John Maynard Keynes

British economist

• Born: June 5, 1883
• Birthplace: Cambridge, England
• Died: April 21, 1946
• Place of death: Firle, Sussex, England

Keynes’s seminal work, The General Theory of Employment, Interest, and Money, created a school that dominated economic thought in the mid-twentieth century and continues to exercise a potent influence. Concern for world economic health, however, made him equally important in the arena of public affairs from World War I to the creation of the International Monetary Fund and World Bank after World War II.

Early Life

John Maynard Keynes (kaynz) was born in Cambridge, England. His mother, Florence Ada Brown, came from a family of Scots whose relatives included the poet Robert Burns. His father, John Neville Keynes, a Pembroke Fellow lecturing in logic and political economy at Cambridge, traced his lineage to land grants in Cambridgeshire from the time of William the Conqueror (1066). John Maynard was the first child; a sister, Margaret, and brother, Geoffrey, completed the family by 1887.

His quick mind showed at age three, when Keynes mastered the alphabet. Before age nine, he was enrolled in a day school where he impressed few except in mathematics and vocabulary. By age eleven, however, he was first in his class. Although his family was constantly concerned about his health, Keynes participated in various physical activities, including daring bicycle riding (which resulted in a finger injury over which he was self-conscious throughout his life). In 1897, to the delight of his parents, Keynes won a scholarship to Eton with a first in mathematics. Following his graduation from Eton, Keynes entered King’s College, Cambridge, in October, 1902, and completed his exams in June, 1906. He then worked on currency and finance in the India Office until returning to Cambridge as a lecturer in economics in 1909. He was awarded a fellowship in 1910, which he retained until his death. A Cambridge undergraduate, Charles R. Fay, was impressed by Keynes’s appearance his mustache and striking waistcoat the day they met. Keynes’s penchant for fancy dress was evident even at Eton, where he acquired a purple coat and regularly wore a lapel flower. The mustache was a trademark until his death. In August, 1925, Keynes married Lydia Lopokova (1891-1981), a Russian ballerina, who helped ease the pain of his illnesses and the stress of his multifaceted persona and career.

Life’s Work

In October, 1911, Keynes became the editor of the Economic Journal, a position that he would hold for thirty-three years and one that permitted him to support the work of numerous young economists. His first major published work was Indian Currency and Finance (1913). This work resulted from his experience in the India Office during his brief absence from Cambridge from 1906 to 1909.

The path to international fame began in early August, 1914, when Keynes was consulted about the gold standard three days before British entry into World War I. Both David Lloyd George, Chancellor of the Exchequer, and H. H. Asquith, the prime minister, utilized Keynes’s ideas in setting national fiscal policy during the war. In 1915, Keynes was hired by the Exchequer to join its finance team. In that role, he consulted and negotiated with Great Britain’s allies on matters of loans, currency, and economic planning during the war and made his first trip to the United States. For his efforts, Keynes was made a Commander of the Bath (K.C.B.) in 1919. He also acquired his permanent London residence, located in Bloomsbury, at 46 Gordon Square.

The British Treasury named Keynes its chief representative to the Versailles Treaty negotiations in 1919. He was not part of the reparations commission, although he did negotiate food for Austria and Germany in exchange for merchant ships and gold. The rejection of his proposal for an international fund for rebuilding, rather than punitive reparations, led to his resignation in June. In early December, he published The Economic Consequences of the Peace (1919). The book criticized the self-defeating economic policies of the Versailles treaty such as the reparations payments demanded of Germany and other Central Powers and restrictions on merchant fleets. Keynes predicted that other countries would not permit the Germans, for example, to sell the products of their industry without tariff restrictions. Therefore, the money to pay reparations would not be readily available. The Economic Consequences of the Peace was an instant, worldwide success. Within a short time, it was translated into German, French, Flemish, Danish, Italian, Romanian, Russian, and Japanese, among other languages, and sold more than 140,000 copies by 1924.

