered a directorship of a major British Bank, or an acceptable offer to return to government with a formal job. However, Keynes was still able to influence government policy making through his network of contacts, his published works and by serving on government committees; this included attending high-level policy meetings as a consultant.


In the 1920s

Keynes had completed his ''A Treatise on Probability'' before the war but published it in 1921. The work was a notable contribution to the philosophical and mathematical underpinnings of
probability theory Probability theory is the branch of mathematics Mathematics (from Greek: ) includes the study of such topics as numbers (arithmetic and number theory), formulas and related structures (algebra), shapes and spaces in which they are containe ...
, 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 (mathematics), 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. In addition to his academic work, the 1920s saw Keynes active as a journalist selling his work internationally and working in London as a financial consultant. In 1924 Keynes wrote an obituary for his former tutor
Alfred Marshall Alfred Marshall (26 July 1842 – 13 July 1924) was an English economist, who was one of the most influential economists of his time. His book, '' Principles of Economics'' (1890), was the dominant economic textbook in England for many years. ...

Alfred Marshall
which Joseph Schumpeter called "the most brilliant life of a man of science I have ever read." Mary Paley Marshall was "entranced" by the memorial, while Lytton Strachey rated it as one of Keynes's "best works". In 1922 Keynes continued to advocate reduction of German reparations with ''A Revision of the Treaty''. He attacked the post-World War I deflation policies with ''A Tract on Monetary Reform'' in 1923 – a trenchant argument that countries should target stability of domestic prices, avoiding deflation even at the cost of allowing their currency to depreciate. Britain suffered from high unemployment through most of the 1920s, leading Keynes to recommend the depreciation of Pound sterling, sterling to boost jobs by making British exports more affordable. From 1924 he was also advocating a fiscal response, where the government could create jobs by spending on public works. During the 1920s Keynes's pro stimulus views had only limited effect on policy makers and mainstream academic opinion – according to Hyman Minsky one reason was that at this time his theoretical justification was "muddled". The ''Tract'' had also called for an end to the gold standard. Keynes advised it was no longer a net benefit for countries such as Britain to participate in the gold standard, as it ran counter to the need for domestic policy autonomy. It could force countries to pursue deflationary policies at exactly the time when expansionary measures were called for to address rising unemployment. The Treasury and Bank of England were still in favour of the gold standard and in 1925 they were able to convince the then Chancellor Winston Churchill to re-establish it, which had a depressing effect on British industry. Keynes responded by writing ''The Economic Consequences of Mr. Churchill'' and continued to argue against the gold standard until Britain finally abandoned it in 1931.


During the Great Depression

Keynes had begun a theoretical work to examine the relationship between unemployment, money, and prices back in the 1920s. The work, ''A Treatise on Money, Treatise on Money'', was published in 1930 in two volumes. A central idea of the work was that if the amount of money being saved exceeds the amount being invested – which can happen if interest rates are too high – then unemployment will rise. This is in part a result of people not wanting to spend too high a proportion of what employers pay out, making it difficult, in aggregate, for employers to make a profit. Another key theme of the book is the unreliability of financial index (economics), indices for representing an accurate – or indeed meaningful – indication of general shifts in purchasing power of currencies over time. In particular, he criticised the justification of Britain's return to the gold standard in 1925 at pre-war valuation by reference to the wholesale price index. He argued that the index understated the effects of changes in the costs of services and labour. Keynes was deeply critical of the British government's austerity measures during the
Great Depression The Great Depression was a severe worldwide economic depression An economic depression is a sustained, long-term downturn in economic activity in one or more economies. It is a more severe economic downturn than a economic recession, recess ...
. He believed that budget deficits during
recession In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods ...
s were a good thing and a natural product of an economic slump. He wrote, "For Government borrowing of one kind or another is nature's remedy, so to speak, for preventing business losses from being, in so severe a slump as the present one, so great as to bring production altogether to a standstill." At the height of the Great Depression, in 1933, Keynes published ''The Means to Prosperity'', which contained specific policy recommendations for tackling unemployment in a global recession, chiefly counter-cyclical public spending. ''The Means to Prosperity'' contains one of the first mentions of the Multiplier (economics), multiplier effect. While it was addressed chiefly to the British Government, it also contained advice for other nations affected by the global recession. A copy was sent to the newly elected President Franklin D. Roosevelt and other world leaders. The work was taken seriously by both the American and British governments, and according to
Robert Skidelsky Robert Jacob Alexander, Baron Skidelsky, (born 25 April 1939) is a British Economic history, economic historian. He is the author of a three-volume award-winning biography of British economist John Maynard Keynes (1883–1946). Skidelsky read hi ...
, helped pave the way for the later acceptance of Keynesian ideas, though it had little immediate practical influence. In the 1933 London Economic Conference opinions remained too diverse for a unified course of action to be agreed upon. Keynesian-like policies were adopted by Sweden and Germany, but Sweden was seen as too small to command much attention, and Keynes was deliberately silent about the Economy of Nazi Germany#Pre-war economy: 1933–1939, successful efforts of Germany as he was dismayed by its imperialist ambitions and its treatment of Jews. Apart from Great Britain, Keynes's attention was primarily focused on the United States. In 1931, he received considerable support for his views on counter-cyclical public spending in Chicago, then America's foremost center for economic views alternative to the mainstream. However, orthodox economic opinion remained generally hostile regarding fiscal intervention to mitigate the Depression (economics), depression, until just before the World War II, outbreak of war. In late 1933 Keynes was persuaded by Felix Frankfurter to address President Roosevelt directly, which he did by letters and face to face in 1934, after which the two men spoke highly of each other. However, according to Skidelsky, the consensus is that Keynes's efforts began to have a more than marginal influence on US economic policy only after 1939. Keynes's ''Masterpiece, magnum opus'', ''
The General Theory of Employment, Interest and Money ''The General Theory of Employment, Interest and Money'' of 1936 is a book by English economist John Maynard Keynes John Maynard Keynes, 1st Baron Keynes, ( ; 5 June 1883 – 21 April 1946) was an English economist, whose ideas fundamenta ...
'' was published in 1936. It was researched and indexed by one of Keynes's favourite students, later the economist David Bensusan-Butt. The work served as a theoretical justification for the Economic interventionism, interventionist policies Keynes favoured for tackling a recession. Although Keynes stated in his preface that his General Theory was only secondarily concerned with the “applications of this theory to practice,” the circumstances of its publication were such that his suggestions shaped the course of the 1930s. In addition, Keynes introduced the world to a new interpretation of taxation: since the legal tender is now defined by the state, inflation becomes “taxation by currency depreciation”. This hidden tax meant a) that the standard of value should be governed by deliberate decision; and (b) that it was possible to maintain a middle course between deflation and inflation. This novel interpretation was inspired by the desperate search for control over the economy which permeated the academic world after the Depression. The ''General Theory'' challenged the earlier neoclassical economics, neoclassical economic paradigm, which had held that provided it was unfettered by government interference, the market would naturally establish full employment equilibrium. In doing so Keynes was partly setting himself against his former teachers Marshall and Pigou. Keynes believed the classical theory was a "special case" that applied only to the particular conditions present in the 19th century, his theory being the general one. Classical economists had believed in Say's law, which, simply put, states that "supply creates its demand", and that in a free market workers would always be willing to lower their wages to a level where employers could profitably offer them jobs. An innovation from Keynes was the concept of Nominal rigidity, price stickiness – the recognition that in reality workers often refuse to lower their wage demands even in cases where a classical economist might argue that it is rational for them to do so. Due in part to price stickiness, it was established that the interaction of "
aggregate demand In macroeconomics, aggregate demand (AD) or domestic final demand (DFD) is the total demand for final goods and services in an economy at a given time. It is often called effective demand, though at other times this term is distinguished. This i ...
" and "aggregate supply" may lead to stable unemployment equilibria – and in those cases, it is on the state, not the market, that economies must depend for their salvation. The ''General Theory'' argues that demand, not supply, is the key variable governing the overall level of economic activity. Aggregate demand, which equals total un-hoarded income in a society, is defined by the sum of consumption and investment. In a state of unemployment and unused production capacity, one can enhance employment and total income ''only'' by ''first'' increasing expenditures for either consumption or investment. Without government intervention to increase expenditure, an economy can remain trapped in a low-employment equilibrium. The demonstration of this possibility has been described as the revolutionary formal achievement of the work. The book advocated activist economic policy by government to stimulate demand in times of high unemployment, for example by spending on public works. "Let us be up and doing, using our idle resources to increase our wealth," he wrote in 1928. "With men and plants unemployed, it is ridiculous to say that we cannot afford these new developments. It is precisely with these plants and these men that we shall afford them." The ''General Theory'' is often viewed as the foundation of modern
macroeconomics Macroeconomics (from the Greek prefix ''makro-'' meaning "large" + ''economics'') is a branch of economics Economics () is a social science Social science is the branch A branch ( or , ) or tree branch (sometimes referred ...
. Few senior American economists agreed with Keynes through most of the 1930s. Yet his ideas were soon to achieve widespread acceptance, with eminent American professors such as Alvin Hansen agreeing with the ''General Theory'' before the outbreak of World War II. Keynes himself had only limited participation in the theoretical debates that followed the publication of the ''General Theory'' as he suffered a heart attack in 1937, requiring him to take long periods of rest. Among others, Hyman Minsky and Post-Keynesian economics, Post-Keynesian economists have argued that as result, Keynes's ideas were diluted by those keen to compromise with classical economists or to render his concepts with mathematical models like the IS–LM model (which, they argue, distort Keynes's ideas). Keynes began to recover in 1939, but for the rest of his life his professional energies were directed largely towards the practical side of economics: the problems of ensuring optimum allocation of resources for the war efforts, post-war negotiations with America, and the new international financial order that was presented at the Bretton Woods Conference. In the ''General Theory'' and later, Keynes responded to the socialists who argued, especially during the Great Depression of the 1930s, that capitalism caused war. He argued that if capitalism were managed domestically and internationally (with coordinated international Keynesian policies, an international monetary system that did not pit the interests of countries against one another, and a high degree of freedom of trade), then this system of managed capitalism could promote peace rather than conflict between countries. His plans during World War II for post-war international economic institutions and policies (which contributed to the creation at Bretton Woods of the International Monetary Fund and the World Bank, and later to the creation of the General Agreement on Tariffs and Trade and eventually the World Trade Organization) were aimed to give effect to this vision. Although Keynes has been widely criticised – especially by members of the Chicago school of economics – for advocating irresponsible government spending financed by borrowing, in fact he was a firm believer in balanced budgets and regarded the proposals for programs of public works during the Great Depression as an exceptional measure to meet the needs of exceptional circumstances.''Universal Man'' Richard Davenport-Hines Collins 2015


