John Maynard Keynes was an early 20th-century British economist, best known as the founder of Keynesian economics and the father of modern macroeconomics. One of the hallmarks of Keynesian economics is the idea that governments should actively try to influence the course of economies, especially by increasing spending to stimulate demand in the face of a recession.
In his seminal work, “The General Theory of Employment, Interest, and Money”—considered one of the most influential economics books in history—Keynes advocated for government intervention as a solution to high unemployment.
Key Takeaways
- British economist John Maynard Keynes was the founder of Keynesian economics.
- Keynesian economics argues that demand drives supply.
- To create jobs and boost consumer buying power during a recession, Keynes held that governments should increase spending, even if it means going into debt.
- Critics attack Keynesian economics for promoting deficit spending, stifling private investment, and causing inflation.
Seed of Education and Vision
Keynes’ early interest in economics was largely influenced by his father, John Neville Keynes, an economics lecturer at Cambridge University. His mother, one of Cambridge’s first female graduates, was active in charitable work for the underprivileged. Born into a middle-class family, Keynes received scholarships to some of England’s most elite schools, Eton College and Cambridge University, where he earned an undergraduate degree in mathematics in 1904.
Early in his career, Keynes worked on probability theory and lectured in economics as a fellow of King’s College at Cambridge University. His government roles ranged from official positions in the British Civil Service and the British Treasury to appointments to royal commissions on currency and finance.
Advocacy for Economic Intervention
Initially a proponent of laissez-faire economics, an economic philosophy that opposes government intervention, Keynes’ perspective shifted dramatically following the 1929 stock market crash that led to the Great Depression. He then advocated for government intervention to curb unemployment and correct economic recession.
Keynes argued that increased government spending was necessary to decrease unemployment, even if it led to a budget deficit.
What Is Keynesian Economics?
The theories of John Maynard Keynes, known as Keynesian economics, center around the idea that governments should play an active role in their countries’ economies. Specifically, Keynes advocated federal spending to mitigate downturns in business cycles. The most basic principle of Keynesian economics is that demand, not supply, is the driving force of an economy.
Criticism of Keynesian Economics
Although widely adopted after World War II, Keynesian economics has attracted criticism. Rival economic theorists, like those from the Chicago School of Economics, argue that economic recessions and booms are part of the natural order of business cycles, and that direct government intervention only worsens the recovery process.
The most famous critic of Keynesian economics was Milton Friedman, an American economist best known for his advocacy of free-market capitalism and monetarism. Friedman and fellow monetarists believed that governments could foster economic stability by targeting the growth rate of the money supply.
Keynesian vs. Laissez-Faire Economics
With its advocacy of government intervention in the economy, Keynesian economics is in sharp contrast to laissez-faire economics, which argues that the less the government is involved in economic affairs, the better for business and society as a whole.
Examples of Keynesian Economics
The New Deal
The onset of the Great Depression in the 1930s significantly influenced Keynes’ economic theories and led to the widespread adoption of his policies. President Franklin Roosevelt enacted the New Deal, a series of government programs directly reflecting Keynesian principles. The U.S government intervened to stimulate the national economy by creating several agencies to provide jobs and stabilize consumer prices. Roosevelt also adopted Keynes’ policy of expanded deficit spending.
Great Recession Spending
In response to the Great Recession of 2007-2009, President Barack Obama took several steps reflecting Keynesian economic theory. The federal government intervened with bailout programs and a stimulus package designed to save jobs and create new ones.
COVID-19 Stimulus Checks
In response to the COVID-19 pandemic in 2020, the U.S. government offered a variety of relief and loan programs along with issuing direct aid in the form of stimulus checks under Presidents Donald Trump and Joseph Biden.
A Changing Legacy
Since the 1930s, Keynesian economics has seen fluctuating levels of popularity and significant revisions. However, the core idea that governments have a role to play in economic affairs has left an indelible mark. While the extent and nature of government intervention remain debated, the Keynesian legacy persists in economic policies worldwide.
Related Terms: Milton Friedman, Laissez-Faire Economics, Great Depression, New Deal, Monetary Policy, Fiscal Policy.
References
- Encyclopedia of Mathematics. “John Maynard Keynes”.
- John Maynard Keynes. The General Theory of Employment, Interest, and Money. Palgrave Macmillan, 1936.
- The Nobel Foundation. “Nobel Memorial Lecture-Inflation and Unemployment”, Page 8.
- U.S. Department of State-Office of the Historian. “Biographies of the Secretaries of State-Henry Clay (1777–1852)”.
- Maynardkeynes.org. “After the War (The World Bank, the IMF, and the End) 1945 to 1946”.
- The American Economist. “Examining…Keynes’s Most Popular Statements…In The Long Run We Are All Dead”, See Abstract.
- University of Cambridge, Marshall Library. “The Economic Consequences of the Peace, by John Maynard Keynes, 1919”.
