John Maynard Keynes

John Maynard Keynes.

“”The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood.
Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.

—Keynes
The dismal science
Economics

Economic systems

$  Free market
€  Social democracy
☭ Socialist economy

Major concepts

* Planned obsolescence
* Child labour
* Money supply
* Wealth inequality in South Korea
* Diamond

The worldly philosophers

* John Stuart Mill
* Adam Smith
* Bjørn Lomborg
* Ludwig von Mises

v \- t \- e

John Maynard Keynes, Baron Keynes (1883–1946) was a British economic theorist and philosopher whose work dominated pre- and post-World War II economic theory, during which it reached its maximum expression. He was variously described as an agnostic[1] or atheist.[2]:11 He served as the head of the British Eugenics Society from 1937 to 1944.[3]

Keynesianism is in contrast with the Austrian school of Friedrich August von Hayek and Ludwig von Mises, the Chicago/monetarist associated with Milton Friedman, and the new classical school associated with Robert E. Lucas. The last two schools, that strongly advocate for free market, came to be dominant in the 1970s and 1980s, after the 1973 oil crisis, but Keynesianism managed to survived these turbulent years and a remains a major force in mainstream macroeconomic thought under the New Keynesian school.

## Contents

* 1 Economic theory
* 2 Economic Schools
* 2.1 Neo-Keynesianism
* 2.2 New Keynesianism
* 2.3 Post-Keynesianism
* 3 Political life
* 4 Misrepresentation of Say's Law
* 5 See also
* 6 External links
* 7 Notes
* 8 References

## Economic theory[edit]

Broadly speaking, Keynesian economics calls for higher marginal tax rates during "boom" periods, both to dampen economic extravagance and to build up a "nest egg," or "rainy day fund," and to then use those funds for public spending during "bust" periods, in order to buffer the working and middle classes from the disasters wrought by the "masters of the universe" and their money games.[4]

Because of his focus on tax reductions for the poor and middle class, and an increase in government spending on infrastructure, some Austrian school economists consider him akin to a socialist, but in reality he was not an advocate for the abolition of private property, but of a "subtle" control of it and effectively how to save the market from the outcomes of its own excesses.[note 1] In his personal politics, Keynes wasn't a socialist either, eschewing the Labour Party in favour of the pro-capitalist Liberal Party. However, because the application of his theory has become strongly associated with the social democratic[note 2] "welfare state", hardcore wingnuts are bound to use the "communist" label at all times though it's misguided at best. Libertarians may prefer the softer-sounding "statist".

More "intellectual" right-wingers[Who?] have a more sophisticated strawman to attack Keynes with — to them, the word "Keynesian" means "Spend shitloads of money for no reason and never stop!" This could possibly be applied to Keynesian economists, highlighting the differences between Keynes' economics and Keynesian economics,[5] yet even then most Keynesian theorists ask for a return to balanced budgets (i.e. cutting spending) after a return to sustained growth (some conservatives appear to have a problem with this).

The idea that the economy is driven by aggregate demand rebutted the then orthodox Say's Law. Free market-oriented economists argued that the market will always return to equilibrium and reach employment in the long run and that the government should do nothing lest it lengthen the natural return to equilibrium or enact programs that would lead to socialism. Keynes' reply to this was essentially "In the long run, we are all dead."[note 3] Keynes simply argued that too much savings at one time would create the paradox of thrift — money hoarding by everyone at the same time due to low consumer confidence became a negative feedback loop and made recessions even worse.

## Economic Schools[edit]

“”Rival doctrines to Keynesianism have come and gone over: [...] monetarism, New Classical economics, supply-side economics, and others. But only one survived. The competitors to Keynesian economics all either fell of their own weight (e.g., monetarism) or saw their most useful aspects incorporated into the Keynesian tradition (e.g., rational expectations.)

—Alan S. Blinder[6]:5

There are 3 main economic schools dedicated to Keynes, even if modern mainstream Keynesian economics differs in many ways from the theory originated by Keynes himself.[6]:5[7]

### Neo-Keynesianism[edit]

Economist Paul Samuelson, one of the most recognizable faces of Keynesianism in the Post-War America.

