John Maynard Keynes 1883-1946
Keynes is considered one of the foremost economists of all time. His The General Theory of Employment, Interest and Money transformed the course of economic thought with its controversial interpretation of the causes of unemployment and prescriptions for its remedy. The impact of this book on twentieth-century economic history—known as the Keynesian Revolution—has been profound, encompassing economic method, theory, and policy.
Born and raised in Cambridge, England, Keynes grew up in an atmosphere that fostered intellectual achievement. His father, John Neville Keynes, was a noted logician, economist, and a registrar at Cambridge University, while his mother, Florence Ada Keynes, was a writer and social welfare advocate as well as the first woman mayor of Cambridge. Keynes attended Eton from 1897 until 1902 and then entered King's College, Cambridge, on a scholarship in mathematics and the classics. During his freshman year at Cambridge, Keynes was invited to join an intellectual group called "The Apostles" that met periodically to discuss literary, philosophical, political, and aesthetic questions. Among the members of the Apostles were Leonard and Virginia Woolf, Lytton Strachey, E. M. Forster, and Bertrand Russell, all of whom would later become leaders of the exclusive circle of intellectuals and artists known as the Bloomsbury Group. Through his association with the Apostles, Keynes became introduced to the philosophy of G. E. Moore; critics note the pervasive influence of Moore's Principia Ethica on Keynes's A Treatise on Probability, his only philosophical work, as well as on his economic methodology. After graduating from Cambridge with a master's degree in mathematics, Keynes studied economics for a year in preparation for a civil service examination. In 1906 he was assigned by the British government to the India Office; the knowledge he gained there formed the basis of his first book, Indian Currency and Finance. Keynes resigned from the India Office in 1908 to join the economics faculty at Cambridge. He taught at Cambridge until 1915, when he returned to government service as a Treasury official. By the end of World War I, Keynes had risen to a prominent position in the Treasury and was responsible for managing foreign-exchange arrangements. Although he seemed destined for great success as a public official, Keynes's trip to the Paris Peace Conference as economic adviser to Prime Minister Lloyd George caused his career to change directions once again. Appalled by the political maneuverings of the conference and convinced that the reparations policies imposed upon Germany were excessive, Keynes resigned from his Treasury post. Shortly after, he published a stinging indictment of the Versailles Treaty, The Economic Consequences of the Peace, which provoked international controversy and made Keynes famous. During the 1920s, Keynes resumed his teaching duties at Cambridge, pursued an active business life in London as a financial consultant and insurance company executive, and was named bursar at King's College. Around the middle of the decade, Keynes became convinced that he needed to develop a strong theoretical foundation to support his belief that public expenditures would be useful in lowering unemployment. This conclusion became the impetus for A Treatise on Money and the General Theory. By the time the General Theory appeared, politicians and economists all over the world were searching for a way to reverse one of the longest depressions in economic history; orthodox, or classical, economic policy, which held that prosperity would return if prices and wages were lowered, was not promoting recovery anywhere. Keynes's General Theory was quickly accepted by many economists as an answer to the world's economic tragedies, and when Keynesian fiscal measures began to produce the desired results, he became widely viewed as the savior of capitalism. The General Theory also influenced economic thinking on how World War II should be financed. When the war commenced, Keynes returned to the British Treasury and was consulted on all important questions regarding the economic management of the conflict. He was a principal negotiator at the Bretton Woods Conference in 1944, where he played a significant role in the inauguration of the International Monetary Fund and the World Bank. His last major public service was his negotiation in 1945 of a multi-billion-dollar U.S. loan to England. He died of a heart attack on April 21, 1946, shortly after returning from an economic conference in Savannah, Georgia.
