Keynes, John Maynard (1883-1946)

English economist celebrated for General Theory of Employment, Interest and Money (1936), which initiated the so-called Keynesian Revolution. He is also noted for his other writings, especially A Treatise on Money (1930), as well as his central role in the Bretton Woods Conference of 1944 which created the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development.

The gradual but increasingly widespread acceptance of most of Keynes's views in the immediate years after World War II raised Keynesianism for a while to the position of a prevailing orthodoxy. In recent years, however, Keynes's star has definitely begun to wane. Even so, Keynes remains one of the three or four most influential economists who ever lived.

His trenchant criticism of the peace treaty of Versailles in The Economic Consequences of the Peace (1919) made him famous overnight and effectively undermined public support for the treaty. His Treatise on Money was still in the tradition of English economist Alfred Marshall, but during the crises of the 1930s he came increasingly to identify conservative economic policies as the cause of Britain's economic problems. From this beginning, he developed a new theory of income determination, grounded in the concept of the ‘consumption function’ and the ‘liquidity preference theory of interest’. The consumption function referred to a relationship between total consumer spending and national income, such that consumer spending always rises less than proportionately with income, leaving a savings gap that only private or public investment can fill. The liquidity preference theory of interest emphasized the role of the interest rate as the reward for doing without the advantages of money as the only perfectly liquid asset. Full employment, Keynes argued, could be maintained in a capitalist economy but only if the government were willing to incur counter-cyclical budgetary deficits to offset the inbuilt tendency towards private over-saving.

What was new about the book, was the tendency, first of all, to deal almost exclusively with aggregate, macroeconomic variables; secondly, to concentrate on the short period and to confine the analysis of the long period, which had been the principal analytical focus of his predecessors, to asides; and thirdly, to throw the entire weight of adjustments to changing economic conditions on output or income rather than prices. Equilibrium for the economy as a whole now involved ‘unemployment equilibrium’, and the introduction of this apparent contradiction in terms involved a profound change in the vision of contemporary economists who had always believed that competitive forces do ultimately drive the economy automatically toward a steady state of full employment.

Keynes was the son of John Neville Keynes, himself a Cambridge economist and philosopher. After winning a scholarship in classics and mathematics at King's College, Cambridge, the young Keynes joined the civil service and became involved in the Bloomsbury Group, the literary circle which included such famous names as Lytton Strachey, Virginia Woolf, and Bertrand Russell. In 1908 he gained a fellowship at King's and began working on Indian monetary conditions and the theory of probability. Shortly after the outbreak of the war he joined the Treasury and rose rapidly in the ranks to become the principal Treasury representative at the Versailles peace conference. After the war, he returned to Cambridge to teach, later becoming bursar of King's College. He also began to speculate in foreign exchange, acted as an adviser to several business firms, assumed the chairmanship of a leading insurance company, wrote frequently for the Manchester Guardian and The Nation and edited the prestigious Economic Journal. During World War II, he returned to the Treasury and the last years of his life were almost exclusively concentrated on working to establish a workable international monetary order. He was knighted in 1942.

All of his economic writings have been published in 30 volumes, edited by A Robinson, E Johnson, and D E Moggridge.