John Maynard Keynes, 1st Baron Keynes ( "English respelling pronunciation"> KAYNZ ; June 5, 1883 - 21 April 1946), was an English economist whose basic idea changed the theory and practice of macroeconomics and government economic policy. He built and worked better before on the cause of the business cycle, and was one of the most influential economists of the 20th century and founder of modern macroeconomic theory. His ideas were the basis for the school of thought known as Keynesian economics, and its various branches.
During the Great Depression of the 1930s, Keynes pioneered the revolution in economic thought, challenging neoclassical economic ideas that stated that free markets would, in the short to medium term, automatically provide full employment, as long as workers were flexible in their wage demands. Instead, he argues that aggregate demand determines the overall level of economic activity and inadequate aggregate demand can lead to prolonged periods of high unemployment. Keynes advocates the use of fiscal and monetary policies to mitigate the adverse effects of recession and economic depression. Magnus opus Keynes, General Theory of Employment, Interest, and Money , was published in 1936.
The leading Western economy adopted Keynes policy recommendations before the outbreak of World War II, and within two decades after Keynes's death in 1946, almost all capitalist governments have done so. The influence of Keynes was reduced in the 1970s, partly as a result of the stagflation that hit the Anglo-American economy over the decade, and partly because of Keynesian policy criticism by Milton Friedman and other monetarists. He and other economists have debated the government's ability to manage the business cycle profitably with fiscal policy.
The emergence of the 2007-2008 global financial crisis led to a revival in Keynesian thought. The Keynesian economy provides theoretical support for economic policy carried out in response to the crisis by US President Barack Obama, Prime Minister Gordon Brown of the United Kingdom, and other heads of government.
When Time magazine included Keynes among the Most Important People of the Century in 1999, it was said that "the radical idea that governments should spend money that they do not have may have saved capitalism." The Economist describes Keynes as "Britain's most famous 20th-century economist." In addition to being an economist, Keynes is also a civil servant, director of the Bank of England, and part of the Bloomsbury Intellectual Group.
Video John Maynard Keynes
Early life and education
John Maynard Keynes was born in Cambridge, Cambridgeshire, England, to a middle-class family. His father, John Neville Keynes, was an economist and lecturer in moral sciences at Cambridge University and his mother Florence Ada Keynes, a local social reformer. Keynes was the first born, followed by two more children - Margaret Neville Keynes in 1885 and Geoffrey Keynes in 1887. Geoffrey became a surgeon and Margaret married the Nobel Prize-winning physiologist Archibald Hill.
According to economist and biographer Robert Skidelsky, Keynes's parents are very loving and caring. They remain in the same house all their lives, where children are always welcome to return. Keynes will receive considerable support from his father, including expert training to help him pass his scholarship exam and financial assistance both as a youth and when his assets were nearly destroyed at the start of the Great Depression in 1929. Keynes's mother made his children's interests his own, and according to Skidelsky , "because he can grow up with his children, they never leave the house".
In January 1889 at the age of five and a half, Keynes started in a Perse School for Girls kindergarten for five mornings each week. He quickly showed his talent for counting, but his poor health caused some long absences. She was taught at home by a nanny, Beatrice Mackintosh, and her mother. In January 1892, at the age of eight and a half, he began as a day-student at St. John's prep school. Faith. In 1894, Keynes was an upper class and proficient in mathematics. In 1896, St Faith's principal, Ralph Goodchild, wrote that Keynes "heads and shoulders above all the other boys in school" and believes Keynes can get a scholarship for Eton.
In 1897, Keynes won a scholarship to Eton College, where he displayed talent in a variety of subjects, most notably mathematics, classics, and history. At Eton, Keynes experienced his first "love in life" at Dan Macmillan, the brother of Prime Minister Harold Macmillan. Despite his middle-class background, Keynes mixes easily with high-class students.
In 1902 Keynes left Eton to King's College, Cambridge, after receiving a scholarship for this also to read mathematics. Alfred Marshall begged Keynes to become an economist, although Keynes's own tendency attracted him to philosophy - especially the ethical system of G. E. Moore. Keynes joins the Pitt Club and is an active member of the semi-secret society of Cambridge Apostles, a club of debates largely reserved for the most intelligent students. Like many members, Keynes retains ties to the club after graduation and continues to attend occasional meetings throughout his life. Before leaving Cambridge, Keynes became President of the Cambridge Union Society and the University of Cambridge Liberal Club. He is said to be an atheist.
In May 1904, he received a first class BA in mathematics. In addition to spending several months holidaying with family and friends, Keynes continues to involve himself with the university over the next two years. He took part in the debates, studied philosophy further and attended informal economics lectures as a graduate student for one semester, which is the only formal education in his field. He also studied for Tripos in 1905 and, the following year took the civil service examination.
Economist Harry Johnson writes that the optimism given by Keynes's early life was the key to understanding his thinking later on. Keynes always believed he could find a solution to any matter that distracts him, and maintains a lasting belief in the ability of government officials to do good. Keynes's optimism is also cultural, in two senses: he is the last generation raised by the imperial empire, and also from the last generation who feel entitled to rule by culture, not by skill. According to Skidelsky, the current sense of cultural unity in Britain from the nineteenth century to the end of World War I provides a well-educated framework that can organize various fields of knowledge in relation to one another and with life, enabling them to confidently draw from different fields when handle practical issues.
Maps John Maynard Keynes
Careers
In October 1906, Keynes Civil Service career began as a clerk in the Indian Office. He enjoyed his work initially, but in 1908 had become bored and resigned his position to return to Cambridge and work on probability theory, initially funded personally only by two don at the university - his father and economist Arthur Pigou.