The revolutionary content of Keynes's economic theory, the bulk of which is contained in A Treatise on Money, the General Theory, and, to a lesser extent, A Tract on Monetary Reform, developed out of his active involvement in England's economic problems during the 1920s and 1930s. During the 1920s, he advocated economic policies, either in an official capacity or as an independent expert, that he arrived at largely by intuition. In The End of Laissez-Faire and Can Lloyd George Do It?, he recommended a government-sponsored program of public works to get the unemployed off welfare, but these works lacked a theoretical foundation, and A Tract on Monetary Reform, which also suggested that government intervention could curb unemployment, was unsuccessful at refuting the classical argument, or so-called "Treasury view," that government spending financed by loans would cause inflation or crowd out private investment. In A Treatise on Money and the General Theory, Keynes sought to establish a firm theoretical basis that would explain the reasoning behind his policy proposals. In A Treatise on Money, he attempted to replace the classical explanation of money and its function in the economy, known as the quantity theory of money, with a more dynamic model that related booms and slumps to oscillations in the credit cycle and that described the causal processes by which the price level is determined. It was not until he began composing the General Theory, however, that Keynes was able to completely break away from the quantity theory of money. When the General Theory was published, it was viewed as a powerful challenge to orthodox economic theory, which held that a decrease in the wage level would stimulate employment because firms would take on more labor at a lower price, and that the interest rate would always adjust in such a manner as to prevent variations in savings and investment from causing any change in spending. Keynes declared this theory nonsense, tracing the origins of unemployment not to excessively high wages but to the total purchasing power in the economy, or aggregate demand. While classical economists focused on the individual firm or household, Keynes looked at output and employment as a whole. He maintained that a decrease in wages would not stimulate employment because it would lower the overall demand for goods and services, thereby causing prices to drop. He also contended that the classical economists erred in thinking that savings would always be equal to investment, arguing that there are times when savers wish to save more than investors are willing to invest, causing part of output to go unsold and leading producers to cut back on employees. Keynes placed great emphasis on the idea that private investment was a function not only of interest rates but also of expectations about costs and demand for products in the future. He was skeptical that monetary policy in the form of lower interest rates would provide a sufficient stimulus to business investment in times of severe economic depression to bring the economy back up to a level of full employment. He therefore proposed that fiscal measures such as public works or subsidies to afflicted groups were the only possible correctives to prolonged unemployment.
On January 1, 1935, during the course of writing the General Theory, Keynes wrote to George Bernard Shaw: "I believe myself to be writing a book on economic theory which will largely revolutionise—not I suppose at once but in the course of the next ten years—the way the world thinks about economic problems." Keynes's prophecy proved accurate. Quickly after the publication of the General Theory, governments everywhere began adopting policies advocated by Keynes or associated with his name, a trend that continued for over thirty years. By the late 1940s, his theories had been incorporated into textbooks in the United States and England, and millions of students were introduced to the idea of national income accounting. Keynes was not without his critics, however. While many scholars attributed the economic prosperity experienced after World War II to the adoption of Keynesian policies, some insisted that it was the result of other factors, such as rearmament in Europe and the United States after the outbreak of the Korean War, improved international economic relations, and new technology that stimulated large amounts of private investment. Keynes was also attacked by hard-line communists, who argued that the General Theory was an attempt to save capitalism with remedies he knew to be ineffective. In the 1970s, with the onset of rising inflation and unemployment, the popularity of Keynes's ideas plummeted. Many economists traced the weakening of private investment to growing budget deficits and maintained that inflation was the result of the Keynesian policy of high employment, which had caused too great an increase in wages. Today, Keynes's policies remain in a state of official disfavor, but there are large numbers of economists who contend that the world's current economic problems are the result of the pursuit of anti-Keynesian ideas. The dispute over the validity of Keynes's ideas has taken shape in a vast amount of literature written by professional and academic economists. Immediately after the publication of the General Theory, classical economists sought to dispel the notion that Keynes was proposing a drastic change in economic thought by arguing that Keynes's ideas were a special case of orthodox equilibrium theory. In the ensuing years, additional attempts have been made to reconcile classical economic theory with the existence of involuntary employment, further undermining the revolutionary content of the General Theory. Other economists, and a large number of socialists, have read the General Theory as a radical threat to the capitalist system. These conflicting interpretations have resulted in large part from the vagueness and incomprehensibility of certain parts of the General Theory, which has allowed scholars to conjecture what Keynes meant to be saying. Among the most common types of studies on Keynes are expositions of specific aspects of his theory, such as investment, savings, consumption, and interest; analyses of the development of his economic thought, primarily as revealed in A Tract on Monetary Reform, A Treatise on Money, and the General Theory; examinations of the relationship between his theories and his policy proposals; and studies attempting to establish the difference between Keynes's own ideas and the various schools of Keynesian thought his works have inspired. The publication of Keynes's collected works by the Royal Economic Society and the centenary of his birth in 1983 prompted countless reassessments that further added to the growing literature on Keynes. In recent years, scholars have placed greater emphasis on Keynes's philosophical beliefs as expressed in A Treatise on Probability, studying the moral underpinnings of his economic method and tracing his theory of investment expectations to his ideas on probability and induction. As many of Keynes's critics point out, the passionate controversy he has inspired is evidence of the depth and range of his ideas. In the minds of most scholars, this fertility of thought, combined with his enormous influence on economic theory and policy, justifies his reputation as the twentieth-century's most important economist.
Indian Currency and Finance (nonfiction) 1913
The Economic Consequences of the Peace (nonfiction) 1919
A Treatise on Probability (philosophy) 1921
A Revision of the Treaty: Being a Sequel to "The Economic Consequences of the Peace" (nonfiction) 1922
A Tract on Monetary Reform (nonfiction) 1923
The Economic Consequences of Mr. Churchill (nonfiction) 1925
A Short View of Russia (nonfiction) 1925
The End of Laissez-Faire (lecture) 1926
Can Lloyd George Do It? An Examination of the Liberal Pledge [with H. D. Henderson]...
