Who is keynes

The amounts demanded by the Allies were so large, he wrote, that a Germany that tried to pay them would stay perpetually poor and, therefore, politically unstable. We now know that Keynes was right. In the s Keynes was a believer in the quantity theory of money today called monetarism. His writings on the topic were essentially built on the principles he had learned from his mentors, Marshall and Pigou.

In he wrote Tract on Monetary Reform, and later he published Treatise on Money, both on monetary policy. It was pathbreaking in several ways, in particular because it introduced the notion of aggregate demand as the sum of consumption, investment , and government spending; and because it showed or purported to show that full employment could be maintained only with the help of government spending.

Economists still argue about what Keynes thought caused high unemployment. Some think he attributed it to wages that take a long time to fall.

But Keynes actually wanted wages not to fall, and in fact advocated in the General Theory that wages be kept stable. A general cut in wages, he argued, would decrease income, consumption, and aggregate demand.

This would offset any benefits to output that the lower price of labor might have contributed. The General Theory advocated deficit spending during economic downturns to maintain full employment.

Churchill", Sometime during all this, John Maynard Keynes surprised his Bloomsbury friends by abandoning his homosexual past and striking up a relationship with the Russian ballerina Lydia Lopokova. Keynes ended up marrying Lydia in , apparently much to their chagrin. In the meantime, a new policy front had opened on the question of unemployment. The sluggish growth of the British economy in the s, with its persistently high unemployment, puzzled economists and policymakers.

Many dismissed it as a temporary difficulty, part of British economy's "transition to peace", that would sort itself out eventually. But as the situation dragged on, in , Liberal political leader David Lloyd George argued it had different causes, that it was more permanent, and proposed the active policy of government investment in public works as the way to deal with unemployment.

Keynes pondered the question "Does unemployment need a drastic remedy? Keynes also authored two famous pieces condemning traditional laissez-faire policy as outdated , Keynes joined the executive committee of the Liberal Industrial Inquiry, which went on to produce a famous "Yellow Book" in early , calling for a "National Development Program" of public capital expenditures as employment policy. The program became the centerpiece of the Liberal Party platform during the elections of The ruling Conservative Party countered with the "Treasury view" that public investment would merely raise interest rates and crowd out private investment, thus leading to no permanent improvement in employment.

On the eve of the election in May , Keynes wrote an election pamphlet with Hubert D. The pamphlet articulates a primitive version of the multiplier concept, noting that public works also creates "indirect employment" and that giving workers wages and purchasing power would "give a general stimulus to trade", that "greater trade activity would make for further trade activity [and] work with a cumulative effect" p.

However, at this stage, Keynes still had no proper economic answer to the "Treasury view" about crowding out, mumbling speculatively that additional savings would be found elsewhere. Despite being the only party with exciting new ideas, Lloyd George's Liberal Party was defeated in the elections of May, The disappointment soured Keynes on the effectiveness of public policy advocacy.

After three straight defeats - Reparations, the Gold Standard, Public Works - Keynes ceased writing as much in the public press, and eventually wrapped up his association with it. The best of Keynes public policy writings of the s were collected in his Essays in Persuasion Keynes had concluded that policy was best pushed internally, inside the corridors of power, rather externally in the press. Keynes was invited to join the Macmillan Committee in late Cole , two business men and one union representative.

He persuaded Hubert D. The EAC was supposed to meet once a month with the prime minister to offer economic policy guidance. Its impact on actual policy was doubtful. MacDonald entertained the EAC, seeing its function as merely providing political cover from the criticism of economic illiteracy.

Keynes was quickly frustrated with the EAC - Philip Snowden, the chancellor of the exchequer, limited its range of investigation and Keynes discovered that the economists and businessmen had different outlooks and could not come to agreement on advice. So, later that same year July, , Keynes persuaded MacDonald to establish the "Committee of Economists" as an offshoot of the EAC, consisting entirely of economists, free to brainstorm on policy, hoping they might provide more consistent guidance on the economic recovery.

On his recommendation, H. Henderson , A. But it turned out the Committee was no better at coming to one mind. Keynes tried to get the Committee to approve a tariff championed by the Labour Party as a temporary recovery measure, feeling it was low-hanging fruit, but found Robbins adamantly opposed to it. Although the year-old Robbins was much junior to Keynes, he was not willing to defer to his elder and compromise his free trade principles.

In , John Maynard Keynes brought out his heavy, two-volume Treatise on Money , which effectively set out his Wicksellian theory of the credit cycle. In it, the rudiments of a liquidity preference theory of interest are laid out and Keynes believed it would be his magnum opus.