In 1909 Keynes published his first professional economic article in the Economics Journal about the effects of the recent global economic downturn in India. He founded the Political Economy Club, a weekly discussion group. Also in 1909, Keynes received a private-funded economics course by Alfred Marshall. Keynes's earnings increased even further as he began to take students for private school fees.
In being elected a fellow in 1911 Keynes became editor of The Economic Journal. In 1913 he published his first book, Indian Currency and Finance . He was then appointed to the Royal Commission on Currency and Finance of India - a topic similar to his book - where Keynes showed a considerable talent in applying economic theory to practical problems. His work was published under the name "J M Keynes", although for his family and friends he was known as Maynard. (His father, John Neville Keynes, is also always known by his middle name).
First World War
The British government requested Keynesian skills during the First World War. Although he did not formally rejoin the civil service in 1914, Keynes went to London at the request of the government a few days before the feud began. The bankers have pushed the deferment of specie-convertibility payments into gold - but with the help of Keynes, the Chancellor of the Exchequer (later Lloyd George) is assured that this would be a bad idea, as it would damage the city's future reputation if payment is stopped before it is absolutely necessary.
In January 1915, Keynes took the official government position in the Treasury. Among his responsibilities was the design of credit terms between Britain and continental allies during the war, and the acquisition of rare currencies. According to economist Robert Lekachman, "Keynesian intelligence and mastery became legendary" because of the performance of his duties, as in the case where he managed to collect - with great effort - a small supply of Spanish pesetas.
The Secretary of the Treasury is pleased to hear that Keynes has garnered enough to provide a temporary solution for the British Government. But Keynes did not hand over the peseta, instead choosing to sell it all to destroy the market: his courage was fruitless, because the pesetas became less rare and expensive.
At the introduction of conscription in 1916 he proposed a release as a repellent of conscience, which was effectively granted after resuming the work of his government.
In the 1917 King's Birthday Award, Keynes was appointed as the Maid of the Order for his wartime work, and his success led to the appointment that would have a major influence on Keynes's life and career; Keynes was appointed financial representative for the Treasury at the 1919 Versailles peace conference. He was also appointed Belgian Belgian Order Officer.
Versailles Peace Conference
Keynes's experience at Versailles was very influential in shaping his future outlook, but it did not work for him. Keynes's keen interest is in preventing so high German compensation payments that would make innocent Germans, undermine the country's ability to pay and sharply limit its ability to buy exports from other countries - thus not only hurting the German economy itself but also from the wider world.
Unfortunately for Keynes, the conservative forces in the coalition that emerged from the 1918 coupon election were able to ensure that both Keynes himself and the Treasury were largely excluded from formal high-level talks on reparations. Their place was taken by the Celestial Twins - Lord Sumner's judge and Lord Cunliffe banker whose nickname came from the "astronomical" war compensation they wanted from Germany. Keynes was forced to try to influence most of the behind the scenes.
The three main players at Versailles are Lloyd George of England, Clemenceau of France, and American President Wilson. Only Lloyd George to whom Keynes has many direct access; until the election of 1918 he had sympathy with Keynes's views but when the campaign had found his speeches were only well received by the public if he promised to punish Germany cruelly, and therefore had done his delegation to issue high payments.
Lloyd George indeed won the loyalty of Keynes by his actions at the Paris conference by intervening against France to ensure the delivery of much needed food supplies to German civilians. Clemenceau also encouraged substantial reparations, though not as high as those proposed by Britain, while for security reasons, France argued for a more severe solution than the British.
Wilson initially liked the relatively soft treatment of Germany - he feared that too violent conditions could spark extremism, and wanted Germany to be left with enough capital to pay for imports. Keynes's anxiety, Lloyd George and Clemenceau were able to pressure Wilson to agree to include retirement in a repair bill.
Toward the end of the conference, Keynes made his proposed plans not only to help Germany and other poor central European countries but also good for the world economy as a whole. This involves writing radical warfare wars, which will have the effect of possibly boosting international trade, but at the same time throwing the whole cost of European reconstruction in the United States.
Lloyd George agreed it might be accepted by British voters. However, the Americans oppose the plan; The United States is the largest creditor, and at this time Wilson began to believe in the benefits of a harsh peace and thought that his country had made excessive sacrifices. Therefore, despite his best efforts, the end result of the conference was an agreement that made Keynes feel both disgusted for moral and economic reasons, and led to his resignation from the Ministry of Finance.
In June 1919, he refused the offer to be the chairman of the British Bank of Northern Commerce, a job that promised a £ 2,000 salary in return for one morning per week of work.
Keynes's analysis of the predicted destructive effects of the treaty appears in a very influential book, The Economic Consequences of the Peace, published in 1919. This work has been described as Keynes's best book, in which he can bring all his prizes for his passion and his skill as an economist. In addition to economic analysis, the book contains pleas for the merciful flavor of the reader:
I can not abandon this subject as if its only treatment depends entirely on our own promises or on economic facts. The policy of reducing Germany to be a servant for a generation, demeaning the lives of millions of people, and seizing the happiness of all nations must be repugnant and repulsive - uncomfortable and repulsive, even if it is possible, even if it is enriched. ourselves, even if it does not sow the decay of all civilized life in Europe.