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SOURCE: "J. M. Keynes' Concept of Economic Science," in The Southern Economic Journal, Vol. XV, No. 3, January, 1949, pp. 249-66.
[In the following excerpt, Gruchy examines Keynes's economic thought at its various levels of analysis—from his theory of output and employment, to his theory of the capitalist order, to his set of proposals for remedying the capitalist system as it was then operating in England—illustrating how his views on the nature of economic science adhered to and diverged from the orthodox position of the Cambridge school.]
Recent attempts to reduce Keynes' economics to the general textbook level raise the very...
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SOURCE: "Reflections on the Work and Influence of John Maynard Keynes," in The Quarterly Journal of Economics, Vol. LXV, No. 4, November, 1951, pp. 578-601.
[In the following excerpt, Smithies surveys Keynes's career, commenting on the relationship between his economic theories and his philosophical beliefs, his views on domestic and international economic policy, his method of argument, the success of his policy proposals, and the political consequences of his theories.]
The publication of Mr. Harrod's biography of Keynes will enable many of us who were not his intimates to reflect on his personality and achievement in a way that was not...
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SOURCE: "The Social Philosophy of John Maynard Keynes," in Annals of Collective Economy, Vol. XXXIV, No. 4, October-December, 1963, pp. 1-33.
[In the following excerpt, which is a translation of chapter five from his study L'oeuvre de John Maynard Keynes, Lambert provides a chronological study of Keynes's writings, portraying the economist as the founder of a "new liberalism" that sought to reconcile the individualistic spirit of capitalism with the need for government intervention to ensure full employment.]
1. THE SOCIAL PHILOSOPHY OF KEYNES: AN ASPECT OF THE NEO-LIBERAL MOVEMENT
As my book [L 'oeuvre de John Maynard...
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SOURCE: "The Logic of Uncertainty According to J. M. Keynes," in The Kyoto University Economic Review, Vol. XXXIX, No. 1, April, 1969, pp. 22-44.
[In the following excerpt, Hishiyama maintains that A Treatise on Probability had a direct bearing on the General Theory, particularly with regard to the two essential components of Keynes's principle of aggregate demand, investment and consumption, both of which, according to Keynes, contain an element of uncertainty that is not mathematically calculable.]
I think that one chapter has been left untouched in the studies about J. M. Keynes which have been made so far. It is none other...
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SOURCE: "How Keynes Came to America," in Essays on John Maynard Keynes, edited by Milo Keynes, Cambridge University Press, 1975, pp. 132-41.
[In the following essay, which was first published in 1971, Galbraith explains how the ideas contained in the General Theory were disseminated and eventually adopted in the United States.]
'I believe myself to be writing a book on economic theory which will largely revolutionize—not, I suppose, at once but in the course of the next ten years—the way the world thinks about economic problems.'
—Letter from J. M. Keynes to George
Bernard Shaw, New Year's Day 1935....
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SOURCE: "The Early Economics of Keynes," in The American Economic Review, Vol. LXII, No. 2, May, 1972, pp. 416-21.
[In the following essay, Johnson examines the relationship between Keynes's plans for the International Monetary Fund system, established after World War II, and his early economic work specifically, his thoughts on the Indian currency problem and his views on international monetary relationships directly after World War I.]
The Royal Economic Society has this year published the first eight of a projected twenty-four-volume series of The Collected Writings of John Maynard Keynes. Six of them are already in print or in library; the other two, edited...
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SOURCE: "John Maynard Keynes: Scientist or Politician?" in Journal of Political Economy, Vol. 82, No. 1, January-February, 1974, pp. 99-111.
[In the following excerpt, Johnson discusses the nature of Keynes's involvement in British political life and economic policy. Johnson's essay was originally read as a paper on September 5, 1972, at the annual meetings of the British Association for the Advancement of Science.]
John Maynard Keynes—scientist or politician? The reader of the popular press of a generation ago would have had no doubt of the answer. Keynes, a swinging weather vane of a man, was the most unscientific of individuals—a cartoonist's dream. He was...
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SOURCE: "The Economist," in John Maynard Keynes, Penguin Books, 1976, pp. 20-41.
[In the following excerpt, Moggridge describes the general character of Keynes's thought, his method of approaching economic problems, and his views on the making of public policy.]
Before examining the development of Keynes's economic ideas …, one should try to get inside the man and the mind behind the ideas in question—one must become aware of his habits of thought, his methods of working, his views as to the nature of economic inquiry, and the like. Fortunately, although Keynes did not leave behind an autobiography or a treatise on the nature of economic inquiry, his drafts,...