Second World War

During the World War II, Second World War, Keynes argued in ''How to Pay for the War'', published in 1940, that the war effort should be largely financed by higher taxation and especially by compulsory saving (essentially workers lending money to the government), rather than deficit spending, in order to avoid inflation. Compulsory saving would act to dampen domestic demand, assist in channelling additional output towards the war efforts, would be fairer than punitive taxation and would have the advantage of helping to avoid a post-war slump by boosting demand once workers were allowed to withdraw their savings. In September 1941 he was proposed to fill a vacancy in the Court of Directors of the
Bank of England The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the Kingdom of England, English Government's banker, and still one of the bankers for t ...

Bank of England
, and subsequently carried out a full term from the following April. In June 1942, Keynes was rewarded for his service with a hereditary peerage in the King's Birthday Honours. On 7 July his title was The London Gazette, gazetted as "Baron Keynes, of Tilton, in the County of Sussex" and he took his seat in the House of Lords on the Liberal Party (UK), Liberal Party benches. As the Allies of World War II, 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 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 outcomes accorded more closely to the more conservative plans of Harry Dexter White. According to US economist J. Bradford DeLong, on almost every point where he was overruled by the Americans, Keynes was later proven correct by events. The two new institutions, later known as the World Bank and the International Monetary Fund (IMF), were founded as a compromise that primarily reflected the American vision. There would be no incentives for states to avoid a large Balance of trade, trade surplus; instead, the burden for correcting a trade imbalance would continue to fall only on the Deficit spending, deficit countries, which Keynes had argued were least able to address the problem without inflicting economic hardship on their populations. Yet, Keynes was still pleased when accepting the final agreement, saying that if the institutions stayed true to their founding principles, "the brotherhood of man will have become more than a phrase."


Postwar

After the war, Keynes continued to represent the United Kingdom in international negotiations despite his deteriorating health. He succeeded in obtaining preferential terms from the United States Anglo-American loan, for new and outstanding debts to facilitate the rebuilding of the British economy. Just before his death in 1946, Keynes told Henry Clay, a professor of social economics and advisor to the
Bank of England The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the Kingdom of England, English Government's banker, and still one of the bankers for t ...

Bank of England
, of his hopes that Adam Smith's "invisible hand" could help Britain out of the economic hole it was in: "I find myself more and more relying for a solution of our problems on the invisible hand which I tried to eject from economic thinking twenty years ago."


Legacy


Keynesian ascendancy 1939–79

From the end of the Great Depression to the mid-1970s, Keynes provided the main inspiration for economic policymakers in Europe, America and much of the rest of the world. While economists and policymakers had become increasingly won over to Keynes's way of thinking in the mid and late 1930s, it was only after the outbreak of World War II that governments started to borrow money for spending on a scale sufficient to eliminate unemployment. According to the economist John Kenneth Galbraith (then a US government official charged with controlling inflation), in the rebound of the economy from wartime spending, "one could not have had a better demonstration of the Keynesian ideas." The Keynesian Revolution was associated with the rise of social liberalism, modern liberalism in the West during the post-war period. Keynesian ideas became so popular that some scholars point to Keynes as representing the ideals of modern liberalism, as Adam Smith represented the ideals of classical liberalism. After the war, Winston Churchill attempted to check the rise of Keynesian policy-making in the United Kingdom and used rhetoric critical of the mixed economy in his 1945 United Kingdom general election, 1945 election campaign. Despite his popularity as a war hero, Churchill suffered a landslide defeat to Clement Attlee, whose government's economic policy continued to be influenced by Keynes's ideas.


Neo-Keynesian economics

In the late 1930s and 1940s, economists (notably John Hicks, Franco Modigliani, and Paul Samuelson) attempted to interpret and formalise Keynes's writings in terms of formal mathematical models. In what had become known as the neoclassical synthesis, they combined Keynesian analysis with
neoclassical economics Neoclassical economics is an approach to economics in which the production, consumption and valuation (pricing) of goods and services are driven by the supply and demand In microeconomics, supply and demand is an economic model In econo ...
to produce neo-Keynesian economics, which came to dominate Mainstream economics, mainstream macroeconomic thought for the next 40 years. By the 1950s, Keynesian policies were adopted by almost the entire developed world and similar measures for a mixed economy were used by many developing nations. By then, Keynes's views on the economy had become mainstream in the world's universities. Throughout the 1950s and 1960s, the developed and emerging free capitalist economies enjoyed exceptionally high growth and low unemployment. Professor Gordon Fletcher has written that the 1950s and 1960s, when Keynes's influence was at its peak, appear in retrospect as a Post–World War II economic expansion, golden age of capitalism. In late 1965 ''
Time Time is the continued sequence of existence and event (philosophy), events that occurs in an apparently irreversible process, irreversible succession from the past, through the present, into the future. It is a component quantity of various me ...
'' magazine ran a cover article with a title comment from
Milton Friedman Milton Friedman (; July 31, 1912 – November 16, 2006) was an American economist An economist is a practitioner in the social sciences, social science discipline of economics. The individual may also study, develop, and apply theories and c ...