Also present are striking images such as "year after year Germany must be kept poor and its children hungry and paralyzed" along with bold predictions justified by events:
If we deliberately target the impoverishment of Central Europe, retaliation, I dare to predict, will not weaken. Nothing can delay for a long time for the last war between the forces of Reaction and the desperate upheavals of the Revolution, before the horrors of the final German war will fade into nothing.
Keynes's followers assert that his prediction of disasters had occurred when the German economy suffered hyperinflation in 1923, and again by the collapse of the Weimar Republic and the outbreak of the Second World War. But historian Ruth Henig claims that "most historians of the Paris peace conference now take the view that, in economic terms, the treaty is not too harsh on Germany and that, while obligations and damage must have been much emphasized in the Paris debate to satisfy voters who read daily newspapers, meant covertly to provide substantial assistance to Germany in paying its bills, and to meet many German objections by amending the way the reparation schedule was in practice. "
Only a fraction of repayments are paid. In fact, historian Stephen Schuker demonstrates in the "American Reparations" to Germany, 1919-33, that the capital flows of American borrowing substantially exceed German payments so that, nettally, Germany receives the same support. up to four times the number of Marshall Planes of World War II post-World War II.
Schuker also points out that, in the years after Versailles, Keynes became an informal reparation adviser to the German government, wrote one of Germany's improved records, and genuinely supported hyperinflation on a political basis. However, the Economic Consequences of Peace earned Keynes international fame, although it also led to him being considered anti-establishment - not until after the outbreak of the Second World War that Keynes offered. the position of chief executive of the Bank of England, or an acceptable offer to return to government with formal employment. However, Keynes was still able to influence government policy making through its contact networks, published works and by serving on government committees; This includes attending high-level policy meetings as consultants.
In the 1920s
Keynes completed the Prediction of Procedure on Probability before the war, but published it in 1921. This work is an important contribution to the philosophical and mathematical foundations of probability theory, advocating an important view that the probability is not more or less than the truth value between simple truth and falsehood. Keynes developed the first top-down probabilistic interval approach for probabilities in chapters 15 and 17 of this book, and developed the first decision-weighted approach to the conventional risk and weight coefficients, c , in chapter 26. In addition to his academic work, the 1920s saw Keynes active as a journalist who sold his work internationally and worked in London as a financial consultant. In 1924 Keynes wrote an obituary to his former teacher Alfred Marshall whom Joseph Schumpeter described as "the most brilliant life of a scientist I have ever read." The Marshall widow was "fascinated" by the memorial, while Lytton Strachey judged it as one of Keynes's "best works".
In 1922 Keynes continued to advocate the reduction of German reparations with the A Revised Treaty . He attacked the post-World War I deflation policy with the 1923 A Tract on Monetary Reform - a sharp argument that countries should target domestic price stability, avoid deflation even with the cost of letting their currency depreciate. Britain suffered from high unemployment through much of the 1920s, leading Keynes to recommend sterling depreciation to improve jobs by making UK exports more affordable. From 1924 he also advocated a fiscal response, in which the government could create jobs with spending on public works. During the 1920s the view of pro-Keynes stimulus had only limited influence on mainstream academic policy makers and opinions - according to Hyman Minsky one of the reasons was that at this point his theoretical justification was "chaotic". The Tract is also calling for an end to the gold standard. Keynes suggested it would no longer be a net profit for countries like Britain to participate in the gold standard, as opposed to the need for domestic policy autonomy. This could force countries to pursue deflationary policies at the right moment when expansive action is called to cope with rising unemployment. The Treasury and the Bank of England still support the gold standard and in 1925 they were able to convince Chancellor Winston Churchill to rebuild, which had a pressing effect on the British industry. Keynes responded by writing Economic Consequences. Churchill and continued to deny the gold standard until Britain finally abandoned it in 1931.
During the Great Depression
Keynes had begun a theoretical work to examine the relationship between unemployment, money, and prices in the 1920s. The work, Treatise on Money , was published in 1930 in two volumes. The main idea of ​​this work is that if the amount saved is more than the amount invested - which can happen if the interest rate is too high - then unemployment will increase. This is partly the result of people who do not want to spend too much proportion of what the employer pays, making it difficult, in aggregate, for employers to make a profit. Another key theme of this book is the unreliability of financial indices to represent an accurate indication - or indeed means - a general change in the purchasing power of currencies over time. In particular he criticized the justification of Britain's return to the gold standard in 1925 on pre-war judgments with reference to the wholesale price index. He argues that the index undermines the effect of changes in service and labor costs. In 1927 he wrote, "We will not have any more accidents in our day."
Keynes was critical of the British Government's austerity measures during the Great Depression. He believes that the budget deficit is a good thing, a product of recession. He wrote, "For a Government loan of one kind or another is a natural remedy, so to speak, to prevent business losses from, in such a severe deterioration to present one, so great to bring production completely stalled."
At the height of the Great Depression, in 1933, Keynes published The Means to Prosperity, which contained specific policy recommendations for tackling unemployment in the global recession, especially counter-cyclical public spending. The Means to Prosperity contains one of the first mention of the multiplier effect. While it is directed primarily to the British Government, it also contains advice for other countries affected by the global recession. Copies were sent to the newly elected President Franklin D. Roosevelt and other world leaders. The work was taken seriously by the American and British governments, and according to Robert Skidelsky, helped pave the way for acceptance of later Keynesian ideas, although it had little direct practical effect. In 1933, the London Economic Conference of his opinion remained diverse for an agreed concerted action.