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SOURCE: "Some Aspects of the Development Keynes's Thought," in The Journal of Economic Literature, Vol. XVI, No. 2, June, 1978, pp. 545-59.
[In the following excerpt, Kahn examines Keynes's changing attitudes towards the quantity theory of money, as revealed in A Tract on Monetary Reform, A Treatise on Money, and the General Theory. The critic also discusses Keynes's views on the behavior of money wages and the causes of inflation.]
In this brief essay I have picked out certain particular strands of thought, on the basis partly of theoretical significance and partly of relationship to economic policy.
Monetary economics is in a state of...
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SOURCE: "J. M. Keynes: Society and the Economist," in Keynes's Relevance Today, edited by Fausto Vicarelli, The Macmillan Press Ltd, 1985, pp. 99-125.
[In the following excerpt, Steindl judges the contemporary relevance of Keynes's ideas. Basing his arguments on a discussion of several key topics in the criticism on Keynes, he outlines the main points of Keynes's economic theory, illustrates how the unorthodox content of the General Theory developed out of Keynes's active involvement in the formulation of economic policy during the 1920s and 1930s, identifies the focal points in the critical attacks on the General Theory, discusses the way in which the revolutionary arguments...
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SOURCE: "Keynesian Economics: The Road to Nowhere?" in J. M. Keynes in Retrospect: The Legacy of the Keynesian Revolution, edited by John Hillard, Edward Elgar, 1988, pp. 125-52. [In the following essay, Gerrard charts the development of what he terms "mainstream Keynesianism"—the various attempts made by economists since the publication of the General Theory to reconcile classical economic theory with the existence of involuntary employment—and assesses the value of these developments with respect to economic theory, method, and policy.]
Economics in the last fifty years has been mainly Keynesian economics, inspired by Keynes' General Theory. Keynes...
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SOURCE: "The Keynesian Revolution," in John Maynard Keynes: Life, Ideas, Legacy, The Macmillan Press Ltd, 1990, pp. 25-37.
[In the following excerpt, Blaug attempts to explain the phenomenal success of the General Theory and the unprecedented rapidity with which Keynes's theories were adopted by professional economists.]
The impact Keynes had on economics with his book The General Theory is what is known as the Keynesian Revolution in economic thought. This Keynesian Revolution is one of the most remarkable episodes in the entire history of economic thought; never before had the economics profession been won over so rapidly and so massively to a new...
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SOURCE: "Keynes's View of Economics as a Moral Science," in Keynes and Philosophy: Essays on the Origin of Keynes's Thought, edited by Bradley W. Bateman and John B. Davis, Edward Elgar, 1991, pp. 89-103.
[In the following excerpt, Davis discusses Keynes's understanding of economic method in terms of his philosophical beliefs, focusing on his conception of economics as a moral science and his emphasis on the role of individual value judgments in the construction of economic models.] J. M. Keynes's theoretical understanding of economic method is one of the less well understood dimensions of his thought, both because Keynes's thinking, unlike that of most economists, was motivated by...
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SOURCE: An introduction to John Maynard Keynes, Vol. 2, Allen Lane The Penguin Press, 1994, pp. xv-xxix.
[In the following excerpt, Skidelsky discusses Keynes's efforts to reconcile his private values with his public duties, focusing on the moral underpinnings of his economic theories. The first volume of Skidelsky's biography was published in 1983 and the second volume originally came out in 1992.]
'My purpose is to tell of bodies which have been transformed into shapes of a different kind.' This second volume of biography tells the story of Keynes's metamorphosis from aesthete, philosopher and administrator into world saviour. It is a reshaping of life-purpose which...
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SOURCE: "Theorizing of the Middle Period: A Treatise on Money," in Biography of an Idea: John Maynard Keynes and the "General Theory of Employment, Interest and Money," Transaction Publishers, 1995, pp. 67-83.
[In the following excerpt on A Treatise on Money, Felix discusses the genesis of the work the weaknesses in its argument, and its contemporary critical reception.]
In Keynes's lifetime of inexorable success, his Treatise on Money, his only work to go beyond one volume, was the grand exception. In it all of his strengths and weaknesses were given space in which to play themselves out to the greatest extent: his gift for exquisitely refined...
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Harrod, R. F. The Life of John Maynard Keynes. New York: Harcourt, Brace and Co., 1951, 674 p.
The official biography.
Hession, Charles H. John Maynard Keynes: A Personal Biography of the Man Who Revolutionized Capitalism and the Way We Live. New York: Macmillan Publishing Co., 1984, 400 p.
A reevaluation of Keynes's life that explores aspects of his personality, especially his bisexuality, first brought to light in Michael Holroyd's biography of Lytton Strachey (1967) and the collection of essays on Keynes edited by his nephew Milo Keynes (1975). Hession emphasizes the integral relationship between Keynes's early,...
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