JOHN MAYNARD KEYNES (part I)

I. HIS LIFE
John Maynard Keynes is another influential name in economics, in the middle third of the twentieth century that an entire school of modern thought bears his name. Many of his ideas were revolutionary; almost all were controversial. His works were now called Keynesian Economics and is a yardstick that can define virtually all economists who came after him. Keynes’s ideas took a dramatic change. Keynes investigated causes of Britain’s economic woes, and The General Theory of Employment, Interest and Money was the result.

John Maynard Keynes was born in Cambridge and attended King’s College, Cambridge, where he earned his degree in mathematics in 1905. He remained there for another year to study. After leaving Cambridge, Keynes took a position with the civil service in Britain. While there, he collected the material for his first book in economics, Indian Currency and Finance, in which he described the workings of India’s monetary system. He returned to Cambridge in 1908 as a lecturer, then took a leave of absence to work for the British Treasury. He worked his way up quickly through the bureaucracy and by 1919 was the Treasury’s principal representative at the peace conference at Versailles. He resigned because he thought the Treaty of Versailles was overly burdensome for the Germans.

After resigning, he returned to Cambridge to resume teaching. A prominent journalist and speaker, Keynes was one of the famous Bloomsbury Group of literary greats, which also included Virginia Woolf and Bertrand Russell. At the 1944 Bretton Woods Conference, where the International Monetary Fund was established, Keynes was one of the architects of the postwar system of fixed exchange rates. In 1925, he married the Russian ballet dancer Lydia Lopokova. He was made a lord in 1942. Keynes died on April 21, 1946, survived by his father, John Neville Keynes, also a renowned economist in his day.

II. HIS WORKS
Keynes became a celebrity before becoming one of the most respected economists of the century when his eloquent book The Economic Consequences of the Peace was published in 1919. Keynes wrote it to object to the punitive reparations payments imposed on Germany by the Allied countries after World War I. The amounts demanded by the Allies were so large, he wrote, that a Germany that tried to pay them would stay perpetually poor and, therefore, politically unstable. We now know that Keynes was right. Besides its excellent economic analysis of reparations, Keynes’s book contains an insightful analysis of the Council of Four (Georges Clemenceau of France, Prime Minister David Lloyd George of Britain, President Woodrow Wilson of the United States, and Vittorio Orlando of Italy).

Keynes wrote: “The Council of Four paid no attention to these issues [which included making Germany and Austro-Hungary into good neighbors], being preoccupied with others—Clemenceau to crush the economic life of his enemy, Lloyd George to do a deal and bring home something which would pass muster for a week, the President to do nothing that was not just and right”

In the 1920s Keynes was a believer in the quantity theory of money (which is now coined as monetarism). His writings on the topic were essentially built on the principles he had learned from his mentors, Marshall and Pigou. In 1923 he wrote Tract on Monetary Reform, and later he published Treatise on Money, both on monetary policy. His major policy view was that the way to stabilize the economy is to stabilize the price level, and that to do that the government’s central bank must lower the so-called interest rates when prices tend to rise and raise them when prices tend to fall.

Having left the public service, Keynes returned to Cambridge as second bursar of King's College. In 1921 he assumed the first of a number of important company directorships. Also that year, he published A Treatise on Probability and, a year later, A Revision of the Treaty, a sequel to The Economic Consequences. In 1923 his Tract on Monetary Reform appeared. From 1924 until his death he was first bursar of King's College and through his expert management made King's what a contemporary has described as "indecently rich.”

Finally, in 1936, came Keynes's General Theory of Employment, Interest and Money, a book that not only revolutionized economic theory but also had a direct impact on the lives of a large proportion of the world's population. Here Keynes took issue with the classical theory which found in a competitive capitalist economy a set of mechanisms that automatically move the economy toward a state of full employment. These mechanisms functioned in the labor market and in the market for goods and services.

III. HIS LEGACY.
Keynes’s General Theory revolutionized the way economists think about economics. It was ground breaking because it introduced investment and government spending and because it showed (or purported to show) that full employment could be maintained only with the help of government spending. Economists still argue about what Keynes thought caused high unemployment.

Keynes’s conclusion initially met with opposition. At the time, balanced budgets were standard practice with the government. But the idea soon took hold and the U.S. government put people back to work on public works projects.

Contrary to some of his critics, Keynes was also an advocate of free markets. He believed that once full employment had been achieved by fiscal policy measures, the market mechanism could then operate freely.

Little of Keynes’s original work survives in modern economic theory. His ideas have been endlessly revised, expanded, and critiqued. Keynesian economics today, while having its roots in The General Theory, is chiefly the product of work by subsequent economists after him. But still, Keynes as the wellspring for so many outstanding economists is testament to the magnitude and influence of his ideas. In 1999, Time Magazine named Keynes one of the 100 Most Important People of the 20th Century and reported that, "His radical idea that governments should spend money they don't have may have saved capitalism". Keynes is widely considered the father of modern macroeconomics and is regarded as one of the most influential economist of the 20th century

______________________________________________________________________
Sources:

Keynes. http://www.econlib.org/library/Enc/bios/Keynes.
Retrieved September 29, 2009.

John Maynard Keynes. www.wikipedia.org/ Keynes. Retrieved September 30, 2009.

Keynes. www. Britannica.com. Retrieved September 30, 2009.