Milton Friedman
(later echoed by U.S. President Richard Nixon), "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 who ever lived, and that his ''The General Theory of Employment, Interest and Money, General Theory'' was more influential than the ''magna opera'' of other famous economists, like Adam Smith's ''The Wealth of Nations''.


Multiplier

The concept of multiplier was first developed by R. F. Kahn in his article "The relation of home investment to unemployment" In the economic journal of June 1931. Kahn multiplier was the employment multiplier while as Keynes took the idea from Kahn and formulated the investment multiplier.


Keynesian economics out of favour 1979–2007

Keynesian economics were officially discarded by the British Government in 1979, but forces had begun to gather against Keynes's ideas over 30 years earlier. Friedrich Hayek had formed the Mont Pelerin Society in 1947, with the explicit intention of nurturing intellectual currents to one day displace Keynesianism and other similar influences. Its members included the Austrian School economist Ludwig von Mises along with the then young Milton Friedman. Initially the society had little impact on the wider world – according to Hayek it was as if Keynes had been raised to sainthood after his death and that people refused to allow his work to be questioned. Friedman however began to emerge as a formidable critic of Keynesian economics from the mid-1950s, and especially after his 1963 publication of ''A Monetary History of the United States''. On the practical side of economic life, "big government" had appeared to be firmly entrenched in the 1950s, but the balance began to shift towards the power of private interests in the 1960s. Keynes had written against the folly of allowing "decadent and selfish" speculators and financiers the kind of influence they had enjoyed after World War I. For two decades after World War II the public opinion was strongly against private speculators, the disparaging label "Gnomes of Zürich" being typical of how they were described during this period. International speculation was severely restricted by the capital controls in place after Bretton Woods. According to the journalists Larry Elliott and Dan Atkinson, 1968 was the pivotal year when power shifted in favour of private agents such as currency speculators. As the key 1968 event Elliott and Atkinson picked out America's suspension of the conversion of the dollar into gold except on request of foreign governments, which they identified as the beginning of the breakdown of the Bretton Woods system. Criticisms of Keynes's ideas had begun to gain significant acceptance by the early 1970s, as they were then able to make a credible case that Keynesian models no longer reflected economic reality. Keynes himself included few formulas and no explicit mathematical models in his ''General Theory''. For economists such as Hyman Minsky, Keynes's limited use of mathematics was partly the result of his scepticism about whether phenomena as inherently uncertain as economic activity could ever be adequately captured by mathematical models. Nevertheless, many models were developed by Keynesian economists, with a famous example being the Phillips curve which predicted an inverse relationship between unemployment and inflation. It implied that unemployment could be reduced by government stimulus with a calculable cost to inflation. In 1968, Milton Friedman published a paper arguing that the fixed relationship implied by the Philips curve did not exist. Friedman suggested that sustained Keynesian policies could lead to both unemployment and inflation rising at once – a phenomenon that soon became known as
stagflation In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods ...
. In the early 1970s stagflation appeared in both the US and Britain just as Friedman had predicted, with economic conditions deteriorating further after the 1973 oil crisis. Aided by the prestige gained from his successful forecast, Friedman led increasingly successful criticisms against the Keynesian consensus, convincing not only academics and politicians but also much of the general public with his radio and television broadcasts. The academic credibility of Keynesian economics was further undermined by additional criticism from other Monetarism, monetarists trained in the Chicago school of economics, by the Lucas critique and by criticisms from Hayek's Austrian School. So successful were these criticisms that by 1980 Robert Lucas, Jr., Robert Lucas claimed economists would often take offence if described as Keynesians. Keynesian principles fared increasingly poorly on the practical side of economics – by 1979 they had been displaced by monetarism as the primary influence on Anglo-American economic policy. However, many officials on both sides of the Atlantic retained a preference for Keynes, and in 1984 the Federal Reserve System, Federal Reserve officially discarded monetarism, after which Keynesian principles made a partial comeback as an influence on policy making. Not all academics accepted the criticism against Keynes – Minsky has argued that Keynesian economics had been debased by excessive mixing with neoclassical ideas from the 1950s, and that it was unfortunate that this branch of economics had even continued to be called "Keynesian". Writing in ''The American Prospect'', Robert Kuttner argued it was not so much excessive Keynesian activism that caused the economic problems of the 1970s but the breakdown of the Bretton Woods system of capital controls, which allowed capital flight from regulated economies into unregulated economies in a fashion similar to Gresham's law phenomenon (where weak currencies undermine strong currencies). Historian Peter Pugh has stated that a key cause of the economic problems afflicting America in the 1970s was the refusal to raise taxes to finance the Vietnam War, which was against Keynesian advice. A more typical response was to accept some elements of the criticisms while refining Keynesian economic theories to defend them against arguments that would invalidate the whole Keynesian framework – the resulting body of work largely composing New Keynesian economics. In 1992 Alan Blinder wrote about a "Keynesian Restoration", as work based on Keynes's ideas had to some extent become fashionable once again in academia, though in the mainstream it was highly synthesised with monetarism and other neoclassical thinking. In the world of policy making,
free market In economics Economics () is a social science Social science is the branch A branch ( or , ) or tree branch (sometimes referred to in botany Botany, also called , plant biology or phytology, is the science of pl ...
influences broadly sympathetic to monetarism have remained very strong at government level – in powerful normative institutions like the World Bank, the International Monetary Fund, IMF and United States Department of the Treasury, US Treasury, and in prominent opinion-forming media such as the ''Financial Times'' and ''
The Economist ''The Economist'' is an international weekly newspaper A weekly newspaper is a general-news or current affairsCurrent affairs may refer to: Media * Current Affairs (magazine), ''Current Affairs'' (magazine), a bimonthly magazine of cult ...
''.


