John Maynard Keynes (1883–1946)
John Maynard Keynes was born in Cambridge, the son of a university don whose wife, Florence, was a writer and social activist who went on to serve as Mayor of Cambridge at the age of seventy. Keynes was educated at Eton, where he showed a mastery of a variety of subjects, then at King’s College, Cambridge. Initially his interest lay in mathematics and classics, but his interest in current affairs led him to economics, in which he graduated in 1905. His intellectual brilliance and social polish ensured his election to the elite group known as the “Cambridge Apostles”; other members, such as the writer Lytton Strachey, would remain his close friends for many years. In later years this circle of friends became famous (or notorious) as the Bloomsbury Group, after the area of London in which most of them lived.
In 1908 Keynes became a lecturer in economics at Cambridge, and in the following year he was awarded a fellowship by King’s College. But he was anxious to make a mark outside academia. He became a member of a Royal Commission on Indian Currency and finance, and an adviser to the Chancellor of the Exchequer. During the First World War, he continued to work for the British Treasury, which he represented during the negotiations which led to the Versailles peace treaty. He strongly opposed the economic terms of the treaty, which were ruinous to Germany. These views were published in a hastily-written book, The Economic Consequences of the Peace (1919). Subsequent events fully vindicated the stand that Keynes had taken.
Having left the Treasury Keynes returned to Cambridge and wrote several influential academic books, such as a Treatise on Probabilty (1921) and a two-volume Treatise on Money (1930). He also used his economic knowledge to speculate on the stock exchange; although he incurred considerable losses as a result of the 1929 Wall Street Crash, his ventures into this field netted him a private fortune. Although Keynes had several male lovers as a young man, in 1925 he married a noted Russian ballerina, Lydia Lokopova.
For many years Keynes worked out the ideas which would appear in his major book, The General Theory of Employment, Interest and Money (1936). By this time, although his views still aroused controversy within the economics profession, his international reputation was high and rising. During the Second World War the British government again required his services. He advised them to finance the war effort by raising taxes rather than borrowing. In 1944 his views inspired a government White Paper on employment policy, which contained a commitment to the maintenance of a “high and stable” level of employment in future. This became a key platform of the “post-war consensus” in Britain. Thus, along with his fellow Liberal William Beveridge, Keynes contrived to exert a profound influence over the policies of the two main parties, at least until the 1970s.
Yet Keynes’s role was not confined to the political economy of his own country. In 1944 he played a key role in negotiating the Bretton Woods agreement, which dominated international monetary policy for the next thirty years and led to the establishment of the International Monetary Fund (IMF) and the World Bank. In 1945 he led the British delegation which secured a loan from the Americans for post-war reconstruction. The loan was agreed on terms that caused severe economic hardship in Britain, but it is doubtful whether anyone could have done the job better than Keynes.
Despite his numerous commitments, which included acting as Bursar for King’s College, Keynes also found time to expand his cultural activities. In 1946 he became the first Chairman of the Arts Council of Great Britain. However, his health had been poor for many years, and he died of a heart attack in the same year.
Although Keynes’s reputation has fluctuated since his death, few would deny that his General Theory is one of the greatest and most influential books ever written on the subject of economics. Understandably, Keynes’s thinking in the book was strongly influenced by the economic depression that affected the developed world after the Wall Street Crash of 1929. Stated simply, Keynes blamed the crisis on insufficient demand, caused by “orthodox” economic thinking about the virtues of the free market (see page 38 for discussion). Keynes argued for a much more intrusive and creative role for the state, which should adjust demand within the economy in order to ensure (relative) stability across economic cycles that otherwise would be a series of “booms” and “busts.” One of Keynes’s key insights was the tendency for increased demand to have a “multiplying” effect, so that government intervention (say) in job-creation would promote new opportunities for work in industries that depended upon consumer spending.
During his lifetime, Keynes was criticized for views which, some argued, would lead to the downfall of capitalism and the emergence of totalitarian regimes. These prophecies were ill-founded, and Keynes’s critics were forced back onto the argument that any government that advocated high levels of state expenditure must be inherently “socialist.” They overlooked the fact that F.D Roosevelt (US President, 1933–45) had implemented an ambitious programme of job-creation to combat the Depression of the early 1930s; he had subsequently led his country into a war to defend freedom. Keynes, like Roosevelt, believed that state intervention in the economy was necessary to prop up the inherently unstable capitalist system, which both men regarded as a guarantor of liberty (see page 409 for discussion).
Keynes’s critics did have a point in that economic weapons that might be beneficial in the hands of freedom-lovers could also be used by less scrupulous politicians. In Britain after Keynes’s death, governments of both major parties exploited his ideas in order to manipulate the economy for political purposes (by trying to ensure that demand was at its highest around the time of general elections, and thus maximizing their chances of being re-elected). Yet this practice can hardly be blamed on Keynes himself; indeed, it was also used by the governments of Margaret Thatcher who was a staunch opponent of his views. A more pertinent criticism is that Keynes proved to be an unreliable guide during periods when inflation, rather than high unemployment, was the chief economic threat. His followers believed that there was always a “trade-off” between inflation and unemployment, so that (for example) high inflation could be curbed by measures that led to an increase in unemployment. In the turbulent 1970s this assumption proved to be mistaken, which led to a loss of faith in Keynes’s work even among his admirers. However, had Keynes been alive at the time there is every reason to suppose that he could have adapted his theory in order to accommodate those troubling developments.
Robert Skidelsky, John Maynard Keynes: Economist, Philosopher, Statesman, Penguin, 2005.