Neo-Keynesianism was the result of combining classical economics and Keynes' ideas. This combination is known as the Neoclassical synthesis. Neo-Keynesianism combined the aspects of Keynesian economics in the short run (such as sticky prices and wages) and neoclassical economics in the long run (such as markets will reach equilibrium and homo economicus). Eventually, the neo-Keynesians attempted to account for inflation with the creation of the Phillips curve. Other important models for Neo-Keynesianism include the IS-LM model by John Hicks, which is used to derive the relationship between fiscal policy and monetary policy and the AD–AS model, that illustrates how aggregate demand (AD) and aggregate supply (AS) interact to determine output and inflation,.

Market failures were an important feature of neo-Keynesianism. For example imperfect competition due to monopolies or sticky wages and prices may lead to the economy not reaching full employment.

Neo-Keynesianism eventually came under attack from Monetarism and the New Classical school. Eventually, the monetarists and the new classicals were able to prove that in the long run, there is no relation between inflation and unemployment due to stagflation in the 1970s (ie. the Philips curve is flat). The inability of Neo-Keynesians to explain stagflation,[8] along with the Lucas critique, that argues that economic policies based on historical correlations are unreliable because policy changes alter the underlying behavior of economic agents, eventually lead to the demise of neo-Keynesianism.

### New Keynesianism[edit]

New Keynesianism was the result of trying to integrate the 1970s monetarist and New Classical critiques into neo-Keynesianism. Like neo-Keynesianism, New Keynesianism maintains that the economy is Keynesian in the short run and neoclassical in the long run. Just like neo-Keynesianism emerged from the the teachings of Keynes and the classical economists, New Keynesianism combined with New classical economics in the 1980s and 1990s to create the new neoclassical synthesis, which became part of mainstream economics and is often taught in textbooks today. The new neoclassical synthesis differs from the original neoclassical synthesis by adding Rational expectations and the Real business-cycle theory. Additionally, the New keynesian school puts a larger emphasis on microfoundations and it uses its own version of the DSGE model, in which some neo-Keynesian assumptions are dropped (eg. No assumptions for price stickiness in the short term).

While some New Keynesians such as Paul Krugman Brad DeLong are often known for being on the left of the center, others such as Greg Mankiw are more conservative, while some such as Larry Summers remain on the center.

### Post-Keynesianism[edit]

See the main article on this topic: Post-Keynesian economics

A heterodox tradition, Post-Keynesianism differs quite a bit from the other Keynesian schools. Post-Keynesians believe that markets don't achieve equilibrium in the long run due to a lack of effective demand. The main model in Post-Keynesian economics is the Stock Flow Consistent model,[9] even if said model was originally devised by James Torbin, a neo-Keynesian economist.[10]

Post-Keynesians often clashed with the neo-Keynesians, such as with the Cambridge Capital Controversy.[11] However, Post-Keynesianism eventually fell out of favor as the Neo-Keynesians went mainstream. Eventually the monetarists ended up being the main opponents of the neo-Keynesians, while the new classicals opposed the new Keynesians. Nonetheless, despite remaining a fringe school in the academia, new developments within the Post-Keynesian school, mainly the sub-school, Modern Monetary Theory, caused the Post-Keynesianism to get more attention in the late 2010s and early 2020s.[note 4]

## Political life[edit]

Keynes He attended the 1919 Paris Peace Conference as a member of the British treasury and estimated that the reparations imposed on Germany by the French and the British were on the order of ten times what it could ever hope to pay. He warned that the reparations would cause Germany's economy to collapse and possibly lead to political upheaval not just in Germany, but the entirety of Europe. He was roundly ignored, and then guess what happened?

Keynes also debated openly in written correspondence with the Austrian School economist Friedrich Hayek, who was also a member of the British Liberal Party. The debate has been immortalized in a music video rap battle.[13] His record was tarnished to some degree by the buttloads of money he lost in stocks in 1929, but he later became even richer playing the market during the Depression.[14] Anyway, the idea that to be credible you must at no point in time lose money while gambling on the stock market is somewhat strange.