Keynesian resurgence 2008–09

The global financial crisis of 2007–08 led to public skepticism 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. In the same month macroeconomist James K. Galbraith used the 25th Annual Milton Friedman Distinguished Lecture to launch a sweeping attack against the consensus for monetarist economics and argued that Keynesian economics were far more relevant for tackling the emerging crises. Economist Robert J. Shiller had begun advocating robust government intervention to tackle the financial crises, specifically citing Keynes. Nobel Memorial Prize in Economic Sciences, Nobel laureate Paul Krugman also actively argued the case for vigorous Keynesian intervention in the economy in his columns for ''The New York Times''. Other prominent economic commentators who have argued for Keynesian government intervention to mitigate the financial crisis include George Akerlof, J. Bradford DeLong, Robert Reich, and Joseph Stiglitz. Newspapers and other media have also cited work relating to Keynes by Hyman Minsky,
Robert Skidelsky Robert Jacob Alexander, Baron Skidelsky, (born 25 April 1939) is a British Economic history, economic historian. He is the author of a three-volume award-winning biography of British economist John Maynard Keynes (1883–1946). Skidelsky read hi ...
, Donald Markwell and Axel Leijonhufvud. A series of major bailouts were pursued during the financial crisis, starting on 7 September with the announcement that the U.S. Government was to nationalise the two government-sponsored enterprises which oversaw most of the U.S. subprime mortgage market – Fannie Mae and Freddie Mac. In October, Alistair Darling, the British
Chancellor of the Exchequer The chancellor of the Exchequer, often abbreviated to the chancellor, is a senior minister of the Crown within the Government of the United Kingdom, and the chief executive officer of HM Treasury, Her Majesty's Treasury. As one of the four Grea ...
, referred to Keynes as he announced plans for substantial Stimulus (economics), fiscal stimulus to head off the worst effects of recession, in accordance with Keynesian economic thought. Similar policies have been adopted by other governments worldwide. This is in stark contrast to the action imposed on Indonesia during the 1997 Asian financial crisis, Asian financial crisis of 1997, when it was forced by the IMF to close 16 banks at the same time, prompting a bank run. Much of the post-crisis discussion reflected Keynes's advocacy of international coordination of fiscal or monetary stimulus, and of international economic institutions such as the IMF and the World Bank, which many had argued should be reformed as a "new Bretton Woods", and should have been even before the crises broke out. The IMF and United Nations economists advocated a coordinated international approach to fiscal stimulus. Donald Markwell argued that in the absence of such an international approach, there would be a risk of worsening international relations and possibly even world war arising from economic factors similar to those present during the depression of the 1930s. 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." In December 2008, Paul Krugman released his book ''The Return of Depression Economics and the Crisis of 2008'', arguing that economic conditions similar to those that existed during the earlier part of the 20th century had returned, making Keynesian policy prescriptions more relevant than ever. In February 2009 Robert J. Shiller and George Akerlof published ''Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism, Animal Spirits'', a book where they argue the current US stimulus package is too small as it does not take into account Keynes's insight on the importance of confidence and expectations in determining the future behaviour of Businessperson, businesspeople and other economic agents. In the March 2009 speech entitled ''Reform the International Monetary System'', Zhou Xiaochuan, the governor of the People's Bank of China, came out in favour of Keynes's idea of a centrally managed global reserve currency. Zhou argued that it was unfortunate that part of the reason for the Bretton Woods system breaking down was the failure to adopt Keynes's bancor. Zhou proposed a gradual move towards increased use of IMF special drawing rights (SDRs). Although Zhou's ideas had not been broadly accepted, leaders meeting in April at the 2009 G-20 London summit agreed to allow $250 billion of special drawing rights to be created by the IMF, to be distributed globally. Stimulus plans were credited for contributing to a better than expected economic outlook by both the Organisation for Economic Co-operation and Development, OECD and the IMF, in reports published in June and July 2009. Both organisations warned global leaders that recovery was likely to be slow, so counter recessionary measures ought not be rolled back too early. While the need for stimulus measures was broadly accepted among policy makers, there had been much debate over how to fund the spending. Some leaders and institutions, such as Angela Merkel and the European Central Bank, expressed concern over the potential impact on inflation, national debt and the risk that a too large stimulus will create an unsustainable recovery. Among professional economists the revival of Keynesian economics has been even more divisive. Although many economists, such as George Akerlof, Paul Krugman, Robert Shiller, and Joseph Stiglitz, supported Keynesian stimulus, others did not believe higher government spending would help the United States economy recover from the Great Recession. Some economists, such as Robert Lucas, Jr., Robert Lucas, questioned the theoretical basis for stimulus packages. Others, like Robert Barro and Gary Becker, say that empirical evidence for beneficial effects from Keynesian stimulus does not exist. However, there is a growing academic literature that shows that fiscal expansion helps an economy grow in the near term, and that certain types of fiscal stimulus are particularly effective.


Overall views

John Maynard Keynes had a drastically different upbringing and motives for his philosophical and economic contributions. Rather than writing with the mindset of being upset at the current system, Keynes instead produced his most famous work, ''The General Theory of Employment, Interest and Money'', with the intention of solving the then current issue which was plaguing the whole world, The Great Depression. When he wrote this, one theme that occurs numerous times is his view on how individuals should save during a time of economic downturn or recession. His answer was that people tend to save more in these times, which he thought could be very harmful if there is no government intervention because individuals and businesses are too scared or have the inability to invest in new ideas and jobs due to the state of the economy. This issue was especially prevalent during The Great Depression because individuals were saving their money and businesses were not investing which was keeping that particular recession around as long as it did and made the unemployment rate go from around 4 percent all the way to around twenty five percent. The individuals were saving with the hopes that the recession would not be very long, which then caused it to get worse due to lack of stimulation in the economy. In order to get out of this cycle, Keynes argued that it was the government alone that would be able to solve this problem and break the United States particularly and the whole world out of The Great Depression. Keynes, normally an endorser of free market capitalism realised that this recession was a special case in that it had potential to be inescapable. The government did eventually do this with president Franklin Roosevelt introducing The New Deal, which was a relief program set up where the federal budget was increased with the purpose of getting the economy out of the recession by injecting money manually from these government aid programs.“The difficulty lies, not in the new ideas, but in escaping from the old ones, which ramify, for those brought up as most of us have been, into every corner of our minds”(Keynes). Keynes is highlighting the fact that people are used to making certain decisions during different times of the business cycle, and also that individuals and businesses needed to change the way they were viewing saving money so that the country could get out of the recession. It is clear that Keynes had a different approach to economic thought from Marx because he was writing with the intention of solving the current world problem, The Great Depression, rather than critiquing the unfairness in the current system.


Praise

On a personal level, Keynes's charm was such that he was generally well received wherever he went – even those who found themselves on the wrong side of his occasionally sharp tongue rarely bore a grudge. Keynes's speech at the closing of the Bretton Woods negotiations was received with a lasting standing ovation, rare in international relations, as the delegates acknowledged the scale of his achievements made despite poor health. Austrian School economist Friedrich Hayek was Keynes's most prominent contemporary critic, with sharply opposing views on the economy. Yet after Keynes's death, he wrote: "He was the one really great man I ever knew, and for whom I had unbounded admiration. The world will be a very much poorer place without him." A colleague Nicholas Davenport recalled, "There were deep emotional forces about Maynard ... One could sense his humanity. There was nothing of the cold intellectual about him." Lionel Robbins, former head of the economics department at the London School of Economics, who engaged in many heated debates with Keynes in the 1930s, had this to say after observing Keynes in early negotiations with the Americans while drawing up plans for Bretton Woods: Douglas LePan, an official from the High Commission of Canada to the United Kingdom, Canadian High Commission, wrote: Bertrand Russell named Keynes one of the most intelligent people he had ever known, commenting: Keynes's obituary in ''The Times'' included the comment: "There is the man himself – radiant, brilliant, effervescent, gay, full of impish jokes ... He was a humane man genuinely devoted to the cause of the common good."


Critiques

As a man of the centre described by some as having the greatest impact of any 20th-century economist, Keynes attracted considerable criticism from both sides of the political spectrum. In the 1920s, Keynes was seen as anti-establishment and was mainly attacked from the right. In the "red 1930s", many young economists favoured Marxism, Marxist views, even in Cambridge, and while Keynes was engaging principally with the right to try to persuade them of the merits of more progressive policy, the most vociferous criticism against him came from the left, who saw him as a supporter of capitalism. From the 1950s and onwards, most of the attacks against Keynes have again been from the right. In 1931 Friedrich Hayek extensively critiqued Keynes's 1930 ''Treatise on Money''. After reading Hayek's ''The Road to Serfdom'', Keynes wrote to Hayek "Morally and philosophically I find myself in agreement with virtually the whole of it", but concluded the letter with the recommendation: 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: Asked why Keynes expressed "moral and philosophical" agreement with Hayek's ''Road to Serfdom'', Hayek stated: According to some observers, Hayek felt that the post-World War II "Keynesian orthodoxy" gave too much power to the state, and that such policies would lead toward socialism. While
Milton Friedman Milton Friedman (; July 31, 1912 – November 16, 2006) was an American economist An economist is a practitioner in the social sciences, social science discipline of economics. The individual may also study, develop, and apply theories and c ...