His bubble was soon pricked. Friedrich von Hayek reviewed the Treatise so harshly that Keynes decided to set Sraffa to review and condemn no less harshly Hayek's own competing work. The Keynes-Hayek conflict was but one battle in the Cambridge - L. Kahn dutifully delivered reports of the Circus's discussions to Keynes, who subsequently began revising his ideas. One resulting criticism of the Treatise was that it failed to provide a theory of the determination of output and employment as a whole -- a particular pertinent question given the increasing amount of unemployment at the time.

The key was provided to Keynes in a short article by Richard Kahn -- the theory of the income-expenditure multiplier -- which was to be the basis of his future revolution. Already in a few articles and pamphlets, Keynes began announcing the new idea, and began submitting the drafts of his new book to the Circus and several fellow economists for review and dissection.

His ideas on the marginal efficiency of investment took a little longer to work out. In early , 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 a theory that could explain the determination of aggregate output - and as a consequence, employment. He posited that the determining factor was 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 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.

Of particular importance was the article by John Hicks which introduced the "IS-LM" representation of Keynes's theory that launched the " Neoclassical-Keynesian Synthesis " that was to pervade in America and elsewhere as the dominant form of macroeconomics in the post-war era, particularly in the s and s.

However, the so-called " Cambridge Keynesians " -- which included veterans of Keynes's Circus -- and their American cousins, the Post-Keynesian school, would dispute the "Synthesis" twist on the Keynesian Revolution.

They posited up their own versions of the theory, which, they argued, was more faithful to Keynes's original message. Keynes's health collapsed circa , and, consequently, Keynes largely missed out participating in the debate which was then raging on the interpretation of his own grand work. In that small tract, he identified the "inflationary gap" created by resource constraints during the war effort, and promoted the device of "compulsory saving" and rationing to prevent price inflation, proposals that were adopted in The piece is notable for it provided the seeds of a theory of inflation to complement the "depression economics" of the General Theory.

During the course of the war, Keynes was at the Treasury and set himself to think about the post-war economic order. In , Keynes had warmed up to Benjamin Graham's proposals for an international "commodity-reserve" currency to replace the defunct Gold Standard. In , Keynes forged his ideas for "Bancor", a proposal for an international clearing union. In consultation with the Americans, Keynes eventually relented on his idea and accepted the American "White Plan" for an international equalization "fund" held in the currencies of the participating nations.

However, several essential aspects of Keynes's clearing union idea were incorporated. In , 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. All these exhausting official missions and work taxed Keynes's already precarious health. He returned to England by sea his heart unable to withstand the conditions of a return flight to push for the ratification of the loan's terms by the British parliament.

Keynes died on April 22, , two months before the loan was ratified by Congress. Major Works of John Maynard Keynes. Czuber's Wahrscheinlichkeitsrechnung, v. Lloyd George's General Election , [pamphlet, extracted from Peace ]. Melchior: a defeated enemy" read Feb 3, , pub. The suggested moratorium, time to drop the 'make-believe'", , Sunday Times Dec 4 -- -- "The stabilisation of the European exchanges: A plan for Genoa", , MG Apr 6 "On the way to Genoa: What can the conference discuss and with what hope?

With the New Deal, the U. Its initiatives included an alphabet of new agencies:. Following the recession, Roosevelt explicitly adopted Keynes' notion of expanded deficit spending to stimulate aggregate demand. In the Treasury Department designed programs for public housing, slum clearance, railroad construction, and other massive public works.

Finally, though, it was World War II-related export demands and expanded government spending that led the economy back to full employment capacity production by The federal government bailed out debt-ridden companies in several industries. It also took into conservatorship Fannie Mae and Freddie Mac , the two major market-makers and guarantors of mortgages and home loans.

In addition, it sent American taxpayers direct aid, in the form of three separate stimulus checks. Each payment was tax-free.

The theories of John Maynard Keynes, known as Keynesian economics, center around the tenet that governments should play an active role in their countries' economies, instead of just letting the free market reign.

Specifically, Keynesian economics advocates federal spending to mitigate downturns in business cycles. Government boosting the economy in this way will stimulate demand, and thus production, which will increase employment. John Maynard Keynes is best known as the founder of Keynesian economics, a school of economic thought originating in the s. Though its popularity has waxed and waned over the ensuing decades, and it has undergone considerable revision since Keynes' day, it has left one indelible stamp: the idea that governments have a role to play in the economy—even a capitalist one.

Keynes is also seen as is the father of modern macroeconomics, which studies how an overall economy—the market or other systems that operate on a large scale—behaves.

