John Maynard Keynes was born in 1883 the same year that Karl Marx died, and whilst both wrote critiques of the capitalist system here the similarities end. Marx was an angry loner, his ventures and business failed and the majority of his life was spent in exile. Working anonymously and alone in the British library, Marx spent many years sculpting his theories about the inevitable overthrow of the free market system. Perhaps the saddest thing is that Marx never lived to see his theories proved wrong.
Keynes was very different, a dashing figure and a brilliant economist, who could also mix with the elite of British society. Keynes attacked the inequalities and inefficiencies of the capitalist system it didn’t stop him from making a small fortune speculating on the foreign exchange markets.
Keynes was also a visionary, while the Allies were clamoring reparations to be imposed on Germany he saw that they would be would be impossible to repay claiming that it would reduce‘Germany to servitude for a generation, of degrading the lives of millions of human beings, and of depriving a whole nation of happiness should be abhorrent and detestable’.
His book on the subject “The economic consequences of the Peace” became a best seller. Keynes didn’t just restrict himself to economics, he wrote a book on mathematical philosophy, was a leading figure in the Bloomsbury group of leading artists, poets and writers. He even opened his own theater, which proved a great success.
Keynes was brilliant at many things and he knew it. Once he was placed second in an economics exam. His only reply was that:
“That shows I know more economics than the examiner.”
It was the effect of the great depression that led Keynes to his greatest work. He scoffed at the orthodox free market economists who said the government should do nothing in the face of mass unemployment. Keynes’s strategy was for the government to intervene by spending, if necessary by borrowing. This would create jobs, which would give income for others to spend thus creating more jobs. A simple idea but one too radical for western governments who were too unwilling to borrow. (Un)fortunately it wasn’t until the Second World War that governments were forced to spend so that employment increased to pre 1929 levels.
Unlike the radical ideas from economists such as Malthus and Marx. Keynesianism wasn’t rejected by later theorists the vine but became part of the economic orthodoxy in turn creating a whole section of economics (Macro Economics).
The legacy of Keynes is remarkable; governments in the West followed Keynesian policy’s up to the 1970s. Generally these decades were seen as a time of great stability and prosperity. Full employment was maintained and many countries experienced record growth.
However economics is a fluid subject, Keynesian economics fell out of favor with a recent resurgence of support for neo-classical ideologies with governments once again praising the ideals of the free market.
However following the rise and fall of (Neo)Orthodoxy Keynesian theory has seen a resurgence fortunately time and space prohibit a discussion of this latest development right now . The previous Bush administration showed remarkable fiscal irresponsibility. The current budget deficit is approaching $600 billion combined with a current account deficit of approximately $665 the US economy is anything but a paradigm of classical economics.
In our next Blog we will look at the rise of (Neo) Orthodoxy and we will look at Keynes’s doppelganger Milton Friedman.