Policies like Keynesian were adopted by Sweden and Germany, but Sweden was seen as too small to attract much attention, and Keynes was silent about the success of German efforts because he was disappointed by their imperialist ambitions and their treatment of Jews. Regardless of the UK, Keynes's attention is primarily focused on the United States. In 1931, he received considerable support for his view of public spending outside the cycle in Chicago, then the main center of America for an alternative economic view for the mainstream. However, orthodox economic opinion remains generally hostile to fiscal intervention to reduce depression, until before the outbreak of war. At the end of 1933 Keynes was persuaded by Felix Frankfurter to speak to President Roosevelt directly, which he did by mail and face-to-face in 1934, after which the two men talked to each other. However, according to Skidelsky, the consensus is that Keynes's efforts only began to have a more than marginal influence on US economic policy after 1939.
Keynes's magnum opus , The General Theory of Employment, Interest and Money was published in 1936. It was researched and indexed by one of Keynes's favorite students, then economist David Bensusan-Pantat. This work serves as a theoretical justification for Keynes's interventionist policy to cope with the recession. The
The General Theory argues that demand, not supply, is a key variable that governs the overall level of economic activity. Aggregate demand, which equals the total income not covered by society, is determined by the amount of consumption and investment. Under unemployment and unused production capacity, one can only increase work and total income by first raising spending on consumption or investment. Without government intervention to increase spending, the economy can remain stuck in a low work balance - a demonstration of this possibility has been described as a revolutionary formal achievement of work. This book encourages economic policy of activists by the government to stimulate demand in times of high unemployment, for example by spending on public works. "Let's get up and do, using our idle resources to increase our wealth," he wrote in 1928. "With men and plants idle, it's silly to say that we can not afford these new developments, exactly with plants and people this is that we will pay them. "
The General Theory is often seen as the basis of modern macroeconomics. Several senior American economists agreed with Keynes through most of the 1930s. But his ideas soon reached widespread acceptance, with renowned American professors like Alvin Hansen agreeing with the General Theory before the outbreak of World War II.
Keynes himself had only limited participation in the theoretical debates that followed the publication of The General Theory when he suffered a heart attack in 1937, which required him to take a long break. Among these, Hyman Minsky and the Post-Keynesian economist argue that as a result, Keynesian ideas are weakened by those who desire to compromise with classical economists or to provide their concepts with mathematical models such as the IS-LM model (which, they argue, distorts Keynes's idea ideas). Keynes began to recover in 1939, but for the rest of his life his professional energy was largely directed to the practical side of the economy - the problem of ensuring the optimal allocation of resources for war effort, postwar negotiations with America and the new. the international financial order presented at the Bretton Woods Conference.
In General Theory and later, Keynes responded to leftist socialists and liberals who argued, especially during the Great Depression of the 1930s, that capitalism led to war. He argued that if capitalism is administered domestically and internationally (with a coordinated Keynesian international policy, an international monetary system that does not state the interests of the state against each other, and high levels of trade liberty), this managed capitalism system can promote peace rather than conflict between countries. His plans during World War II for post-war international economic institutions and policies (which contributed to the creation of Bretton Woods from the International Monetary Fund and World Bank, and later for the creation of the General Agreement on Tariffs and Trade and finally the World Trade Organization) aimed to influence this vision.
Although Keynes has been heavily criticized - particularly by members of Chicago's economic school - to advocate for government-funded irresponsible expenses financed by loans, in fact he strongly believes in a balanced budget and considers proposals for public works programs during the Great Depression as an extraordinary measure to meet needs extraordinary circumstances.
Second World War
During the Second World War, Keynes argued in How to Pay for the War , published in 1940, that war efforts should be financed largely by higher taxes and especially by mandatory savings (essentially workers lend money to the government), rather than deficit spending, to avoid inflation. Mandatory savings will act to dampen domestic demand, help channel additional outputs to war effort, be fairer than tax taxes and will have the advantage of helping to avoid a postwar slump by increasing demand once workers are allowed to withdraw their savings. In September 1941 he was proposed to fill vacancies in the Bank of England Board of Directors, and then carry out a full term from April next. In June 1942, Keynes was rewarded for his services with an aristocratic title in King's Birthday Honors. On 7 July his title was announced as "Baron Keynes, from Tilton, in County Sussex" and he took his seat at the House of Lords on the Liberal Party bench.
When the Allied victory began to seem certain, Keynes was deeply involved, as leader of the British delegation and chairman of the World Bank commission, in the mid-1944 negotiations that established the Bretton Woods system. Keynes's plan, on international trade unions, debates a radical system for currency management. He proposed the creation of a new global currency, bancor and institutional unit - the world central bank and the International Clearing Union. Keynes envisions these institutions managing international trade and payment systems with strong incentives for countries to avoid a substantial trade deficit or surplus. The greater US negotiating power, however, means that the final outcome is closer to the more conservative plan of Harry Dexter White. According to US economist J. Bradford DeLong, at almost every point where he was rejected by America, Keynes was later proven to be true by events.
Two new institutions, later to become known as the World Bank and the International Monetary Fund (IMF), were established as a compromise that primarily reflects the American vision. There is no incentive for countries to avoid large trade surpluses; on the contrary, the burden of correcting trade imbalances will continue to fall only in the deficit countries, which Keynes says is least capable of addressing the problem without causing economic hardship to their populations. However, Keynes was still delighted when accepting the final agreement, saying that if institutions remain faithful to their founding principles, "human brotherhood will be more than just a phrase."
Postwar
After the war, Keynes continued to represent England in international negotiations despite his deteriorating health. He managed to obtain the privileged requirements of the United States for new and outstanding debt to facilitate the reconstruction of the British economy.
