John Maynard Keynes

John Maynard Keynes was a British economist whose ideas fundamentally changed the theory and practice of macroeconomics. He argued that aggregate demand determines the level of output and employment, and he advocated government intervention to manage the economy.

Early Life and Education

Keynes was born in 1883 in Cambridge, the son of the economist John Neville Keynes. He was educated at Eton and at King's College, Cambridge, where he studied mathematics and economics.

He was a member of the Bloomsbury Group and formed close friendships with the writers and artists of the circle. He worked in the India Office and lectured on economics at Cambridge.

He served as a treasury adviser during the First World War and took part in the Paris peace conference. He resigned in protest at the terms of the treaty.

The Economic Consequences of the Peace

His book The Economic Consequences of the Peace, published in 1919, criticised the reparations imposed on Germany. He argued that the terms were unsustainable and would lead to economic and political disaster.

The book was a bestseller and established his reputation as a public economist. The argument was vindicated by the events of the following decades.

He returned to Cambridge and combined academic work with journalism and with speculation in the financial markets. He made and lost several fortunes.

The General Theory

The General Theory of Employment, Interest and Money, published in 1936, is his most important work. It challenged the classical view that the economy tends automatically to full employment.

Keynes argued that the level of employment is determined by aggregate demand and that it can settle at an equilibrium below full employment. He introduced the concept of the liquidity trap and the analysis of the multiplier.

He argued that governments should use fiscal and monetary policy to manage demand and to maintain high levels of employment. The book is the foundation of modern macroeconomics.

Wartime and the International Order

Keynes played a central role in the financing of the Second World War. He negotiated with the United States over the terms of Lend-Lease and of the post-war monetary system.

He led the British delegation at the Bretton Woods conference in 1944 and was a principal architect of the International Monetary Fund and of the World Bank. He opposed the dominance of the dollar in the proposed system.

He was created a baron in 1942 and took the title Baron Keynes of Tilton. He died in 1946.

Legacy

Keynes is regarded as the most influential economist of the twentieth century. The Keynesian approach dominated economic policy in the decades after the war.

His ideas were challenged by the monetarists and by the new classical economists in the 1970s and 1980s. The financial crisis of 2008 led to a revival of interest in his work.

His writings on probability, on uncertainty, and on economic method are also influential. He is remembered for his intellect and for his role in the public affairs of his time.

The Treatise on Probability

Keynes's first major work was a Treatise on Probability, published in 1921. It developed a theory of probability as a logical relation between propositions.

He argued that probability is a matter of degree of rational belief and that it is not always measurable. The theory influenced the study of uncertainty in economics.

He distinguished the probability of an event from the weight of the evidence. The distinction was later developed in the analysis of decision-making under uncertainty.

The Economic Consequences of the Peace

The book was written after Keynes resigned from the British delegation at the Paris peace conference. It predicted that the reparations would ruin the German economy.

The book described the peace as a Carthaginian peace and portrayed Woodrow Wilson as a naive idealist. It was a bestseller and made Keynes famous.

The argument contributed to the revision of the reparations and to the reconsideration of the settlement. Keynes became a leading critic of the Versailles treaty.

The General Theory and Its Reception

The General Theory was published in 1936 and transformed macroeconomics. It introduced the analysis of aggregate demand and the concept of the equilibrium level of employment.

Keynes argued that the classical theory applied only to a special case, that of full employment. The general theory was designed to cover the case of underemployment.

The book was widely discussed and was soon incorporated into the teaching of economics. The Keynesian system dominated policy and theory for decades.

Practical Economics

Keynes was an active investor and a member of the board of the National Mutual Life Assurance Society. He managed the endowment of King's College, Cambridge.

He was a director of the Bank of England and an adviser to the government. He held positions in the arts, including the chairmanship of the Arts Council.

He combined the life of the scholar with that of the man of affairs. He reported on his investment results in the college accounts.

The Bloomsbury Circle

Keynes was a member of the Bloomsbury Group and married the ballerina Lydia Lopokova. He was a patron of the arts and of the theatre.

His circle included Virginia Woolf, Vanessa Bell, and Lytton Strachey. The group influenced his cultural outlook and his social attitudes.

He is remembered as a man of wide interests and of exceptional intelligence. His essays on biography and on economics are also admired.

See also

• Keynesian economics
• Macroeconomics