Milton Friedman
described ''The General Theory'' as "a great book", he argues that its implicit separation of Real versus nominal value (economics), 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 Keynesian economics ( ; sometimes Keynesianism, named after British economist John Maynard Keynes John Maynard Keynes, 1st Baron Keynes, ( ; 5 June 1883 – 21 April 1946) was an English economist, whose ideas fundamentally changed the t ...
can result in
stagflation In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods ...
, 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. Joseph Schumpeter was an economist of the same age as Keynes and one of his main rivals. He was among the first reviewers to argue that Keynes's ''General Theory'' was not a general theory, but a special case. He said the work expressed "the attitude of a decaying civilisation". After Keynes's death Schumpeter wrote a brief biographical piece ''Keynes the Economist'' – on a personal level he was very positive about Keynes as a man, praising his pleasant nature, courtesy and kindness. He assessed some of Keynes's biographical and editorial work as among the best he'd ever seen. Yet Schumpeter remained critical about Keynes's economics, linking Keynes's childlessness to what Schumpeter saw as an essentially short-term view. He considered Keynes to have a kind of unconscious patriotism that caused him to fail to understand the problems of other nations. For Schumpeter "Practical Keynesianism is a seedling which cannot be transplanted into foreign soil: it dies there and becomes poisonous as it dies." "Schumpeter admired and envied Keynes, but when Keynes died in 1946, Schumpeter's obituary gave Keynes the same off-key, perfunctory treatment he would later give Adam Smith in the ''History of Economic Analysis'', the "discredit of not adding a single innovation to the techniques of economic analysis". President Harry S. Truman was sceptical of Keynesian theorizing: "Nobody can ever convince me that government can spend a dollar that it's not got," he told Leon Keyserling, a Keynesian economist who chaired Truman's Council of Economic Advisers.


Views on race

Keynes sometimes explained the mass murder that took place during the first years of Communism, communist Russia on a racial basis, as part of the "Russian and Jewish nature", rather than as a result of the communist rule. After a trip to Russia, he wrote in his ''Short View of Russia'' that there is "beastliness on the Russian and Jewish natures when, as now, they are allied together". He also wrote that "out of the cruelty and stupidity of the Old Russia nothing could ever emerge, but (...) beneath the cruelty and stupidity of the New Russia a speck of the ideal may lie hid." Some critics have sought to show that Keynes had sympathies towards Nazism, and a number of writers have described him as antisemitic. Keynes's private letters contain portraits and descriptions, some of which can be characterized as antisemitic, while others as Philo-Semitism, philosemitic. Scholars have suggested that these reflect clichés current at the time that he accepted uncritically, rather than any racism. On several occasions Keynes used his influence to help his Jewish friends, most notably when he successfully lobbied for Ludwig Wittgenstein to be allowed residency in the United Kingdom, explicitly in order to rescue him from being deported to Anschluss, Nazi-occupied Austria. Keynes was a supporter of Zionism, serving on committees supporting the cause. Allegations that he was racist or had totalitarian beliefs have been rejected by
Robert Skidelsky Robert Jacob Alexander, Baron Skidelsky, (born 25 April 1939) is a British Economic history, economic historian. He is the author of a three-volume award-winning biography of British economist John Maynard Keynes (1883–1946). Skidelsky read hi ...
and other biographers. Professor Gordon Fletcher wrote that "the suggestion of a link between Keynes and any support of totalitarianism cannot be sustained". Once the aggressive tendencies of the Nazis towards Jews and other minorities had become apparent, Keynes made clear his loathing of Nazism. As a lifelong pacifist he had initially favoured peaceful containment of Nazi Germany, yet he began to advocate a forceful resolution while many conservatives were still arguing for appeasement. After the war started he roundly criticised the Left for losing their nerve to confront Adolf Hitler, Hitler:


Views on inflation

Keynes has been characterised as being indifferent or even positive about mild inflation. He had indeed expressed a preference for inflation over deflation, saying that if one has to choose between the two evils, it is "better to disappoint the rentier" than to inflict pain on working class families. He also supported the German hyperinflation as a way to get free from reparations obligations. However, Keynes was also aware of the dangers of inflation. In '' The Economic Consequences of the Peace'', he wrote:


Views on free trade and protectionism


The turning point of the Great Depression

At the beginning of his career, Keynes was an economist close to
Alfred Marshall Alfred Marshall (26 July 1842 – 13 July 1924) was an English economist, who was one of the most influential economists of his time. His book, '' Principles of Economics'' (1890), was the dominant economic textbook in England for many years. ...

Alfred Marshall
, deeply convinced of the benefits of free trade. From the crisis of 1929 onwards, noting the commitment of the British authorities to defend the gold parity of the pound sterling and the rigidity of nominal wages, he gradually adhered to protectionist measures. On 5 November 1929, when heard by the Macmillan Committee to bring the British economy out of the crisis, Keynes indicated that the introduction of tariffs on imports would help to rebalance the trade balance. The committee's report states in a section entitled "import control and export aid", that in an economy where there is not full employment, the introduction of tariffs can improve production and employment. Thus the reduction of the trade deficit favours the country's growth. In January 1930, in the Economic Advisory Council, Keynes proposed the introduction of a system of protection to reduce imports. In the autumn of 1930, he proposed a uniform tariff of 10% on all imports and subsidies of the same rate for all exports. In the ''Treatise on Money'', published in the autumn of 1930, he took up the idea of tariffs or other trade restrictions with the aim of reducing the volume of imports and rebalancing the balance of trade. On 7 March 1931, in the ''New Statesman and Nation'', he wrote an article entitled ''Proposal for a Tariff Revenue''. He pointed out that the reduction of wages led to a reduction in national demand which constrained markets. Instead, he proposes the idea of an expansionary policy combined with a tariff system to neutralise the effects on the balance of trade. The application of customs tariffs seemed to him "unavoidable, whoever the Chancellor of the Exchequer might be".Thus, for Keynes, an economic recovery policy is only fully effective if the trade deficit is eliminated. He proposed a 15% tax on manufactured and semi-manufactured goods and 5% on certain foodstuffs and raw materials, with others needed for exports exempted (wool, cotton). In 1932, in an article entitled ''The Pro- and Anti-Tariffs'', published in ''The Listener (magazine), The Listener'', he envisaged the protection of farmers and certain sectors such as the automobile and iron and steel industries, considering them indispensable to Britain.


The critique of the theory of comparative advantage

In the post-crisis situation of 1929, Keynes judged the assumptions of the free trade model unrealistic. He criticised, for example, the neoclassical assumption of wage adjustment. As early as 1930, in a note to the Economic Advisory Council, he doubted the intensity of the gain from specialisation in the case of manufactured goods. While participating in the MacMillan Committee, he admitted that he no longer "believed in a very high degree of national specialisation" and refused to "abandon any industry which is unable, for the moment, to survive". He also criticised the static dimension of the theory of comparative advantage, which, in his view, by fixing comparative advantages definitively, led in practice to a waste of national resources. In the Daily Mail of 13 March 1931, he called the assumption of perfect sectoral labour mobility "nonsense" since it states that a person made unemployed contributes to a reduction in the wage rate until he finds a job. But for Keynes, this change of job may involve costs (job search, training) and is not always possible. Generally speaking, for Keynes, the assumptions of full employment and automatic return to equilibrium discredit the theory of comparative advantage. In July 1933, he published an article in the ''New Statesman and Nation'' entitled ''National Self-Sufficiency'', in which he criticised the argument of the specialisation of economies, which is the basis of free trade. He thus proposed the search for a certain degree of self-sufficiency. Instead of the specialisation of economies advocated by the Ricardian theory of comparative advantage, he prefers the maintenance of a diversity of activities for nations. In it he refutes the principle of peacemaking trade. His vision of trade became that of a system where foreign capitalists compete for new markets. He defends the idea of producing on national soil when possible and reasonable and expresses sympathy for the advocates of protectionism. He notes in ''National Self-Sufficiency'': He also writes in ''National Self-Sufficiency'': Later, Keynes had a written correspondence with James Meade centred on the issue of import restrictions. Keynes and Meade discussed the best choice between quota and tariff. In March 1944 Keynes began a discussion with Marcus Fleming after the latter had written an article entitled ''Quotas versus depreciation''. On this occasion, we see that he has definitely taken a protectionist stance after the
Great Depression The Great Depression was a severe worldwide economic depression An economic depression is a sustained, long-term downturn in economic activity in one or more economies. It is a more severe economic downturn than a economic recession, recess ...
. He considered that quotas could be more effective than currency depreciation in dealing with external imbalances. Thus, for Keynes, currency depreciation was no longer sufficient and protectionist measures became necessary to avoid trade deficits. To avoid the return of crises due to a self-regulating economic system, it seemed essential to him to regulate trade and stop free trade (deregulation of foreign trade). He points out that countries that import more than they export weaken their economies. When the trade deficit increases, unemployment rises and GDP slows down. And surplus countries exert a "negative externality" on their trading partners. They get richer at the expense of others and destroy the output of their trading partners. John Maynard Keynes believed that the products of surplus countries should be taxed to avoid trade imbalances. Thus he no longer believes in the theory of comparative advantage (on which free trade is based) which states that the trade deficit does not matter, since trade is mutually beneficial. This also explains his desire to replace the liberalisation of international trade (Free Trade) with a regulatory system aimed at eliminating trade imbalances in his proposals for the Bretton Woods Agreement.