Just before his death in 1946, Keynes told Henry Clay, a professor of social economics and adviser to the Bank of England, about his hope that Adam Smith's "invisible hand" could help Britain out of the economic pothole: "I find myself increasingly relying on solutions from our problem with the invisible hand that I am trying to extract from economic thought twenty years ago. "
Legacy
Keynesian influence 1939-79
From the end of the Great Depression to the mid-1970s, Keynes provided the ultimate inspiration for economic policymakers in Europe, America and most of the rest of the world. While economists and policymakers have been increasingly won for Keynes's way of thinking in the mid and late 1930s, it was only after the outbreak of World War II that the government began borrowing money on expenditure on a scale sufficient to eliminate unemployment. According to economist John Kenneth Galbraith (later US government officials tasked with controlling inflation), in an economic rebound from wartime spending, "people can not have a better demonstration of Keynesian ideas."
The Keynesian revolution is associated with the emergence of modern liberalism in the West during the post-war period. Keynesian ideas became so popular that some scholars pointed to Keynes as representing the ideals of modern liberalism, as Adam Smith represented the ideals of classical liberalism. After the war Winston Churchill attempted to examine the emergence of Keynesian policy making in Britain and used critical rhetoric against a mixed economy in the 1945 election campaign. Despite his popularity as a war hero, Churchill suffered a landslide defeat from Clement Attlee whose government's economic policies continued to be influenced by ideas Keynes.
Neo-Keynesian Economy
In the late 1930s and 1940s, economists (especially John Hicks, Franco Modigliani, and Paul Samuelson) sought to interpret and formalize Keynesian writings in terms of formal mathematical models. In what is known as neoclassical synthesis, they combine Keynesian analysis with neoclassical economics to produce neo-Keynesian economics, which dominate mainstream macroeconomic thinking over the next 40 years.
In the 1950s, Keynesian policies were adopted by almost all developed countries and similar measures for a mixed economy were used by many developing countries. At that time, Keynes's view of the economy had become mainstream in the universities of the world. Throughout the 1950s and 1960s, developed and emerging free capitalist economies enjoyed extremely high growth and low unemployment. Professor Gordon Fletcher has written that the 1950s and 1960s, when the influence of Keynes was at its peak, appeared in retrospect as the golden age of capitalism.
At the end of 1965 the Time magazine published a cover article with the title of a comment from Milton Friedman (who was then voiced by US President Richard Nixon), "We are all Keynesians now". This article describes the prevailing economic conditions prevailing at the time, and reported that "Washington's economic managers are climbing this height with adherence to Keynes's central theme: modern capitalist economies do not automatically work at peak efficiency, but can be upgraded to that level by intervention and government influence. "The article also states that Keynes was one of the three most important economists who ever lived, and that his General Theory is more influential than operatic magna opera of economists other famous, such as Adam Smith The Wealth of Nations .
Keynesian economy is not preferred 1979-2007
The Keynesian economy was officially banished by the British Government in 1979, but troops began to converge against Keynesian ideas for the previous 30 years. Friedrich Hayek had formed the Mont Pelerin Society in 1947, with the explicit intention of maintaining an intellectual stream for one day to replace Keynesianism and other similar influences. Its members include Austrian School economist Ludwig von Mises along with young Milton Friedman. Initially the community had little impact on the wider world - according to Hayek it was as if Keynes had been resurrected to become a saint after his death and people refused to allow his work to be questioned. But Friedman began to emerge as a strong Keynesian economic critic since the mid-1950s, and especially after his publication in 1963 on the American Monetary History.
On the practical side of economic life, the "big government" seems to have been firmly rooted in the 1950s, but the balance began to shift toward the power of personal interest in the 1960s. Keynes has written against the ignorance of allowing "decadent and egotistical" speculators and investors of the kind of influence they enjoyed after World War I. Over the two decades after World War II, public opinion strongly opposed private speculators, underestimating the label "Gnome of ZÃÆ'¼rich" how they are described during this period. International speculation is heavily restricted by capital controls in place after Bretton Woods. According to journalists Larry Elliott and Dan Atkinson, 1968 is a very important year when power shifts in favor of private agents such as currency speculators. As a key 1968 event Elliott and Atkinson chose the American suspension of converting dollars into gold except at the request of a foreign government, which they identified as the beginning of the Bretton Woods system damage.
Critics of Keynesian ideas began to gain significant acceptance in the early 1970s, as they were then able to make a credible case that Keynesian models no longer reflect economic reality. Keynes himself incorporated some formulas and no explicit mathematical models in Theory Generally . For economists like Hyman Minsky, the limited use of mathematics by Keynes is partly the result of his skepticism about whether phenomena are as inherently uncertain because economic activity can be adequately captured by the mathematical model. However, many models are developed by Keynesian economists, with the famous example being the Phillips curve which foresaw an inverse relationship between unemployment and inflation. This implies that unemployment can be reduced by government stimulus at a cost that can be calculated for inflation. In 1968, Milton Friedman published a paper stating that the fixed relationship shown by the Philips curve did not exist. Friedman suggests that sustainable Keynesian policies can lead to unemployment and inflation rising all at once - a phenomenon soon to become known as stagflation. In the early 1970s, stagflation appeared in the United States and Britain exactly as Friedman predicted, with worsening economic conditions following the 1973 oil crisis. Aided by the prestige gained from his successful predictions, Friedman led an increasingly successful critique of the Keynesian consensus , assuring not only academics and politicians but also many common people with radio and television broadcasts. The academic credibility of the Keynesian economy is further undermined by additional criticism from other monetary experts trained in Chicago's economic school, by Lucas criticism and by criticism from the Hayek School of Austria. So successful were these critics that in 1980 Robert Lucas claimed that economists were often offended if described as Keynesians.