It's difficult to pigeonhole Keynes as a socialist. On the one hand, he did show marked interest in and sympathy towards socialist regimes. And of course, he advocated the presence of government in economic affairs; he emphatically did not believe in letting business cycles go through boom and bust without any intervention—or in letting private enterprise operate unfettered.

On the other hand, Keynes did stop short of advocating that the government actually take over and run industries. He wanted central authorities to stimulate, but not necessarily control, methods of production. And there is evidence that he was growing more conservative, swaying back towards more traditional free-market capitalism, towards the end of his life. Keynesian economics holds that the driving force of an economy is aggregate demand—the total spending for and consumption of goods and services by the private sector and government.

Total spending determines all economic outcomes, from the production of goods to the employment rate—because demand drives supply. Even productive economies can get caught in an economic downturn if a lack of demand and, therefore, a lack of spending arises. Because demand is so important, central banks and government intervention can solve economic crises and downturns by spending.

Activist fiscal policies spending or tax cuts and monetary policy changes in interest rates are the primary tools governments and central banks should use to manage the economy and fight unemployment. This government spending will in turn increase consumer demand, thus spurring production. Even if a government has to go into debt to spend, it should do so, because that's the only way to spur recovery and ensure full employment in the workforce.

John Maynard Keynes and Keynesian economics were revolutionary in the s and did much to shape post-World War II economies in the midth century. His theories came under attack in the s, saw a resurgence in the s, and remain debatable today.

But Keynes did leave one lasting, undeniable legacy: the concept governments do have a role to play in the economic well-being of their industries and their people. The question is how big that role should be, and how best to execute it. The New Yorker. FDR Library and Museum. Getting an economy out of a deep depression, he argued, required fiscal policy measures such as government borrowing and deficit spending.

He also thought tax cuts could help, but he noted that people were likely to save some or all the money they gained rather than spend it. But he thought the government could address these problems by increasing taxes once prosperity returned. This was his big idea. Traditional economists argued against deficit spending and government intervention in the economy. They pointed out that in the long run the economy would correct itself. Older economists tended to defend free-market principles and warn about the dangers of government intervention in the private enterprise system.

Hayek, an Austrian free-market economist and harsh critic of socialism. When Keynes published his book in , the New Deal was operating in the U. Numerous government employment programs such as the Works Progress Administration WPA hired workers to construct government buildings, roads, and other public projects. Keynes calculated that the U.

But the New Deal borrowed and spent far less. The government even raised taxes, further crippling consumer and investor demand. By , the unemployment rate was lower but still more than 15 percent. In , President Roosevelt took a sharp turn and decided to balance the budget.

He ended some job program funding, cut other government spending, and raised taxes. In addition, the Federal Reserve reduced the money supply to curb renewed stock market speculation.

These fiscal and monetary policies were the exact opposite of what Keynes advised. Industrial production declined, business investment dropped, consumer spending decreased, and unemployment surged to 20 percent in One group wanted to spend less and balance the budget.

The Keynesians won the debate and deficit spending resumed. Factories began to convert to producing weapons. In March , the Lend-Lease Act authorized producing and transporting defense materials to Britain and other countries fighting Germany and Japan. When the U. This was far above the annual budget deficits in the s. Meanwhile, unemployment shrank to 1 percent. As the war ended, Keynes took a leading role in negotiating an international agreement to prevent a repetition of the economic decline that followed World War I.

In July , 40 nations signed the Bretton Woods Agreement. This agreement, mainly designed by the U. In , Keynes negotiated an agreement with the U. Plagued by heart disease, Keynes died in London in at age Most advocated government deficit spending in bad times and government surpluses in good times.

Federal Reserve, that sets monetary policy. Central banks set certain interest rates that eventually affect businesses and the consumers by making it more or less expensive to borrow money. Free-market capitalism took off in the U. Free-market economists argued that the private enterprise market system was self-regulating and needed little government oversight. Banks, investment companies, and other financial institutions were de-regulated.

Economists increasingly relied on mathematical computer programs to predict investment risk. Then things fell apart in Real estate values fell dramatically, spurring huge losses in banking and financial institutions and destabilizing the stock market.

Businesses along with state and local governments cut wages and laid off workers. Unemployment grew to more than 10 percent. Millions of homeowners could not afford their mortgage payments, which led to increased foreclosures and further depressed real estate prices. In a recurring cycle, financial institutions, which had invested heavily in mortgages, continued to suffer substantial losses. Many hoarded cash in low interest savings accounts and bought gold, further reducing demand.