John Maynard Keynes
John Maynard Kеynеs is dеfinitеly onе thе most significant figurеs in thе history of modеrn еconomics. Thе son of thе Cambridgе еconomist and logician John Nеvillе Kеynеs, John Maynard Kеynеs was born in Cambridgе, Еngland on Junе 5, 1883. Kеynеs was еducatеd in Britain’s most еlitе institutions, Еton and thеn King’s Collеgе Cambridgе. In 1906, hе еntеrеd thе British civil sеrvicе for a littlе whilе and workеd in thе Indian Trеasury as a junior clеrk. Howеvеr, unsatisfiеd with thе work hе rеturnеd in 1908 to tеach еconomics in Cambridgе.
In India hе lеarnеd thе dеmands of govеrnmеnt sеrvicе. In 1911 hе bеcamе thе еditor of thе Еconomic Journal, a position hе would hold almost until thе еnd of his lifе. During this timе Kеynеs wrotе his first еconomic book first book on Indian currеncy which was dirеctly rеlatеd to his еxpеriеncе at thе India officе. From 1914 to 1918, Kеynеs was callеd to thе UK Trеasury to aid with thе financing of thе British war еconomy. Hе еxcеllеd at his job and thе authority hе gainеd еarnеd him a position with thе British dеlеgation to thе Vеrsaillеs Pеacе Confеrеncе in 1918.
Kеynеs was dismayеd at thе unfair naturе of thе pеacе sеttlеmеnt, and was particularly opposеd to thе ovеrwhеlming consеquеncеs of thе hеavy “rеparations” paymеnts forcеd on Gеrmany. In 1919 hе rеsignеd from the conference and in respond to the treaty he published his Economic Consequences of the Peace disapproving the Treaty of Versailles After returning to Cambridge in 1921, Keynes published his Treatise on Probability, where he took apart the classical theory of probability and started what now known as the “logical-relationist” theory of probability.
Throughout the 1920s, Keynes remained active in public policy debates, guided mainly through his many articles in the Nation and Atheneum. He also wrote two famous pieces in condemnation of laissez-faire economic policy. In 1925 he married the Russian ballerina, Lydia Lopokova. In early 1936, his new book, The General Theory of Employment, Interest and Money finally came out.
This heavily anticipated book was favorably timed for a world caught in the grips of the Great Depression. The novel made a great impact in both academic and political societies. With a history of heart attacks Keynes died on April 21, 1946. In The General Theory of Employment, Interest and Money, Keynes sought to develop a theory that could explain the resolve of aggregate output – and as a consequence, employment. He posited that the determining factor to be aggregate demand.
Keynes created the concept of a demand-determined equilibrium wherein unemployment is possible, the ineffectiveness of price flexibility to cure unemployment, a theory of money based on “liquidity preference”, the introduction of radical uncertainty and expectations, the marginal efficiency of investment schedule, the possibility of using government fiscal and monetary policy to help eliminate recessions and control economic booms. This caused the so-called Keynesian Revolution, which split the economics world in two generations: the young who supported Keynes and the old who condemned his theories.
John Maynard Keynes responded to most critics in a series of 1937 articles, which helped him to expand upon some key aspects of his theory. John Maynard Keynes was a highly educated man. However, much of his economic theories are representations of his real world experiences. Keynes was the author of many nationally acclaimed novels and articles. However, among the many very controversial two are still remembered today. One of which is Economic Consequences of the Peace. This was written in response to the Treaty of Versailles.
Keynes believed that the conditions of the treaty were to stern on the German economy. He felt that the German economy would never be able to pay the reparations with such a stern treaty. He felt that this would leave the German economy broken. This theory was later proven true when World War II broke out almost 20 years later. The second and most controversial work was The General Theory of Employment, Interest and Money. This gave birth to Keynesian economics. In this Keynes argues that laissez faire economics would not solve such problems as the Great Depression.
Keynes believed that the government should play a bigger role in helping smoothen out the bumps in the business cycle. He did not believe the government should have total control of business and industry. He believed that the government should only help so that people stay employed. He felt Government’s needed to spend tax money to stimulate the economy. If governments spent money on public works it would help purchasing power. He believed that this government aid would stabilize a capitalist marketplace and the created employment would make up for the deficit.
Development of Keynes ideas after the First World War on Money is very important. This is because he realises that individuals use reason and it is not an automatic response. Classical Economists always use to refer to what individuals do with this money but however Keynes puts the importance on the moral guidance which underlies the individual decision. It is important how individuals use their money because through that it may bring Economic changes. If they all spend then this may mean an Economic condition of Inflation may be apparent, however if they do not spend the possible result may be Deflation.
Deflation is the results of not enough demand hence the prices decreases. Through the development of Keynes’s ideas after the First World War he believes that when this situation exists, the government should invest in creating jobs and lower the taxes, this will encourage the people to spend and hopefully take this situation away. This is similar to the case Winston Churchill was in 1925. He fixed the sterling rate in proportion to gold at a high rate, this meant that the British exports were too expensive and the imports were cheaper.
The consequence of this was Deflation, and as Keynes advises Churchill to lower the rate and invest in the Economy to stimulate demand. So therefore the War had an impact on Keynes ideas towards the inflation, money, and deflation. He gives solutions to inflation and deflation and believes that both of these are evil and can destroy society. On the issue of Money he tells us how individuals decide to use their money, it is not an automatic response. For Capitalism to survive for Keynes the state needed to implement Liberal beliefs. He believed that the State should provide social justice for all.
He did not call for specific Liberal policies, but the impact of the War made him believe that there should be this general framework to protect individuals liberty. However his idea on liberalism seems quite conservative this is because he believed in strong elite control of the state. This is how he believed Capitalism can prosper. However his personal life was very radical and very liberal, he was part of the Bloomsbury group and from this group he discovered a new religion. He was attracted to the notion that only the states of mind are what matters, it brings intensity and passion in oneself.
Therefore to conclude, the impact of the First World War had a deep impact on the development of Keynes’s ideas. This is because the First World War had devastating results especially in Europe. Resources were destroyed as well as the land hence to produce the livestock for the people to survive was very difficult. Also a lot of the wealth had been wasted in financing the War, all countries which were directly affected had to borrow large amounts, mainly from America, hence after the War these countries had very little finance to support their Economies.
This is where Keynes ideas developed and he believed that the European countries need to help each other and rely on the generosity of the American Loan. His idea also developed to believe that it was not a good idea for Germany to pay such a large amount of Reparations because it simply could not pay and this will have a knock on affect on the other countries. He believed that it would be better for Europe to help Germany rebuild its Economy. The impact of the War also strengthened his morality and believed that it was not right for the German people to suffer.
Also his ideas developed to view the Economies in a global sense he believed that if the Allies pay their debt to America it would destroy the World Economy. Even though this seems biased to me on the side of the European family, this argument does have logic to what Keynes is purposing. Hence his ideas further developed after the War on Money, inflation, and also deflation. He believes that governments should be strong and not allow their Economies to face these situations. He puts the central focus on Money and the psychological forces behind it.
Also his ideas on Liberalism developed, in his belief that the state should provide Liberal protection, however controlled fully by the elite’s. Many doubted his ideas and this created major controversy. However, when Roosevelt was out of all other ideas and implemented Keynesian economics the economy improved. Keynesian economics has effected the post-Depression era and has changed the world economy foreve.
Bibliography: 1. Escoffier, Jeffrey. John Maynard Keynes. New York: Chelsea House, 1995. 2. Skidelsky, Robert. John Maynard Keynes: The Economist as Savior. New York: Viking, 1995.Sample Essay of PapersOwl.com