Keynesian principles fared badly on the practical side of the economy - in 1979 they had been replaced by monetarism as a major influence on Anglo-American economic policy. However, many officials on both sides of the Atlantic maintained a preference for Keynes, and in 1984 the Federal Reserve formally threw out monetarism, after Keynesian principles made a partial comeback as an influence on policy-making. Not all academics accept criticism of Keynes - Minsky argues that Keynesian economics has been degraded by the excessive mixing with neoclassical ideas of the 1950s, and it is unfortunate that this economic branch even continues to be called "Keynesian". Writing in The American Prospect Robert Kuttner argues that not too many excessive Keynesian activism caused economic problems in the 1970s but the disruption of the Bretton Woods capital control system, which allowed the capital flight from the regulated economy to in an unregulated economy in a manner similar to Gresham's legal phenomenon (where a weak currency is damaging the strong currency). Historian Peter Pugh has stated that the main cause of economic problems that plagued America in the 1970s was the refusal to raise taxes to finance the Vietnam War, which contradicts Keynesian suggestions.
A more general response is to accept some elements of criticism while refining Keynesian economic theory to defend it against arguments that will break the entire Keynesian framework - the body of work largely comprising the New Keynesian economy. In 1992, Alan Blinder wrote of "Keynesian Restoration", because the work based on Keynesian ideas to some extent became fashionable once again in the academic world, although in the mainstream it was highly synthesized with monetarism and other neoclassical thought. In the policy-making world, the widespread sympathetic effect of free markets on monetarism remains very strong at the government level - in strong normative institutions such as the World Bank, the IMF and the US Treasury, and in leading opinion forming media such as the Financial Times > and The Economist .
Keynesian resurgence 2008-09
The 2007-08 global financial crisis led to public skepticism about free market consensus even from some on the right side of the economy. In March 2008, Martin Wolf, the premier economic commentator at the Financial Times, announced the death of the dream of global free market capitalism. In the same month, macroeconomist James K. Galbraith used the 25th Annual Milton Friedman Combined Lecture to launch a massive assault on monetary economic consensus and argued that the Keynesian economy is far more relevant to overcoming the emerging crisis. Economist Robert J. Shiller has begun to advocate strong government intervention to overcome the financial crisis, especially quoting Keynes. Nobel laureate Paul Krugman is also actively debating the ongoing Keynesian intervention in the economy in his column for The New York Times. Other prominent economic commentators who argue for Keynesian government intervention to reduce the financial crisis include George Akerlof, J. Bradford DeLong, Robert Reich, and Joseph Stiglitz. Newspapers and other media also cite works related to Keynes by Hyman Minsky, Robert Skidelsky, Donald Markwell, and Axel Leijonhufvud.
A series of large bailout funds were pursued during the financial crisis, beginning on September 7 with the announcement that the US Government will nationalize two government-sponsored companies overseeing most of the US sub-prime mortgage markets - Fannie Mae and Freddie Mac. In October, Alistair Darling, Minister of Finance of the United Kingdom, referred to Keynes when he announced plans for a large fiscal stimulus to prevent the worst effects of the recession, according to Keynesian economic thinking. A similar policy has been adopted by other governments around the world. This is in stark contrast to the actions imposed on Indonesia during the 1997 Asian financial crisis, when the IMF was forced to close 16 banks at the same time, prompting the bank to run. Most post-crisis discussions reflect Keynes's advocacy of international coordination of fiscal or monetary stimulus, and international economic institutions such as the IMF and the World Bank, which many argue should be reformed as "new Bretton Woods", and should have even before the crisis. The IMF and UN economists advocate a co-ordinated international approach to fiscal stimulus. Donald Markwell argues that in the absence of such an international approach there would be a risk of worsening international relations and perhaps even a world war arising from economic factors similar to those that existed during the depression of the 1930s.
At the end of December 2008, the Financial Times reported that "a sudden revival of Keynesian policies is a remarkable reversal of orthodoxy over the last few decades." In December 2008, Paul Krugman released his book The Return of Depression Economics and the Crisis of 2008, arguing that economic conditions similar to what existed during the early part of the twentieth century have returned, making recipes Keynesian policy is more relevant than ever. In February 2009 Robert J. Shiller and George Akerlof published Animal Spirits, a book in which they argue that the current US stimulus package is too small for not taking into account Keynes's insight into the importance of trust and hope. in determining the behavior of future business actors and other economic agents.
In a March 2009 speech entitled Reform of the International Monetary System , Zhou Xiaochuan, governor of the People's Bank of China, came out to support Keynes's idea of ​​a centrally managed central reserve currency. Zhou argues that it is unfortunate that part of the reason for the Bretton Woods system broke down was the failure to adopt the Keynesian treasurer. Zhou proposed a gradual step towards increasing the use of special IMF drawing rights (SDRs). Although the idea of ​​Zhou has not been widely accepted, leaders who met in April at the 2009 G-20 summit agreed to allow $ 250 billion in special drawing rights to be made by the IMF, to be distributed globally. The stimulus plan is credited to contribute to a better-than-expected economic outlook by the OECD and the IMF, in a report published in June and July 2009. Both organizations warned global leaders that recovery is likely to be slow, so counter-recession measures should not return too early.
