The Man Behind the Graphs: A Profile
of John Keynes
by Travis Tatko
At a time of unparalleled political unrest and economic insecurity,
John Keynes challenged the prevailing and time-honored economic theory
of laissez-faire, a tradition led by the virtual demigods of economic theory—Adam
Smith and John Stuart Mill. As Keynes uttered in the now-famous words,
“The difficulty lies not so much in developing new ideas as in escaping
from old ones,” Keynes perpetuated both his own fame and notoriety, ensuring
his enduring status as perhaps the most controversial figure in modern
economic thought.
|
John Keynes was born in Cambridge, England in 1883 to a family of noteworthy
intellectuals. Keynes followed in his parent’s footsteps and went into
academia, attending Eton College and Cambridge University. Keynes subsequently
found a niche within an elite clique of liberal thinkers and artists known
as the Bloomsbury Group—a free-spirited circle that included the likes
of Virginia Woolf, Lytton Strachey, and E.M. Forster. After spending a
couple of relatively unhappy years employed in the India office of the
Civil Service and as a teacher of Economics at Cambridge, Keynes took a
position in the British Treasury during World War I. Frustrated by the
economic absurdity of the Treaty of Versailles, Keynes wrote The |
Economic Consequences of the Peace (1919), an unabashed condemnation of
the heavy reparations levied against Germany in which he forecasted an
inevitable backlash of German nationalism.
Keynes continued to examine the practical concerns of the post-war economy
throughout the 1920s, writing Treatise on Probability (1921) and A Treatise
on Money (1930). While these works introduced an examination of the “boom
and bust” cycles, Keynes’s chef d’oeuvre, the 1936 The General Theory of
Employment, Interest and Money, would prove to become the virtual New Testament
of modern macroeconomic theory. The Classical economic commandment—a recession
will inevitably self-correct—was challenge by a new tenet: a recession
is not a natural function of the market that needed to be allowed to run
its course, but rather can be prevented or fought by prudent governmental
intervention. Keynes did not merely pronounce the end of laissez-faire;
he proposed that man could still his own sea, metaphorically speaking,
by effectually counterbalancing the disparity of demand and thereby controlling
unemployment and investment. Whereas consumer demand capriciously fluctuates,
Keynes insisted that the government must implement demand management policies
compensating for the fickleness of the market. When times are poor, Keynes
suggested that the government must boost aggregate demand with increased
spending or reduced taxes, and that it was tolerable for a government to
run a budget deficit in such circumstances; when the good times roll again,
the government could then trim spending and pay off its earlier debts.
Keynes’s theory, encapsulated in his words, “In the long run, we are
all dead,” did not remain a theoretical proposition; those of political
authority seeking to abandon all remnants of laissez-faire now had the
backing of intellectual credibility. Subsequently, with the notable examples
of FDR’s unprecedented “New Deal” and the Employment Act of 1946, Keynesian
policies transformed the post-WWII economies of the western world. In addition,
while Keynes suffered a heart attack shortly after writing The General
Theory, an ailment from which he would never fully recover, he virtually
single-handedly conceived and formalized the construction of the IMF at
the Bretton Woods Conference of 1942.
While it has been fifty-five years since Keynes’s death in 1946, the battle
between those accepting Keynes as the messiah of modern macroeconomic theory
and the self-proclaimed anti-Keynesians—not excluding the subsequent schisms
within each of these camps—rages on to this day. As time passed and Keynes’s
theory was applied to the world economy, schisms arose between the disciples
of Keynes. The Neo-Keynesians, seeking to reconcile neo-classical theory
with the general premises of Keynes’s conclusions, subsequently devised
the IS-LM Model and the Phillips Curve to explain aggregate demand and
aggregate supply, respectively. A second Keynesian-inspired dogma, disequilibrium
economics, led by Robert Clower, suggested that the infinite amount of
variables within an economy clouded the absolute inevitability of a state
in equilibrium. Finally, a third, more recent school of thought—New Keynesianism—has
been attempting to reconcile Keynesian theory with the realm of microeconomics.
While the widespread acceptance of Milton Freedman’s Monetarism and subsequent
anti-Keynesian governmental policy implementations, such as ‘Reaganomics’,
have competed against the practical doctrine of Keynesianism in recent
history, it is certainly clear that Keynes’s influence on policy within
the capitalistic framework will remain as markedly strong and controversial
as it was in Keynes’s own time.
|