John Maynard Keynes

John M. Keynes

Who was he: A leading socialist economist, inventor of modern government-oriented economics, many of which today can be seen to be failing.

Distinction: Keynes developed an economic analysis featuring massive government spending and central bank monetary stimulation. Justified government interference in the marketplace throughout the business cycle. Keynes' influence today, according to those who believe in free-market principles, can be seen in government profligacy, job stimulation programs that fail to stimulate and generally paper-money printing programs that eventually provide tremendous inflationary pressures including ruinous price inflation. His ideas have been mostly discredited but because they justify government action, especially central banking, they continue to be implemented at the highest bureaucratic levels.

Overview: Keynes' General Theory of Employment, Interest and Money was published in 1936. It provided the theoretical basis for the interventionist policies (government deficits and spending on public works) that Keynes favored for treating a recession. In this, The General Theory departed from the neo-classical model of Alfred Marshall, which concluded that markets unmolested by government would tend naturally to an equilibrium with full employment. In 1944 Keynes (now Lord Keynes) led the British delegation to and became chairman of the World Bank Commission and later participated in the currency negotiations at the Bretton Woods conference. The Bretton Woods conference produced the international system of fixed exchanges rates and a restricted gold standard that prevailed until 1971.

Background: John Maynard Keynes was born in Cambridge, England, in 1883, the son of Neville Keynes, an economist at Cambridge University. Sponsorship by his father and by his father's mentor, Alfred Marshall (at the time the preeminent English economist and free-market thinker), introduced John Maynard to the top tier of English education. He attended Eton, England's most influential public school, and then Kings College at Cambridge, where he studied mathematics. At Cambridge, Keynes was inducted into the Apostles, a secret society whose membership included Bertrand Russell and eventual literary critic Lytton Strachey. Members viewed themselves as an exquisite intellectual elite. Attitudes were disdainful of conventional morality and of bourgeois values, including family, thrift and preparation for the future. Homosexuality was welcome. Keynes' was also affiliated with a related group, the Bloomsbury Group, a upper-class exercise in bringing socialism to Britain that was largely successful.

Keynes served with the Central Bank of England in his younger years and became a well-known econoist mostly due to his mathematical fluency. In 1914, he became an unofficial advisor to the British government and the following year accepted a position with the Treasury. Tasked with acquiring foreign currency for the government, he accumulated a supply of Spanish pesetas -- which he then sold in a successful attempt to break the market. In the 1919 Keynes was sent as the Treasury's representative to the Versailles peace conference, where he unsuccessfully opposed demands for heavy reparations from Germany. Later in 1919 he published The Economic Consequences of the Peace, which predicted that the Versailles peace terms would lead to disaster for Germany and disorder in Europe.

Additional Information: Following World War I, the British government adopted deflationist policies intended to allow the pound to return to gold convertibility, which had been abandoned early in the war. One result was high unemployment in Britain, even before the Great Depression. In 1923 Keynes attacked those policies in A Tract on Monetary Reform, arguing that the government should aim to stabilize prices even if stability required a fall in the pound's foreign exchange value. The Tract also called for abandoning the goal of returning to the gold standard. Nonetheless, in 1925, under the chancellorship of Winston Churchill, the pound did resume convertibility into gold. The economy remained depressed, and Keynes continued his opposition to gold in The Economic Consequences of Mr. Churchill. In 1931 Britain again left the gold standard. In 1930 Keynes published his Treatise On Money, which explained how saving by the public can cause unemployment if it exceeds investment by business, a proposition that fit nicely with the Apostles' disdain for bourgeois values. In 1933, at the Great Depression's low point, Keynes published The Means to Prosperity, which repackaged the ideas presented in the Treatise as policy recommendations.