In 1923, Keynes was nominated for a Nobel Peace Prize as a result of his efforts in the area of peaceful international economic cooperation. Such activities included advising Carl Melchior, German finance director, on monetary policies, and British and German officials on inflation; reporting on the Genoa economic conference for The Manchester Guardian (1922); and publishing a sequel book on Versailles, A Revision of the Treaty (1922), and A Tract on Monetary Reform (1923), in which he argued for managed currencies.

His two-volume A Treatise on Money , the most scholarly of Keynes’s writing, was published late in 1930. The seven books into which he divided the treatise are filled with insights, but the whole is nearly impossible to comprehend. It nevertheless contains hints of the ideas that later came to encompass Keynesian economics. In the treatise, he noted the effect of the Depression on investments: Lost profitability caused money to be saved, not invested. He thus proceeded to seek a more general economic theory.

After six years of drafting, seeking the advice and criticism of others, and revising his ideas, Keynes published The General Theory of Employment, Interest, and Money (1936). This work effectively destroyed the classical capitalist idea that economies automatically function optimally by arguing that unequal income distribution in a period of growth produces more saving and less investment, which then result in underconsumption and unemployment. The solution, for Keynes, was to have government use its taxing and spending powers to manage the level of investment and savings for the purpose of maintaining full employment and a stable economy.

Although a heart attack in 1937 affected his health, Keynes hardly reduced his activities. He engaged in extensive debate over his theory, wrote and spoke to general audiences on the Depression, and began focusing on war financing, publishing How to Pay for the War in 1940. This pamphlet had first appeared as a series of articles in The Times. Keynes recommended tax increases to discourage consumer buying when a nation is at war. He also argued for deferred income for workers to provide for postwar buying demands. He also urged low interest rates as a means of stimulating industrial investment in war production. Ultimately, Great Britain used these fiscal tools to help pay for the costs of World War II, and it can be said that they were Keynes’s most significant contribution to national policy. Throughout the war years, Keynes was an unpaid counselor to the British Exchequer as well as the most influential spokesperson for economic issues. He had access to Prime Minister Winston Churchill through the leader’s advisers and through his writings, especially in the Economic Journal, which often became position papers for official policies on trade, rationing, social surveys, allied loans, currency exchange, and finance.

Even in his sixties, enfeebled by recurrent illnesses, Keynes continued to pursue many activities. By 1944, he was involved with efforts to plan for economic cooperation after the war. He believed that the best approach would be through multilateral trade and exchange programs. He represented Great Britain at the Bretton Woods Conference, in New Hampshire, in 1944. Keynes dominated the representatives of the forty-four nations participating. His prescription for healthy international trade was a managed international monetary system, including stable currency exchange rates. In March, 1946, at Savannah, Georgia, Keynes served as the British delegate at the creation of the International Monetary Fund and World Bank. Afterward, he was to be the British member of the board of each organization, although he was prevented from serving by his death in April, 1946. His final public contribution was steering the loan repayment agreement with the United States through Parliament.

Keynes was not only an economist, writer, and policy adviser but also a book and art collector, magazine owner (Nation and Athenaeum), principal backer of the Cambridge Arts Theatre, investor/investment adviser, insurance company board member, Cambridge University investment portfolio manager, biographer, generous financial backer of friends, recipient of numerous honorary degrees, a member of the House of Lords as of 1942, and, days before his death, a Fellow of the Royal Society.

Significance

One whose mature life spanned the first half of the twentieth century, Keynes was involved in many significant events and developments, with numerous persons. He was a part of the Bloomsbury Group, which included Lytton Strachey (critic and biographer), writers Leonard Woolf and Virginia Woolf, and artist Duncan Grant. His university colleague mentors included economist Alfred Marshall, philosopher Alfred North Whitehead, and mathematician and philosopher Bertrand Russell. At Versailles, he worked with such Americans as John Foster Dulles, Walter Lippmann, and Felix Frankfurter, as well as South Africans Jan Christian Smuts and Louis Botha. Keynes personally advised (on Depression and wartime finances) three U.S. presidents, four British prime ministers, and several other heads of state. He was involved in World War I, the Versailles Settlement, the Great Depression, World War II, and the post-1945 arrangements as a financial expert. His ideas dramatically altered economic thought, and because he advocated government activism as a principle, he brought political decisions into both alliance and opposition with economists. Within economics, however, The General Theory of Employment, Interest, and Money led to specialized studies and models that in turn led to the public perception of mass confusion among the “experts.”

