John Maynard Keynes – brief biography
John Maynard Keynes (1883-1946) was a British economist, financier, and journalist. He is famous for his economic theories on the causes of recessions and unemployment, and also how to combat them.
His ideas fundamentally changed the theory and practice of economics, i.e., specifically macroeconomics. In fact, he was probably the most influential economist of the 20th century.
Macroeconomics focuses on large-scale or general economic factors such as unemployment, inflation, national output, and interest rates.
According to Wikipedia, Keynes was:
“A British economist whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments.”
“He built on and greatly refined earlier work on the causes of business cycles, and is widely considered to be one of the most influential economists of the 20th century and the founder of modern macroeconomic theory.”
Keynes – Great Depression
The Great Depression was an extremely severe global economic downturn. In the United States, it started in 1929 and ended in 1941. In other countries, the Great Depression started and ended slightly earlier or later than it did in America.
From 1929 to 1932, global GDP shrank by approximately fifteen percent. In the US, unemployment reached 25%. In fact, in some countries, it exceeded 33%.
During the Great Depression, Keynes spearheaded an economic thinking revolution. He challenged the ideas of contemporary economists who insisted that free markets were self-adjusting. His contemporaries were neoclassical economists.
Neoclassical economists believe that free markets automatically provide full employment in the short to medium term. However, in that free market, workers have to be flexible in their wage demands.
Keynes, on the other hand, argued that aggregate demand was the driver of overall economic activity. If demand was inadequate, he added, there could be periods of high unemployment.
Governments and central banks can mitigate the adverse effects of depressions and recessions, says Keynesian Theory. In other words, Keynesian Economics asserts that sometimes government intervention is necessary. Specifically, Keynes was talking about fiscal and monetary policies.
Fiscal policy refers to government spending and the collection of taxes. Monetary policy, on the other hand, refers to decisions that the central bank makes. Raising or reducing interest rates are examples of monetary policies.
Keynes was born in 1883 in Cambridge, England to an upper-middle-class family. His father, an economics and moral sciences professor, lectured at the University of Cambridge. His mother was a social reformer.
Biographer and economist Robert Skidelsky said that Keynes’ parents were attentive and loving. He was always welcome to return home.
He received considerable support from his father, whose coaching helped him succeed in his scholarship exams.
At the onset of the Great Depression, Keynes lost nearly all his assets. His father subsequently helped him financially.
At the age of five, his kindergarten teachers noticed he had a talent for arithmetic. However, due to poor health, he was absent from school for long periods.
By the age of 11, he was top of his class in mathematics. When he was 13, he won a scholarship to Eton college. Eton is probably England’s most prestigious boarding school.
In 1902, he won a scholarship to read mathematics at King’s College, Cambridge. His professors strongly urged him to become an economist. However, Keynes felt a strong inclination towards philosophy, especially G.E. Moore’s ethical system.
He became President of the Cambridge University Liberal Club and the Cambridge Union Society. Historians say he was an atheist.
- 1906: he joined the Civil Service as a clerk in the India office. However, he got bored and left in 1908.
- 1908: he returned to Cambridge University to work on probability theory. Two dons, the economist Arthur Pigou, and his father funded him.
- 1909: Keynes published an article in the Economics Journal. In fact, it was his first published article. The article was about the effect of a worldwide economic downturn on India’s economy.
He founded the Political Economy Club. Members met weekly at King’s College, Cambridge and discussed various papers.
In the same year, he accepted a lectureship in economics at Cambridge University. Alfred Marshall personally funded it.
- 1911: he became editor of The Economics Journal.
- 1913: he published his first book, ‘Indian Currency and Finance.’ In that same year, he was appointed to the Royal Commission. His focus was Indian Currency and Finance.
World War I
- 1915: Keynes took up an official government position in the Treasury. His job was to design credit terms between the UK and its continental allies. He also focused on the acquisition of scarce currencies.
- 1917: he was appointed Champion of the Order of Bath.
- 1918: Keynes became the financial representative for the Treasury at the Versailles Peace Conference. His experience at Versailles influenced his future outlook.
He complained that the peace terms were too harsh for Germany.
The Great Depression
- 1929: The Great Depression struck. Keynes had already begun a theoretical work to study the relationship between money, prices, and unemployment.
- 1930: Keynes published two volumes of the Treatise of Money. In the Treatise, he argued that unemployment would rise if total savings exceeded investment.
He was a strong critic of his government’s austerity measures during the 1930s. He believed that during recessions, budget deficits were a good and necessary thing.
“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 to present one, so great as to bring production altogether to a standstill.”
- 1933: He published ‘The Means to Prosperity.’ This work contained policy recommendations for combating unemployment during a global recession. Put simply; he proposed counter-cyclical public spending.
The British and American governments took his work seriously. In fact, their interest helped Keynesian ideas spread across the world. However, it was not until later that the interest translated into concrete policies in the two countries.
Germany adopted his ideas, and its economy responded well. However, Keynes was horrified by the country’s imperialist ambitions and its shocking treatment of Jews. Consequently, he remained deliberately silent regarding Germany’s economic growth.
- 1939: according to economic historians, Keynesian Economics only began to have a significant influence on US economic policy after 1939.
Video – John Maynard Keynes
In this Econ Stories video, Keynes’ biographer, Robert Skidelsky, talks about the most famous economist of the 20th century.
He discusses Keynesian Economics and whether government deficit spending can replace private activity in order to maintain full employment.