While the need for stimulus measures is widely accepted among policymakers, there is much debate about how to fund expenditures. Some leaders and institutions, such as Angela Merkel and the European Central Bank, expressed concern over the potential impact on inflation, national debt, and the risk that too much stimulus will create an unsustainable recovery.
Among the professional economists, the Keynesian economic revival is even more divisive. Although many economists, such as George Akerlof, Paul Krugman, Robert Shiller, and Joseph Stiglitz, support the Keynesian stimulus, others do not believe higher government spending will help the US economy recover from the Great Recession. Some economists, such as Robert Lucas, question the theoretical basis for the stimulus package. Others, such as Robert Barro and Gary Becker, say that empirical evidence for the beneficial effects of the Keynesian stimulus does not exist. However, there is an evolving academic literature that shows that fiscal expansion helps the economy grow in the near future, and that certain types of fiscal stimuli are very effective.
Reception and display
Praise
Keynes's new economic thinking began to reach universal acceptance in the last few years of his life. On a personal level, Keynes's charms were such that he was generally well received wherever he went - even those who found themselves on the wrong side of his sometimes sharp tongue, rarely harbored a grudge. Keynes's speech at the close of the Bretton Woods negotiations was received with eternal applause, rare in international relations, as delegates acknowledged the scale of his achievements made despite his poor health.
Austrian School Economist Friedrich Hayek is the most prominent contemporary critic of Keynes, with a keen view on the economy. But after Keynes's death, he wrote: "He is a truly great man I have ever known, and for whom I have infinite admiration, the world will be a very poor place without him."
Lionel Robbins, former head of the department of economics at the London School of Economics, who was involved in many heated debates with Keynes in the 1930s, said this after observing Keynes in his initial negotiations with America while drafting a plan for Bretton Woods:
It went very well. Keynes is in the clearest and persuasive mood: and the effect is unbearable. At such moments, I often find myself thinking that Keynes must be one of the most remarkable men ever to have lived - fast logic, birdlike intuition, life vision, broad vision, especially the soundness of words, all joins to make something a few degrees beyond the limits of ordinary human achievement.
Douglas LePan, an official of the Canadian High Commission, wrote:
I was fascinated. This is the loveliest creature I've ever heard. Does he belong to our species? Or is he from some other order? There is something mystical and extraordinary about him. I feel in him something big and sphinx like, but also a little wing.
Bertrand Russell named Keynes one of the most intelligent people he had ever known, commented:
Keynes's intelligence is the sharpest and clearest I have ever known. When I argue with her, I feel that I take my life in my hands, and I rarely show up without feeling something stupid.
Keynes's obituary in The Times puts the comment: "There is a man himself - radiant, brilliant, bubbly, gay, full of mischievous jokes... He is a human human being who is totally faithful to the cause of the common good. "
Criticism
As a central figure portrayed by some as having the greatest impact of any twentieth-century economist, Keynes draws much criticism from both sides of the political spectrum. In the 1920s, Keynes was seen as anti-forming and was especially attacked from the right. In the 'red 1930s', many young economists favor Marxist views, even in Cambridge, and when Keynes is basically involved with the right to try to persuade them about the benefits of a more progressive policy, the most vociferous criticism of him comes from the left. , who see it as a supporter of capitalism. From 1950 onwards, most of the attacks on Keynes returned from the right.
In 1931 Friedrich Hayek extensively criticized Keynes's 1930 Treatise on Money. After reading Hayek's The Road to Serfdom Keynes wrote to Hayek "Morally and philosophically I find myself agreeing with almost the whole", but concludes the letter with a recommendation:
Therefore, what we need, in my opinion, is not a change in our economic program, which will only lead to the practice of disappointment with the outcome of your philosophy; but probably the opposite, that is, their enlargement. Your greatest danger is the possible failure of the practical application of your philosophy in the United States.
Regarding the urgent issue at the time, whether deficit spending could lift the country from depression, Keynes replied to Hayek's critique in the following way:
I have to... conclude somewhat differently. I have to say that what we want is no planning, or even lack of planning, indeed I must say we almost certainly want more. But planning should be done in a community where as many people as possible, both leaders and followers fully share your own moral position. Moderate planning will be quite safe if those who implement it are really oriented to their own minds and hearts to moral issues.
Asked why Keynes declared a "moral and philosophical" agreement with Hayek's Road to Serfdom Hayek stated:
Because he believes that he is basically still a classical British liberal and is not so aware of how far he has moved away from him. The basic idea is still individual freedom. He did not think systematically enough to see the conflict. He is, in some sense, undermined by political necessity.
According to some observers, Hayek felt that the post-World War II "post-World War II orthodoxy" gave too much power to the state, and that such a policy would lead to socialism.
While Milton Friedman describes The General Theory as a "great book," he argues that the implicit separation of the nominal from the real magnitudes is unlikely and undesirable. Macroeconomic policies, Friedman argues, can be trusted only to affect the nominal. He and other monetheists have argued that the Keynesian economy can produce stagflation, a combination of low growth and high inflation that developed the economy suffered in the early 1970s. More to Friedman's taste is the Tract on Monetary Reform (1923), which he considers to be Keynes's best work because of its focus on maintaining domestic price stability.
