Great Economists

John Maynard Keynes, 1883-1946.

John Maynard Keynes is one the most important figures in the entire history of economics.  He revolutionized economics with his classic book,The General Theory of Employment, Interest and Money (1936).  This is generally regarded as probably the most influential social science treatise of the 20th Century, as it quickly and permanently changed the way the world looked at the economy and the role of government in society.  No other single book, before or since, has had quite such an impact.

The son of the Cambridge economist and logician John Neville Keynes, John Maynard Keynes was bred in British elite institutions - Eton and then King's College Cambridge.  In 1906, he entered the British civil service for a little while, and then returned to Cambridge in 1909. 

His first book on Indian currency (1913) was directly related to his experience at the India office.  From 1914 to 1918, J.M.K. was called to the UK Treasury to assist with the financing of the British war economy.  He excelled at his job and the influence he gained earned him a position with the British delegation to the Versailles Peace Conference in 1918.   J.M.K was appalled at the vindictive nature of the peace settlement, and was particularly opposed to the devastating consequences of the heavy "reparations" payments imposed on Germany.  He resigned from the conference and published his Economic Consequences of the Peace (1919), denouncing the Treaty of Versailles and bringing him into the public spotlight.

In 1923, Keynes published his Tract on Monetary Reform (1923), which was his contribution to the Cambridge cash-balance theory of money, then being developed by other Cambridge economists, Alfred Marshall, Arthur C. Pigou and Dennis H. Robertson.  It was also in a 1923 newspaper article that he first proposed his "normal backwardation" theory of hedging and speculation.

Throughout the 1920s, Keynes remained active in public policy debates, channeled mainly through his numerous articles in the Nation and Atheneum, a Liberal-Labour weekly magazine which he helped purchase in 1923 (it was absorbed by the New Statesman in 1931).  The best of Keynes public policy writings was collected in his Essays in Persuasion (1931).  He was on the forefront of the battle against returning Britain to the gold standard on a pre-war parity (e.g. 1925).  This led him to author two famous pieces in condemnation of laissez-faire economic policy (1925,1926).  In 1929, he wrote an election pamphlet with Hubert D. Henderson advocating the use of public works to reduce unemployment and condemning the Treasury's fear of "budget deficits".   In 1929, he also entered into a small debate with Bertil Ohlin and Jacques Rueff on German reparations problem.  He also found time to marry the Russian ballerina, Lydia Lopokova in 1925.

In early 1936, the new book finally came out with the pretentious title of  The General Theory of Employment, Interest and Money.   Heavily anticipated, cheaply priced and propitiously timed for a world caught in the grips of the Great Depression, the General Theory made a splash in both academic and political circles.  As one American politician put it, everyone always knew that the economic policies recommended by the Neoclassical economists were bad policies; but now they realized it was also bad economics.

With the General Theory, as it became known, Keynes sought to develop an theory that could explain the determination of aggregate output - and as a consequence, employment. He posited that the determining factor to be aggregate demand. Among the revolutionary concepts initiated by Keynes was the concept of a demand-determined equilibrium wherein unemployment is possible, the ineffectiveness of price flexibility to cure unemployment, a unique theory of money based on "liquidity preference", the introduction of radical uncertainty and expectations, the marginal efficiency of investment schedule breaking Say's Law (and thus reversing the savings-investment causation), the possibility of using government fiscal and monetary policy to help eliminate recessions and control economic booms.  Indeed, with this book, he almost single-handedly constructed the fundamental relationships and ideas behind what became known as "macroeconomics".

The Keynesian Revolution split the economics world in two generations: the young climbed over themselves to line up behind Keynes; the old rallied to condemn it.  John Maynard Keynes responded to his most able critics -- Jacob Viner, Dennis Robertson and Bertil Ohlin -- in a series of 1937 articles, which helped him to expand upon some key aspects of his theory. A densely-written and difficult book, it was followed up immediately by elucidatory publications by the members of Keynes's Circus, such as Joan Robinson, and young economists elsewhere in Britain, such as Roy Harrod and Abba Lerner.  

In 1944, Keynes led the British delegation to the international conference in Bretton Woods where the details of the system were hammered out.  The American "White Plan" was accepted, countries would retain fixed exchange rates against the dollar, while the dollar itself would be matched to gold.  Two institutions, the International Monetary Fund (IMF) and the World Bank (IBRD), were created to oversee the new international monetary system.   

All these exhausting official missions and work taxed Keynes's already precarious health.  He died in 1946, soon after arranging the guarantee of an American loan to Great Britain.

Major Works of John Maynard Keynes

• Indian Currency and Finance , 1913.
• "The Prospects of Money", 1914.
• The Economic Consequences of the Peace , 1919.
• The End of Laissez-Faire, 1926.
• A Treatise on Money , two volumes, 1930.
• General Theory of Employment, Interest and Money , 1936.
• How to Pay for the War: A radical plan for the Chancellor of the Exchequer, 1940.