For many, the name Keynes is likely to be associated more with Milton, rather than John. Whilst Milton Keynes has given great joy to those who are into roundabouts and concrete cows, indeed great joy to those too, who celebrate any success story for the po-faced central bureaucrat, it is John Maynard Keynes who has arguably done more to shape modern history. The economist and philosopher’s late-night brainstorming would go on to fundamentally change the theory and practice of macroeconomics. He is, in certain circles, a very big deal. And today, with all the talk of deficit spending, highly relevant to all: from money mandarins to politicians, to those who stare bug-eyed at the TV news wondering what it all means. Relevant to all.
And yet for those whose youth was spent with nose in a Panini sticker album rather than contorting one’s mojo through the higher rounds of academia, the question of what the great man thought, is liable to draw a long face and some weak comments alluding to being one Gary Mabbutt short of completing a rare 1993 full house.
Keynes hailed from Cambridge, where his father was an economist and lecturer of moral sciences. Scholarships flowed, at Eton and King’s College, off the back of some flair shown – as you might imagine – in the maths department. He flourished, excelling at pretty much everything, was President of the Union Society, and joined the Apostles. On graduation he worked in the Civil Service but given the vast fertile expanses of his mind, it is no surprise that he soon got bored and went back to King’s to sweat out some probability theory with some equally up for it fellow, fellows.
Success followed and by the break of WWI his name was in the mix when the hollow-cheeked politicians wanted to speak to someone who might be good in a fiscal fix. Which they obviously, very much, were. Keynes took up a position at the Treasury. After the war he pow-wowed it out at Versailles, whispered high-brow advice in smoky clubs to those who needed it, became a peer, and served in the Court of Directors at the Bank of England. Job done.
It was, though, his work on trying to grapple with the sticky relationship between unemployment, money and prices that really flavoured the casserole of economic theory. Central to his thinking was that governments needed to spend their way out of trouble. Leave people to their own devices and when times are tough, they’ll stuff their money into a suitcase under the bed and stay at home drinking tea and playing bridge. This would mean companies wouldn’t sell anything, slump into a loss, and fire everyone.
For politicians, this is no good. Unemployment would soar. In reference to the Great Depression – a global economic shock that was triggered by the Wall Street crash of 1929 and walloped the chops of pretty much everyone in the 1930s – Keynes wrote “For government borrowing of one kind or another is nature’s remedy, so to speak, for preventing business losses from being, in so severe a slump as the present one, so great as to bring production altogether to a standstill”. His book The Means to Prosperity published in 1933 at the height of the depression set out what governments should do. Basically, they should spend, spend, spend.
It was only after the publication The General Theory of Employment, Interest and Money, a weighty tome that was published in 1936, that his ideas really started to crack the staid, orthodox thinking around fiscal intervention being a bad idea; and it was in the US where his ideas initially got the most traction round about the outbreak of WWII. Keynes stuck it to the prevailing neoclassical approach by suggesting that demand, and not supply, was key to getting the arms around unemployment. If unemployment is too high, do something about it.
The General Theory poked the hornets’ nest and triggered a lot of reviews and comment in journals and newspapers around the world. Even those who didn’t like change, acknowledged it raised a few good points. As with all big ideas, it was the youth that really went after it with shiny eyes and flared nostrils. The ideas were so profound though, so sharp, that Murray Rothbard, an American economist who was a lively proponent of the Austrian School – a view that economic theory should be exclusively derived from basic principles of human action – and deep in the opposite camp to Keynes, wrote: ‘the General Theory was, at least in the short run, one of the most dazzlingly successful books of all time”. By the end of the 1930s, Keynes had pretty much swept the board in academic circles and many of those who had been hardcore supporters of Friedrich Hayek, a major contributor to the Austrian School, had turned tail. ‘Spend it all’ they quietly cooed.
Although his ideas hit the mainstream, Keyne’s didn’t get too involved in the heated debates that followed as he suffered a heart attack in 1937 and had to spend long periods, resting up, drinking tea, and playing bridge. As a result, his revolutionary ideas got diluted a bit by those who wanted to weld his ideas into classical economics when it came to actual policy.
Those doing the welding were the likes of John Hicks, Franco Modigliani and Paul Samuelson who bossed the field of post-war economics much like Suarez, Neymar and Messi once bossed the Nou Camp; should any Panini collectors still be reading. The subsequent movement became known as neoclassical synthesis and was the go-to approach for most policy makers until the stagflation of the 1970s, and the work of monetarists like Milton Friedman started picking at the seams of neo-Keynesian conceptions of monetary theory.
Indeed, Friedman was not alone, and Keynes’ theories are not without critics. The cat calling mainly comes from those who think it imprudent to give the state a blank cheque. A problem that is currently being played out in real time, as many elected officials around the world try to gee up economic activity and keep themselves in chauffeured cars.
After a life dedicated to making things work better for everyone, a life that was prominent at Bretton Woods in helping set up mega institutions such as the World Bank and the IMF, Keynes died of a heart attack in 1946, aged just 62. His considerable achievements were only matched by his personal charm and sense of humanity. He was revered and universally respected. Hayek, his most prominent critic, and arch intellectual enemy, summed it up by writing after his death: ‘He was the only really great man I ever knew, and for whom I had unbounded admiration.’ High praise, indeed.
Next holiday – perhaps think less Jilly Cooper, more John Maynard Keynes.
Hepburnsays 