Views on trade imbalances

Keynes was the principal author of a proposal – the so-called Keynes Plan – for an International Clearing Union. The two governing principles of the plan were that the problem of settling outstanding balances should be solved by "creating" additional "international money", and that debtor and creditor should be treated almost alike as disturbers of equilibrium. In the event, though, the plans were rejected, in part because "American opinion was naturally reluctant to accept the principle of equality of treatment so novel in debtor-creditor relationships". The new system is not founded on free-trade (liberalisation of foreign trade) but rather on the regulation of international trade, in order to eliminate trade imbalances: the nations with a surplus would have an incentive to reduce it, and in doing so they would automatically clear other nations deficits. He proposed a global bank that would issue its currency – the bancor – which was exchangeable with national currencies at fixed rates of exchange and would become the unit of account between nations, which means it would be used to measure a country's trade deficit or trade surplus. Every country would have an overdraft facility in its bancor account at the International Clearing Union. He pointed out that surpluses lead to weak global aggregate demand – countries running surpluses exert a "negative externality" on trading partners, and posed, far more than those in deficit, a threat to global prosperity. In his 1933 ''The Yale Review, Yale Review'' article "National Self-Sufficiency," he already highlighted the problems created by free trade. His view, supported by many economists and commentators at the time, was that creditor nations may be just as responsible as debtor nations for disequilibrium in exchanges and that both should be under an obligation to bring trade back into a state of balance. Failure for them to do so could have serious consequences. In the words of Geoffrey Crowther, Baron Crowther, Geoffrey Crowther, then editor of ''
The Economist ''The Economist'' is an international weekly newspaper A weekly newspaper is a general-news or current affairsCurrent affairs may refer to: Media * Current Affairs (magazine), ''Current Affairs'' (magazine), a bimonthly magazine of cult ...
'', "If the economic relationships between nations are not, by one means or another, brought fairly close to balance, then there is no set of financial arrangements that can rescue the world from the impoverishing results of chaos." These ideas were informed by events prior to the
Great Depression The Great Depression was a severe worldwide economic depression An economic depression is a sustained, long-term downturn in economic activity in one or more economies. It is a more severe economic downturn than a economic recession, recess ...
when – in the opinion of Keynes and others – international lending, primarily by the U.S., exceeded the capacity of sound investment and so got diverted into non-productive and speculative uses, which in turn invited default and a sudden stop to the process of lending. Influenced by Keynes, economics texts in the immediate post-war period put a significant emphasis on balance in trade. For example, the second edition of the popular introductory textbook, ''An Outline of Money'', devoted the last three of its ten chapters to questions of foreign exchange management and in particular the "problem of balance". However, in more recent years, since the end of the Bretton Woods system in 1971, with the increasing influence of Monetarist schools of thought in the 1980s, and particularly in the face of large sustained trade imbalances, these concerns – and particularly concerns about the destabilising effects of large trade surpluses – have largely disappeared from mainstream economics discourse and Keynes's insights have slipped from view. They are receiving some attention again in the wake of the financial crisis of 2007–08.


Personal life


Relationships

Keynes's early romantic and sexual relationships were exclusively with men. Keynes had been in relationships while at Eton and Cambridge; significant among these early partners were Dilly Knox and Daniel Macmillan. Keynes was open about his affairs, and from 1901 to 1915 kept separate diaries in which he tabulated his many sexual encounters.The Sex Diaries of John Maynard Keynes
The Economist, 28 January 2008, Evan Zimroth (Clare Hall, Cambridge)
Keynes's relationship and later close friendship with Macmillan was to be fortunate, as Macmillan Publishers, Macmillan's company first published his tract ''Economic Consequences of the Peace''. Attitudes in the
Bloomsbury Group The Bloomsbury Group—or Bloomsbury Set—was a group of associated English writers, intellectuals, philosophers and artists in the first half of the 20th century, including Virginia Woolf Adeline Virginia Woolf (; ; 25 January 1882 2 ...
, in which Keynes was avidly involved, were relaxed about homosexuality. Keynes, together with writer Lytton Strachey, had reshaped the Victorian morality, Victorian attitudes of the
Cambridge Apostles The Cambridge Apostles (also known as '' Conversazione Society'') is an intellectual society at the University of Cambridge founded in 1820 by George Tomlinson (bishop), George Tomlinson, a Cambridge student who went on to become the first Bishop ...
: "since [their] time, homosexual relations among the members were for a time common", wrote Bertrand Russell. The artist Duncan Grant, whom he met in 1908, was one of Keynes's great loves. Keynes was also involved with Lytton Strachey, though they were for the most part love rivals, not lovers. Keynes had won the affections of Arthur Hobhouse, and as with Grant, fell out with a jealous Strachey for it. Strachey had previously found himself put off by Keynes, not least because of his manner of "treat[ing] his love affairs statistically". Political opponents have used Keynes's sexuality to attack his academic work. One line of attack held that he was uninterested in the long-term ramifications of his theories because he had no children. Keynes's friends in the Bloomsbury Group were initially surprised when, in his later years, he began pursuing affairs with women, demonstrating himself to be bisexuality, bisexual. Ray Strachey, Ray Costelloe (who later married Oliver Strachey) was an early heterosexual interest of Keynes. In 1906, Keynes had written of this infatuation that, "I seem to have fallen in love with Ray a little bit, but as she isn't male I haven't [been] able to think of any suitable steps to take."


Marriage

In 1921, Keynes wrote that he had fallen "very much in love" with Lydia Lopokova, a well-known Russian Ballet dancer, ballerina and one of the stars of Sergei Diaghilev's ''Ballets Russes''. In the early years of his courtship, he maintained an affair with a younger man, W. J. H. Sprott, Sebastian Sprott, in tandem with Lopokova, but eventually chose Lopokova exclusively. They were married in 1925, with Keynes's former lover Duncan Grant as best man. "What a marriage of beauty and brains, the fair Lopokova and John Maynard Keynes" was said at the time. Keynes later commented to Strachey that beauty and intelligence were rarely found in the same person, and that only in Duncan Grant had he found the combination. The union was happy, with biographer Peter Clarke writing that the marriage gave Keynes "a new focus, a new emotional stability and a sheer delight of which he never wearied". The couple hoped to have children but this did not happen. Among Keynes's Bloomsbury friends, Lopokova was, at least initially, subjected to criticism for her manners, mode of conversation, and supposedly humble social origins – the last of the ostensible causes being particularly noted in the letters of Vanessa Bell, Vanessa and Clive Bell, and Virginia Woolf.''Lady Talky'', Alison Light, London Review of Books, Vol. 30 No. 24, 18 December 2008 In her novel ''Mrs Dalloway'' (1925), Woolf bases the character of Rezia Warren Smith on Lopokova. E. M. Forster later wrote in contrition about "Lydia Keynes, every whose word should be recorded": "How we all used to underestimate her".


