2. John Maynard Keynes
(1883-1946)
• John Maynard Keynes was probably
the most influential economist of the
first half of the twentieth century.
• The son of a professor of economics,
John Neville Keynes, and destined by
family connection to be influential in
the narrow British university world.
3. Life of John Maynard Keynes
1883: Born to John Neville Keynes, economics lecturer at
Cambridge, and Florence Ada Keynes.
1897-1902: Studied at Eton, excelling in math, but also
writing and debate.
1902-1905: Undergrad at King’s College, Cambridge, first
class in math; read Marshall’s Principles and studied with
Marshall.
1906: Takes Civil Service exams, tops in political science,
logic, philosophy, essay; worst scores in math and econ.
1906-1907: Civil Service position, London India Office.
Revenue, Statistics, and Commerce Dept; studied probability
theory on the side.
1908-1909: Completed dissertation on probability theory at
Cambridge, elected fellow of King’s Colllege, lectured on
money, credit and prices.
4. Life of John Maynard Keynes
1911: Appointed editor of the Economics Journal.
1913: Published Indian Currency and Finance, joins
Royal Commission on Indian Finance and Currency.
1915: Joined Treasury to advise Lloyd George on war
finance, moved up quickly and designed system of war
loans.
1917-18: Took authority at Treasury for inter-allied
economic effort, made estimates of German capacity for
reparations payments; left Treasury to return to
Cambridge to lecture and write.
1919: Published The Economic Consequences of the
Peace, a sharp indictment of the excessive reparations
imposed on Germany by the Versailles Treaty.
1921: Published Treatise on Probability.
5. Life of John Maynard Keynes
1922: Published A Revision of the Treaty, again arguing for
reduction in German reparations; published lengthy
supplements on Europe’s economies in the Manchester
Guardian arguing for currency devaluations.
1923: Published A Tract on Monetary Reform, calling for
end to the Gold Standard.
1924: Published Does Unemployment Need a Drastic
Remedy? in the Nation, proposing large government outlays
on housing, roads, and electric power to stimulate the
economy.
1924: Delivered Ball Foundation Lecture at Cambridge,
titled it The End of Laissez-Faire.
1925: Married Lydia Lopokova, Russian ballerina.
1929: Joined government’s Macmillan Committee of Enquiry
into Finance and Industry.
6. Life of John Maynard Keynes
1930: Joined the Economic Advisory Council to evaluate
economic policy; wrote in the Nation, “We are now in the
depths of a very severe international slump which will take
its place in history amongst the most acute ever
experienced. It will require not merely passive movements
of bank rates to lift us out of a depression of this order, but a
very active and determined policy.”
1930: Published A Treatise on Money, arguing that the
correct action in economic depression is to encourage
spending and discourage saving, contrary to conventional
wisdom.
1931: Visited the US Federal Reserve and President
Hoover.
1931: Finally won long-running argument with British
Government to abandon Gold Standard and devalue
sterling.
7. Life of John Maynard Keynes
1934: Published an open letter to President Roosevelt in NY
Times warning (1) to focus on economic recovery not
economic reform (set aside NRA) and (2) avoid “cracked-
brained” advice about how to stimulate recovery.
1936: Published The General Theory of Employment,
Interest, and Money.
1939: Turned down offer to be member of Parliament for
Cambridge University to remain free to take his own stances
on issues.
1940: Published How to Pay for the War, proposing low
interest rates, compulsory savings (deferred pay) to prevent
inflation (like that in WWI); moved to the Treasury as an
adviser.
1941: Made first of several important visits to America to
negotiate on Britain’s behalf, including Lend-Lease.
8. Life of John Maynard Keynes
1942-44: Made proposals and engaged in discussions
about what later become the IMF, World Bank, and Breton
Woods international currency arrangements.
1942: Awarded peerage, taking seat in the House of
Lords.
1943: Met Harry Dexter White, Chief International
Economist at the U.S. Treasury, with whom he crossed
swords on plans for post-war economic arrangements.
1944: Central figure at the Bretton Woods conference.
1946: NYTimes obituary: “To find an economist of
comparable influence, one would have to go back to Adam
Smith.”
9. The Gold Standard
Keynes had completed his A Treatise on
Probability before the war, but published it in
1921.The work was a notable contribution to the
philosophical and mathematical underpinnings
of probability theory, championing the important
view that probabilities were no more or less
than truth values intermediate between simple
truth and falsity. It was an attempt to put
probability on a firm mathematical basis.
10. During the Great Depression
The Great Depression with its periods of worldwide
economic hardship formed the backdrop against which
the Keynesian Revolution took place.
Keynes had begun a theoretical work to examine the
relationship between unemployment, money and prices
back in the 1920s. The work, Treatise on Money, was
published in 1930 in two volumes. A central idea of the
work was that if the amount of money being saved
exceeds the amount being invested – which can happen if
interest rates are too high – then unemployment will rise.
This is in part a result of people not wanting to spend too
high a proportion of what employers pay out, making it
difficult, in aggregate, for employers to make a profit.
11. Second World War
Keynes (right) and the US
representative Harry Dexter
White at the inaugural
meeting of the International
Monetary Fund's Board of
Governors in Savannah,
Georgia in 1946
During the Second World War, Keynes argued
in How to Pay for the War, published in 1940, that
the war effort should be largely financed by higher
taxation and especially by compulsory saving
(essentially workers lending money to the
government), rather than deficit spending, in order to
avoid inflation. Compulsory saving would act to
dampen domestic demand, assist in channelling
additional output towards the war efforts, would be
fairer than punitive taxation and would have the
advantage of helping to avoid a post war slump by
boosting demand once workers were allowed to
withdraw their savings.
12. General Theory
The General Theory, as it is known, also founded
modern macroeconomics, and virtually all of the
work in that field emerges from Keynes' work, if not
positively as extensions and adaptations then
negatively as criticism or the extension of criticism
of it.
The General Theory, as it is known, also founded
modern macroeconomics, and virtually all of the
work in that field emerges from Keynes' work, if not
positively as extensions and adaptations then
negatively as criticism or the extension of criticism
of it.
14. Fiscal Policy
• A significant contribution of Keynes is clearly that an
economy can be at equilibrium while not at full
employment.
• Since we can not legislate increase autonomous
Consumption or autonomous Investment then the
only alternative is Government expenditures.
• He was not particular either of the type of
expenditure the government did
– For instance,
• He has the example of hiring individuals one
day to dig a hole and place bottles in that hole.
• The next day hire same or other individuals to
dig and bottles out.
• The next day bury them again, etc.