Bibliography

Backhouse, Roger E., and Bradley W. Bateman, eds. The Cambridge Companion to Keynes. New York: Cambridge University Press, 2006. Collection of essays providing an overview of Keynes’s life and work and other topics, including an explanation of the Keynesian economic revolution, his participation in the Bloomsbury Group, and his ideas on probability, ethics, and politics.

Drucker, Peter F. “Schumpeter and Keynes.” Forbes, May 23, 1983. Drucker, a respected management scholar, was asked by the editors to write this essay on the one hundredth anniversary of the birth of the two great economists. His analysis is that Keynes was too short-term-oriented in his thinking while Schumpeter understood long-term effects. Drucker contends that, while the latter was a more pedestrian economist, his wisdom was greater.

Hession, Charles H. John Maynard Keynes: A Personal Biography of the Man Who Revolutionized Capitalism and the Way We Live. New York: Macmillan, 1984. A revealing, readable account that seeks to explain the man through insights borrowed from many disciplines, such as the psychology of homosexuality. Also, places Keynes’s accomplishments in the broader context of historical development and ideas in the realm of execution.

Hoover, Kenneth R. Economics as Ideology: Keynes, Laski, Hayek, and the Creation of Contemporary Politics. Lanham, Md.: Rowman & Littlefield, 2003. Examines the lives and thoughts of Keynes and two other influential economists who espoused different political views to determine how they developed their ideas and how those ideas influenced contemporary politics.

Keynes, John Maynard. Essays in Biography. 1933. Reprint. New York: W. W. Norton, 1963. A collection of fifteen sketches beginning with Keynes’s immediate analysis of the four major participants at Versailles. There is an essay on David Lloyd George, written in 1919 but omitted from The Economic Consequences of the Peace (1919), in which Woodrow Wilson and Georges Clemenceau were critically sketched.

Keynes, Milo, ed. Essays on John Maynard Keynes. New York: Cambridge University Press, 1975. Twenty-eight essays by distinguished acquaintances. The first eight deal with personal subjects; part 2 contains ten accounts of Keynes’s economic ideas and influence. The last ten essays deal with Keynes’s contributions in areas such as art, education, philosophy, international negotiations, and biography.

Lekachman, Robert. “A Keynes for All Seasons.” New Republic, June 20, 1983. Lekachman, author of The Age of Keynes (1966), presents a review of Keynes’s ideas and their application since the 1930’s. Although Keynesianism was downgraded after the OPEC oil increases in 1973, the solutions offered by supply-siders and monetarists are seen to have produced other dilemmas or to have worked only as subliminal Keynesianism.

Schumpeter, Joseph A. Ten Great Economists, from Marx to Keynes. New York: Oxford University Press, 1965. Author of the highly respected A History of Economic Analysis (1954), Schumpeter attempts a portrait of both the man and the economic theorist. He notes that Keynes was skilled in mathematics yet shunned mathematical (scientific) economics, was politically interested in applying his measures, and devised a theory that rested on simplified short-run phenomena.

Skidelsky, Robert. “The Economist as Prince: J. M. Keynes.” History Today 33 (July, 1983): 11-20. Poses the issue of Keynes as creator of twentieth century economic policies that produced great prosperity yet seemingly brought the kernel of destruction: inflation. A personality sketch underscores Keynes’s unwavering belief in individualism, his opposition to authoritarianism (Marxist economics), and his presumed willingness to accept a new general theory if faced with post-1970 problems.

‗‗‗‗‗‗‗. John Maynard Keynes, 1883-1946: Economist, Philosopher, Statesman. New York: Penguin Books, 2005. Skidelsky has taken his definitive three-volume biography of Keynes and revised it to create this one-volume biography of one-thousand-plus-pages.