Keynes also sent a long open letter in 1933, published by the New York Times, to Franklin Delano Roosevelt on the containing policy recommendations for tackling the Great Depression: chiefly counter-cyclical public spending.[15] In the next year, they met each other.[16]

In 1939, Keynes had the option to enter Parliament as an independent MP with the University of Cambridge seat, with both the Labour Party and the Conservative Party agreeing that they would not field a candidate if Keynes chose to stand. He ended up declining the invitation as he felt he would wield greater influence on events if he remained a free agent.[17]

Toward the end of World War II, he argued in favor of a world central bank and currency.[citation needed]

He died in 1946, pronouncing these last words: "I only wish I had drunk more champagne."[18]

## Misrepresentation of Say's Law[edit]

Keynes popularized a misrepresentation of Say's Law that has entered popular discourse. Jean-Baptiste Say's original formulation meant that the total demand in an economy would never fall below or exceed supply. This was then reformulated as "supply creates its own demand" by James Mill, though Keynes is most often associated with this re-statement of Say's Law.[19]

## See also[edit]

* John Kenneth Galbraith
* Post-Keynesian economics
* Social democracy
* Capitalism
* Economics

## External links[edit]

* Keynes at EconLib
* We Are All Keynesians Now… and All Monetarists, Too, Conference Board
* Keynes for Kids
* A wingnut takes on Keynes' "anti-Christian homosexual economics"

## Notes[edit]

1. ↑ His book The General Theory of Employment, Interest, and Money was written during the Great Depression, after all.
2. ↑ Like Keynes, Social Democrats have generally advocated a "controlled" or "social" market economy (at least since WWII) and Keynesian economics were popular among pretty much all non-communist European governments, whether left or right, between roughly 1945 and 1979.
3. ↑ Libertarians often take this out of context to mean that Keynes was denigrating the idea of saving money, which is a misinterpretation at best and a quote mine at worst.
4. ↑ For example, the American congresswoman Alexandria Ocasio-Cortez has stated Modern Monetary Theory should be "a larger part of our conversation" on economics.[12]

## References[edit]

1. ↑ The Cambridge Apostles, 1820-1914: Liberalism, Imagination, and Friendship in British Intellectual and Professional Life by WIlliam C. Lubenow (2007) Cambridge University Press. ISBN 052103728X.
2. ↑ "A Personal View" by Austin Robinson. In: Essays on John Maynard Keynes, edited by Milo Keynes (1975) Cambridge University Press. ISBN 0521205344. Pages 9-23.
3. ↑ The Galton Lecture, 1946: Presentation of the Society's Gold Medal (1946) The Eugenics Review 38(1):39-41.
4. ↑ Why do Keynesians prefer government spending over private spending?, The Week
5. ↑ Was Keynes a Keynesian or a Lernerian?, AEA
6. ↑ 6.0 6.1 Blinder, Alan S. (2022). A monetary and fiscal history of the United States, 1961-2021. Princeton Oxford: Princeton University Press. ISBN 978-0-691-23838-8.
7. ↑ "John Maynard Keynes". Econlib. Retrieved 2025-03-03.
8. ↑ https://www.hetwebsite.net/het/schools/synthesis.htm
9. ↑ http://www.bondeconomics.com/2013/08/what-are-stock-flow-consistent-sfc.html
10. ↑ See the Wikipedia article on Stock-flow consistent model.
11. ↑ https://www.hetwebsite.net/het/schools/cambridge.htm
12. ↑ https://www.businessinsider.com/alexandria-ocasio-cortez-ommt-modern-monetary-theory-how-pay-for-policies-2019-1
13. ↑ Fear the Boom and Bust
14. ↑ Keynes, King's and Endowment Asset Management, NBER
15. ↑ "Roosevelt and Keynes". FutureLearn. Retrieved 2025-03-03.
16. ↑ Chatham, Susan. "LibGuides: ECON-431 Fiscal Policy in the US: Keynes & Roosevelt". courseguides.trincoll.edu. Retrieved 2025-03-03.
17. ↑ See the Wikipedia article on John Maynard Keynes.
18. ↑ Real Last Words From Famous People
19. ↑ Jean-Baptiste Say, The New School