Keynes was an English economist who examined a country’s entire economy— inflation, wages, employment, interest rates and business growth. The analysis convinced him governments could defeat recessions and unemployment. Once understood, his ideas had a major impact on public finance in the 20th century. Time Magazine named him the century’s most influential economist, as well as one of its “Most Important People.”
He was no isolated bookish economist. Across his work life he became chairman of a life insurance company, a director of the Bank of England, a civil servant and a university lecturer. He had a distinct flair for making money and amassed a fortune investing in stocks and bonds.
John Maynard Keynes (1883-1946), a manysided genius, was the son of distinguished parents and a product of Britain’s best schools and colleges. He graduated from each with highest honors in economics and mathematics.
Friends and close acquaintances described him as tall, distinguished and brilliant. British philosopher, Bertrand Russell, himself of towering intellect, described an encounter with Keynes: “When I argued with him, I felt my life was in his hands. I seldom emerged without feeling very foolish.”
Keynes first gained influence following World War I and the Paris Peace Conference of 1918. His book, The Economic Consequences of the Peace,
sold 84,000 copies and caused a huge stir in Europe. Keynes condemned the enormous war reparations imposed on Germany. He predicted they would have profound negative consequences which is precisely what happened.
Before him most economists, as well as elected leaders, believed that where economic conditions are at issue “Nothing can be done. Don’t interfere. Everything will work out for the better— in the long term.” Keynes said, “The long run is a misleading guide to current affairs. In the long run we are all dead.”
The economist’s greater influence came from a big, difficult book published in the Depression year 1936, The General Theory of Employment, Interest and Money. Few laymen plowed through it, but those in government leadership did and they finally absorbed its message. A few tenets.
Keynes’ was convinced demand for goods and services is the key factor affecting an economy. The economy slows when the private sector fails to spend and invest enough. Businesses reduce their investments, setting in motion a cycle of less investment, fewer jobs, less consumption and still less reason for business to invest.
Thus, the better policy for government in these conditions is to stimulate demand by spending, even if it means government deficits. That proposition, of course, is a hard sell today when inflation is a problem and unemployment remains low, around 4 percent. But it found acceptance in the late 1930s and 1940s.
Conditions were still grim in America in the late 1930s. One out of four adults could not find a job. Lack of demand was a stark reality. President Roosevelt had castigated Herbert Hoover in 1932 for running a deficit and for failure to balance the federal budget. In 1936, Keynes visited the White House urging more spending. He was poorly received.
By 1938, however, Roosevelt changed his mind. In a fire side chat— at a time when unemployment was still near 17 percent—the President said, “We suffer primarily from a failure of consumer demand because of a lack of buying power.” Although, his spending policy barely changed.
World War II soon erupted. Government spending skyrocketed. Production rose to unbelievable heights. Unemployment sank to just over 1 percent. Even granting the war’s special mobilization, in the economy Keynes’ theories were tested and proved.
Congress then passed legislation installing Keynesian principles. The Employment Act of 1946 states, “the continuing policy and responsibility of the Federal Government... to promote maximum employment, production and purchasing power.”
It was Republican President Richard Nixon who proclaimed, “We are all Keynesians now.”
Sources: “John Maynard Keynes,” R. Reich, Time Magazine, 29 March, 1999; Universal Man: Lives of John Maynard Keynes, R. Davenport- Hines, Basic Books, New York, 2015; Wikipedia, “John Maynard Keynes.”
• Retired attorney Jim Thomas lives in Atlanta. Email jmtlawyerspeak@ yahoo. com