Joseph Schumpeter was an economist of the same age as Keynes and one of his main rivals. He is one of the first reviewers to argue that General Theory The General is not a general theory, but is actually a special case. He said the work expressed "the stance of rotting civilization". After Keynes's death, Schumpeter wrote a short biography of Keynes the Economist - on a personal level he was very positive about Keynes as a man, praising his pleasant nature, courtesy and kindness. He judges some of Keynes's biographical and editorial work as one of the best he has ever seen. But Schumpeter remained critical of Keynes's economy, linking Keynes's disobedience to what Schumpeter sees as a short-term view. He considered Keynes to have some kind of unconscious patriotism that caused him to fail to understand the problems of other countries. For Schumpeter "Practical Keynesianism is a seed that can not be transplanted to a foreign land: it dies there and becomes poisoned when it dies."
President Harry S. Truman was skeptical of Keynesian theory: "Nobody can convince me that the government can spend an unearned dollar," he told Leon Keyserling, a Keynesian economist who heads the Truman Economic Advisory Council.
Display in race
Keynes sometimes describes the mass killings that occurred during the first years of communist Russia racially, as part of the "Russian and Jewish nature", not as a result of the communist government. After traveling to Russia, he writes in his brief overview of Russia that there is "disgust at the nature of Russia and Jews when, as now, they are allying". He also wrote that "from the cruelty and stupidity of Old Russia nothing can arise, but (...) under the cruelty and ignorance of New Russia an ideal spy may be hiding", which along with other comments may be interpreted as anti-Russian and antisemitic.
Some critics, including Murray Rothbard, have attempted to show that Keynes sympathizes with Nazism, and some authors describe it as antisemitism. Keynes's personal letter contains portraits and descriptions, some of which can be characterized as antisemitic, others as philosemitic. Scholars have suggested that this reflects the current clich that time he received uncritically, rather than racism. On several occasions Keynes used his influence to help his Jewish friends, especially when he succeeded in lobbying for Ludwig Wittgenstein to be allowed to stay in England, explicitly to save him from being deported to Nazi-occupied Austria. Keynes is a supporter of Zionism, serving on committees that support the struggle.
The accusation that he is racist or has totalitarian belief has been rejected by Robert Skidelsky and other biographers. Professor Gordon Fletcher writes that "the suggestion of the relationship between Keynes and the support of totalitarianism is untenable". Once the Nazi's aggressive tendency toward Jews and other minorities became clear, Keynes explained his disgust at Nazism. As a lifelong pacifist, he initially liked the peaceful arrest of Nazi Germany, but he began advocating a strong resolution while many conservatives still argued for ease. After the war began, he criticized the Left for losing his courage to face Hitler:
Left intelligentsia is the most violent in demanding that Nazi aggression should be opposed by all means. When it comes to a dispute, a rare four weeks have passed before they remember that they are pacifist and write defeat letters to your column, leaving the defense of freedom and civilization for Colonel Blimp and Old School Tie, for whom the Three Cheers.
Inflation view
Keynes has been characterized as unconcerned or even positive about mild inflation. He does indeed state the preference for inflation over deflation, saying that if one has to choose between two crimes, it "better disappoints the tenant" rather than causing pain to the working class family. He also supports German hyperinflation as a way to be free of reparations obligations. However, Keynes is also aware of the dangers of inflation. In The Economic Consequences of the Peace , he writes:
Lenin is said to have declared that the best way to destroy the Capitalist System is to belittle the currency. With the ongoing inflation process, the government can seize, secretly and unobserved, an important part of the wealth of its citizens. Nothing is finer, there is no more definite way to reverse the existing community base than to undermine the currency. This process involves all the hidden forces of economic law on the side of destruction, and does so in a way that no one in a million people can afford to diagnose.
Display on trade imbalance
He is the lead author of a proposal - called the Keynes Plan - for the International Clearing Union. The two governing principles of the plan are that the settlement of balances must be solved by 'creating' additional 'international money', and that the debtor and creditor must be treated almost equally as a disturbance of equilibrium. But in the event, the plan was rejected, in part because "American Opinion is naturally reluctant to accept the principle of equality of treatment so the novel is in debtor-creditor relations".
This new system is not based on free trade (foreign trade liberalization) but rather on international trade arrangements, to eliminate trade imbalances: countries with surpluses will have an incentive to mitigate it, and in doing so they will automatically remove the deficit of countries other. He proposes a global bank that will issue its own currency - a bancor - which can be exchanged with the national currency at a fixed exchange rate and will be an inter-state account unit, meaning it will be used to measure the trade deficit or trade of a country. advantages. Each country will have an overdraft facility in its bancor account at the International Clearing Union. He pointed out that surpluses cause weak global aggregate demand - surplus-issuing nations issuing "negative externalities" to trading partners, and posing far more than those with deficits, threats to global prosperity.
In "National Self-Sufficiency" The Yale Review, Vol. 22, no. 4 (June 1933) , he has already highlighted the problems created by free trade.
His view, supported by many economists and commentators at the time, was that the creditor countries might be as responsible as the debtor country for the imbalance in exchange and that both should be under obligation to bring trade back to a balanced state. Failure for them to do so can have serious consequences. In the words of Geoffrey Crowther, then editor of The Economist, "If economic relations between countries do not, in one way or another, bring close enough to balance, then there is no set of financial arrangements that can save the world from impoverishing the results of chaos."
These ideas were informed by events before the Great Depression when - in Keynes's opinion and others - international loans, especially by the US, exceeded the capacity of sound investments and were thus diverted to non-productive and speculative uses, which in turn were invited default and stopping abruptly for the lending process.
Influenced by Keynes, the economic texts in the postwar period immediately provided a significant emphasis on trade balance. For example, the second edition of the popular introduction book, Outline of Money
Source of the article : Wikipedia
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