Support for the arts

Keynes thought that the pursuit of money for its own sake was a pathological condition, and that the proper aim of work is to provide leisure. He wanted shorter working hours and longer holidays for all. Keynes was interested in literature in general and drama in particular and supported the Cambridge Arts Theatre financially, which allowed the institution to become one of the major British stages outside London. Keynes's interest in classical opera and dance led him to support the Royal Opera House at Covent Garden and the Ballet Company at Sadler's Wells Theatre, Sadler's Wells. During World War II, 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 its founding chairman in 1946. From the start, the two organisations that received the largest grants from the new body were the Royal Opera House and Sadler's Wells. Keynes built up a substantial collection of fine art, including works by Paul Cézanne, Edgar Degas, Amedeo Modigliani, Georges Braque, Pablo Picasso, and Georges Seurat (some of which can now be seen at the Fitzwilliam Museum). He enjoyed collecting books; he collected and protected many of Isaac Newton's papers. In part on the basis of these papers, Keynes wrote of Newton as "the last of the magicians."


Philosophical views

Keynes, like other members of the
Bloomsbury Group The Bloomsbury Group—or Bloomsbury Set—was a group of associated English writers, intellectuals, philosophers and artists in the first half of the 20th century, including Virginia Woolf Adeline Virginia Woolf (; ; 25 January 1882 2 ...
, was greatly influenced by the philosophy of George Edward Moore, G.E. Moore, which in 1938 he described as "still my religion under the surface". According to Moore, states of mind were the only valuable things in themselves, the most important being "the pleasures of human intercourse and the enjoyment of beautiful objects". Virginia Woolf's biographer tells an anecdote of how Virginia Woolf, Keynes, and T. S. Eliot discussed religion at a dinner party, in the context of their struggle against Victorian era morality. Keynes may have been Confirmation, confirmed, but according to Cambridge University he was clearly an agnostic, which he remained until his death. According to one biographer, "he was never able to take religion seriously, regarding it as a strange aberration of the human mind" but also added that he came to "value it for social and moral reasons" later in life. Another biographer writes that he "broke the family faith and became a 'ferocious agnostic during his time at Eton. One Cambridge acquaintance remembered him as "an atheist with a devotion to King's chapel". At Cambridge, he was strongly associated with the Cambridge Heretics Society, an avowed atheist group which promoted secularism and secular humanism, humanism.


Investments

Keynes was ultimately a successful investor, building up a private fortune. His assets were nearly wiped out following the Wall Street Crash of 1929, which he did not foresee, but he soon recouped. At Keynes's death, in 1946, his net worth stood just short of £500,000 – equivalent to about £20.5 million ($27.1 million) in 2018. The sum had been amassed despite lavish support for various charities and philanthropies, and his ethic which made him reluctant to sell on a falling market, in cases where he saw such behaviour as likely to deepen a slump. Keynes managed the endowment of
King's College, Cambridge King's College is a constituent college of the University of Cambridge in Cambridge Cambridge ( ) is a College town, university city and the county town of Cambridgeshire, England, on the River Cam approximately north of London. At the Un ...

King's College, Cambridge
starting in the 1920s, initially with an unsuccessful strategy based on market timing but later shifting to focus in the publicly traded stock of small and medium size companies that paid large dividends.Joel Tillinghast (2017). Big Money Thinks Small: Biases, Blind Spots and Smarter Investing. Columbia University Press, This was a controversial decision at the time, as stocks were considered high-risk and the centuries-old endowment had traditionally been invested in agricultural land and fixed income assets like bonds. Keynes was granted permission to invest a small minority of assets in stocks, and his adroit management resulted this portion of the endowment growing to become the majority of the endowment's assets. The active component of his portfolio outperformed a British equity index by an average of 6% to 8% a year over a quarter century, earning him favourable mention by later investors such as Warren Buffett and George Soros. Joel Tillinghast of Fidelity Investments describes Keynes as an early practitioner of value investing, a school of thought formalized in the U.S. by Benjamin Graham and David Dodd at Columbia Business School during the 1920s and '30s. However, Keynes is believed to have developed his ideas independently. Keynes also regarded as a pioneer of diversification (finance), financial diversification as he recognized the importance of holding assets with "opposed risks" as he wrote "since they are likely to move in opposite directions when there are general fluctuations"; and also as an early international investor who avoided Equity home bias puzzle, home country bias by investing substantially in stocks outside the United Kingdom. Ken Fisher characterized Keynes as an exception to the rule that economists usually make horrible investors.Kenneth L. Fisher (2007). 100 Minds That Made the Market. Wiley, ISBN 9780470139516


Political life

Keynes was a lifelong member of the Liberal Party (UK), Liberal Party, which until the 1920s had been one of the two main political parties in the United Kingdom, and as late as 1916 had often been the dominant power in government. Keynes had helped campaign for the Liberals at elections from about 1906, yet he always refused to run for office himself, despite being asked to do so on three separate occasions in 1920. From 1926, when Lloyd George became leader of the Liberals, Keynes took a major role in defining the party's economic policy, but by then the Liberals had been displaced into third-party status by the growing workers-oriented Labour Party (UK), Labour Party. In 1939 Keynes had the option to enter Parliament as an independent MP with the Cambridge University (UK Parliament constituency), University of Cambridge seat. A by-election for the seat was to be held due to the illness of an elderly Conservative Party (UK), Tory, and the master of Magdalene College, Cambridge, Magdalene College had obtained agreement that none of the major parties would field a candidate if Keynes chose to stand. Keynes declined the invitation as he felt he would wield greater influence on events if he remained a free agent. Keynes was a proponent of eugenics. He served as director of the Galton Institute, British Eugenics Society from 1937 to 1944. As late as 1946, shortly before his death, Keynes declared eugenics to be "the most important, significant and, I would add, genuine branch of sociology which exists." Keynes once remarked that "the youth had no religion save communism and this was worse than nothing." Marxism "was founded upon nothing better than a misunderstanding of David Ricardo, Ricardo", and, given time, he (Keynes) "would deal thoroughly with the Marxists" and other economists to solve the economic problems their theories "threaten to cause". In 1931 Keynes had the following to say on Leninism: Keynes was a firm supporter of women's rights and in 1932 became vice-chairman of the Marie Stopes International, Marie Stopes Society which provided birth control education. He also campaigned against job discrimination against women and unequal pay. He was an outspoken campaigner for reform of the LGBT social movements, laws against homosexuality.


Heraldic arms


Death

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. Helping to set up the Bretton Woods system, he worked to institute an International monetary systems, international monetary system that would be beneficial for the world economy. In 1946, Keynes suffered a series of heart attacks, which ultimately proved fatal. They began during negotiations for the Anglo-American loan in Savannah, Georgia, where he was trying to secure favourable terms for the United Kingdom from the United States, a process he described as "absolute hell". A few weeks after returning from the United States, Keynes died of a heart attack at Tilton, his farmhouse home near Firle, East Sussex, England, on 21 April 1946, at the age of 62. Against his wishes (he wanted his ashes to be deposited in the crypt at King's), his ashes were scattered on the Downs above Tilton. Both of Keynes's parents outlived him: his father
John Neville Keynes John Neville Keynes ( ; 31 August 1852 – 15 November 1949) was a British economist An economist is a practitioner in the social sciences, social science discipline of economics. The individual may also study, develop, and apply theories an ...
(1852–1949) by three years, and his mother
Florence Ada Keynes Florence Ada Keynes (née Brown; 10 March 1861 – 13 February 1958) was an English author, historian and politician. Career Keynes was an early graduate of Newnham College, Cambridge, Newnham College, Cambridge University, Cambridge. She estab ...
(1861–1958) by twelve. Keynes's brother Sir
Geoffrey Keynes Sir Geoffrey Langdon Keynes ( ; 25 March 1887, Cambridge Cambridge ( ) is a College town, university city and the county town of Cambridgeshire, England, on the River Cam approximately north of London. At the United Kingdom Census 2011, th ...
(1887–1982) was a distinguished surgeon, scholar, and bibliophile. His nephews include Richard Keynes (1919–2010), a physiologist, and Quentin Keynes (1921–2003), an adventurer and bibliophile. Keynes had no children; his widow, Lydia Lopokova, died in 1981.


Cultural Representations

In John Buchan's novel The Island of Sheep, ''Island of Sheep'' (1936) the character of the financier Barralty is based on Keynes. In the film Wittgenstein (film), ''Wittgenstein'' (1993), directed by Derek Jarman, Keynes was played by John Quentin. The docudrama ''Paris 1919'', based around Peacemakers (book), Margaret MacMillan's book, featured Paul Bandey as Keynes. In the BBC series about the Bloomsbury Group, Life in Squares, ''Life In Squares'', Keynes was portrayed by Edmund Kingsley. The novel
Mr Keynes' Revolution
' (2020) by E. J. Barnes is about Keynes' life in the 1920s. ''Love Letters'', based on the correspondence of Keynes and Lydia Lopokova, was performed by Tobias Menzies and Helena Bonham Carter, Helena Bonham-Carter at Charleston Farmhouse, Charleston in 2021.


Publications


Books

* 1913
Indian Currency and Finance
' * 1919 '' The Economic Consequences of the Peace'' * 1921 ''A Treatise on Probability'' * 1922
Revision of the Treaty
' * 1923 ''A Tract on Monetary Reform'' * 1926 ''The End of Laissez-Faire'' * 1930 ''A Treatise on Money'' * 1931
Essays in Persuasion
' * 1936 ''
The General Theory of Employment, Interest and Money ''The General Theory of Employment, Interest and Money'' of 1936 is a book by English economist John Maynard Keynes John Maynard Keynes, 1st Baron Keynes, ( ; 5 June 1883 – 21 April 1946) was an English economist, whose ideas fundamenta ...
'' * 1940 ''How to Pay for the War, How to Pay for the War: A radical plan for the Chancellor of the Exchequer'' * 1949 ''Two Memoirs''. Ed. by David Garnett (On Carl Melchior and G. E. Moore.)


Articles and pamphlets

(A partial list.) * 1915 ''The Economics of War in Germany'' * 1922 ''The Inflation of Currency as a Method of Taxation'' * 1925 ''Am I a Liberal?'' * 1926 ''Laissez-Faire and Communism'' * 1929
Can Lloyd George Do It?
' * 1930 ''Economic Possibilities for our Grandchildren'' * 1931 ''The End of the Gold Standard'' (Sunday Express) * 1931
The Great Slump of 1930
' * 1933
The Means to Prosperity
' * 1933 ''An Open Letter to President Roosevelt'' (New York Times) * 1933 ''Essays in Biography'' * 1937
The General Theory of Employment
'


See also

* * * * * * * *


References


Notes and citations


Sources

* Roger Backhouse (economist), Backhouse, Roger E. and Bateman, Bradley W.. ''Capitalist Revolutionary: John Maynard Keynes''. 2011 * Barnett, Vincent. ''John Maynard Keynes''. London: Routledge, 2013. . * Beaudreau, Bernard C.. ''The Economic Consequences of Mr. Keynes: How the Second Industrial Revolution Passed Great Britain By''. iUniverse, 2006, * Clarke, Peter. ''Keynes: The Twentieth Century's Most Influential Economist''. Bloomsbury, 2009, * Clarke, Peter. ''Keynes: The Rise, Fall and Return of the 20th Century's Most Influential Economist'', Bloomsbury Press, 2009 * * Donald Markwell, Markwell, Donald. ''John Maynard Keynes and International Relations: Economic Paths to War and Peace''. Oxford University Press, 2006. . . * Donald Markwell, Markwell, Donald
''Keynes and Australia''
Reserve Bank of Australia, 2000. * Milo Keynes, Keynes, Milo (ed). ''Essays on John Maynard Keynes''. Cambridge University Press, 1975. . * Moggridge, Donald Edward. ''Keynes''. Macmillan, 1980. . * Don Patinkin, Patinkin, Don. "Keynes, John Maynard." In: ''New Palgrave: A Dictionary of Economics, The New Palgrave: A Dictionary of Economics, Vol. 2.'' Macmillan, 1987, pp. 19–41. . . * Schuker, Stephen A. "American 'Reparations' to Germany, 1919–33." ''Princeton Studies in International Finance'', No. 61, 1988. * Schuker, Stephen A. "J.M. Keynes and the Personal Politics of Reparations." ''Diplomacy & Statecraft'', Vol. 25, Nos. 3/4, 2014. . * * * * * * * * Blaug, Mark
"Recent Biographies of Keynes."
''Journal of Economic Literature'', vol. 32, no. 3, September 1994, pp. 1204-1215. . * James M. Buchanan, Buchanan, James M. and Richard E. Wagner
''Democracy in Deficit: The Political Legacy of Lord Keynes.'' The Collected Works of James M. Buchanan, Vol. 8.
Indianapolis: Liberty Fund, 2008. * Clarke, Peter. ''Keynes: The Rise, Fall and Return of the 20th Century's Most Influential Economist''. Bloomsbury Press, 2009. * Paul Davidson (economist), Davidson, Paul. ''John Maynard Keynes'' (Great Thinkers in Economics). New York: Palgrave Macmillan, 2007. . * * Dimand, Robert W. and Harald Hagemann, eds. ''The Elgar Companion to John Maynard Keynes'' (Edward Elgar, 20190 + 670 pp
online review
* Harrod, R. F.. ''The Life of John Maynard Keynes''. Macmillan, 1951. . * * * Robert Skidelsky, Skidelsky, Robert. ''John Maynard Keynes: 1883-1946: Economist, Philosopher, Statesman.'' (2005) ** Robert Skidelsky, Skidelsky, Robert. ''John Maynard Keynes, Vol. 1: Hopes Betrayed, 1883-1920.'' (1986) ** Robert Skidelsky, Skidelsky, Robert. ''John Maynard Keynes: Volume 2: The Economist as Savior, 1920–1937'' (1994) ** Robert Skidelsky, Skidelsky, Robert. ''John Maynard Keynes, Vol. 3: Fighting for Freedom, 1937–1946''. * * Peter Temin, Temin, Peter, and David Vines. ''Keynes: Useful Economics for the World Economy''. MIT Press, 2014. * Nicholas Wapshott, Wapshott, Nicholas. ''Keynes Hayek: The Clash That Defined Modern Economics'' (2011)


Primary sources

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External links


Professor Robert Skidelsky explains Keynes theories video

Professor Robert Skidelsky on economist Keynes video

Churchill, Keynes & The Gold Standard – UK Parliament Living Heritage

Correspondence with John Maynard, Baron Keynes, four volumes held at The British Library

Treaty of Versailles & Keynes – UK Parliament Living Heritage
* * * * *
John Maynard Keynes
on Google Scholar
Keynes, ''The Economic Consequences of the Peace''
(1919)

(1926)

(1930)

(1933)

(1933)

(1933)
Keynes, ''The General Theory of Employment, Interest and Money''
(1936) *
''Interactive E-Book John Maynard Keynes: The Lives of a Mind''
(2016)
The Keynes Centre at University College Cork
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