After the crash, we need a revolution in the way we teach economics

Students who claim that economics courses fail to explain the 2008 crash are gaining support from British business. Here, two Cambridge academics agree it's time for a change
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• • Ha-Joon Chang and Jonathan Aldred
  • The Observer, Sunday 11 May 2014
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Economics graduates at Manchester University who joined the protests at what they felt was teaching that did not fit them for real-life challenges. Photograph: Jon Super for the Observer

All academics think their own subjects are unique – distinctively difficult, unusually useful, exceptionally elegant, and what have you. But the two of us think our subject – economics – is truly unique.
We do not take pride in saying this. On the contrary, we are ashamed. Because what makes economics so unique is the fact that it is the only academic discipline in which a significant and increasing number of students are in an open revolt against the content of their degree courses.
The discontent has been brewing since the outbreak of the 2008 financial crisis, when students found out that their professors have little to offer in terms of explanation of the biggest financial crisis in three generations, not to speak of some of them having been cheerleaders of reckless financial expansion.
But recently student economists in many UK universities – including Manchester, Cambridge, University College London, Essex, the London School of Economics, the School of Oriental and African Studies – have begun organised protest against the content of their degree courses. They argue that their degrees are not fit for purpose, whether that purpose is preparing students for their future careers in the "real world", or more broadly, equipping them with a good understanding of real world economies.
This phenomenon is not unique to the UK. Similar movements are springing up in the United States, Germany, France, Brazil, Chile, India and other countries. Now there is even a global alliance between these student groups, under the banner of the International Student Initiative for Pluralist Economics.
Complaints about the content of economics degrees do not just come from students, whose youthful arrogance and idealism might make them see every theory as wanting, and every economic policy a manifestation of some conspiracy. The students are increasingly being joined in this protest by leading employers of economics graduates, from the Bank of England, the civil service and the City.
Employers complain that recent economics graduates, while being technically proficient, know very little about the real world. Lacking knowledge about the historical backgrounds, institutional details and political idioms of real-world economies, they end up being idiot savants – they can manipulate most complicated mathematical models but cannot translate their insights into business strategies and economic policies in the real world.
Another complaint is that, when graduate economists do have something to say about the real-world economy, their advice is incomprehensible to noneconomists – and noneconomists make up almost all their audience. And, finally, there is the nagging doubt that the advice may simply be incorrect.
It is no coincidence that employers of economists, who had been privately despairing about the direction of academic economics for years, started to express their concerns more publicly after the financial crisis hit in 2008.
To summarise bluntly, students and many employers feel that the typical economics graduate today receives a training that is irrelevant to understanding real economies, incomprehensible to the target audiences for economic advice, and often just plain incorrect.

What needs to change? – 'Back to the future'

Students, employers and many economists from outside academia are in broad agreement about necessary changes.
Students need to learn more about the real world. They need to know about the current state of the world economy, the history of capitalism (including the history of finance), and some details about specific contemporary economies – why are the Chinese or the German economies so different from the UK one, for example?
Many observers advocate "economic pluralism": students should be introduced to different approaches to economics. Free-market economics alone has three distinctive varieties – the Classical (Adam Smith and David Ricardo) and the Austrian (Friedrich Hayek) schools, as well as the Neoclassical school, which is today's "mainstream" economics. Beyond that, there are many other influential schools of economic thinking, including Keynesian, Marxist, Schumpeterian, Institutionalist, Developmentalist, and Behaviouralist. All these different modes of analysis have their strengths and weaknesses, so students need to know something about all of them, because a good analysis of complex real-world problems demands more than one analytical perspective.
Another common suggestion is that students need a wider range of empirical skills. Nowadays students are just taught econometrics (application of sophisticated statistical techniques to large data sets). They should also be introduced to national accounts, company balance sheets, flow-of-funds accounts, surveys and interview techniques. These tools are routinely used in many jobs which economics students enter after their graduation.
The striking thing about most of these proposals is that they are not radical departures, but "back to the future" – topics and skills that used to be routinely taught in undergraduate economics degrees. In the past, economics was taught as a series of interrelated debates about competing theories and the different policy recommendations of those theories. Imprecise, even messy, but useful. This approach to teaching economics could work well today – it is how other social sciences are taught and there are no good reasons for treating economics differently. But the modern economics degree is so unlike this picture that it is unrecognisable to other social scientists – and equally unrecognisable to anyone who was an undergraduate economist more than twenty years ago.
Of course, undergraduates also need to be made aware of important new ideas and theories that did not feature on past courses. Behavioural economics is frequently mentioned, and now so established that it barely qualifies as "new", yet many undergraduate courses (such as the one in Cambridge) still completely ignore it. And even when mainstream economists do introduce behavioural economics to undergraduates, they mostly teach a watered-down version, stripped of the bits which contradict mainstream economic theory.
The psychologist Daniel Kahneman, who won the Nobel prize for his work in this field, warned in his prize lecture that orthodox behavioural economics is hard to reconcile with his analysis (as in his book Thinking, Fast and Slow) of how people actually make decisions.
In recent years, when we meet people living outside the academic bubble, from taxi drivers to fund managers, and they learn that we are university economists, they often say the same thing: "You must have had to rewrite the course."
And they are always shocked when we explain that in Cambridge, like every other elite university, the undergraduate economics curriculum has remained almost the same. Effectively no change, not even marginal acknowledgement that something might be wrong with conventional economic theories that, among other things, failed to see the 2008 financial crisis coming and can't satisfactorily explain it even in hindsight.
So here is the puzzle: why has the curriculum not changed, given that so many "consumers" – students and employers – are dissatisfied with economics education today, and that there is a broad and not-so-radical consensus on the changes required? The answer lies in the peculiar view of economics adopted by most mainstream economists.

Economics as the science of 'everything'

The most important thing about mainstream economics today – and a source of pride among many of its supporters – is that it is not limited to the study of anything in particular, including the economy. It is defined by its tools of analysis (mathematical models mostly involving optimisation and equilibrium), rather than the object of inquiry.
The prevalence of this view is why so many popular economics books of recent years have claimed to be about "everything". Prominent examples include Freakonomics – probably the best-known economics book of our time – and the first volume in the Economic Naturalist book series by Robert Frank, the Cornell University professor and New York Times columnist, whose subtitle is Why Economics Explains Almost Everything (what modesty!)
This strange definition of economics, in terms of tools rather than objects of inquiry, explains a lot about why mainstream economists resist curriculum reform. They have constructed a Kafkaesque world in which proposed reforms are rejected because they are redundant, as economics already has tools to analyse "everything". At the same time, if reforms involve issues that the existing theories cannot explain well, they are rejected because they would take the curriculum outside the domain of economics. Challenged, for example, to introduce to the economics syllabus the study of the actual behaviour of traders in financial markets, academics defending the status quo reply that, first, their models can already capture the behaviour of "rational" traders, and second, the descriptive study of the actual behaviour of traders is a subject for sociologists, historians or psychologists.
In this world view, subjects such as economic and financial history, or the detailed empirical study of specific contemporary economies, are also topics best left outside the undergraduate course. Most (but not all) mainstream economists may recognise the value in studying these topics, but they are too peripheral to their understanding of what economics is for them to be given much space in the course. Students in Norway who asked to study real economies in their courses were told by their professors: "Our task is to give you an analytical framework, you have the rest of your lives to learn about current affairs."
Part of the self-image of most academic economists today is that the core of the subject is an established, settled science. At the frontiers of research, there may be controversy and even turmoil, but the undergraduate curriculum need not be disturbed, because it reflects the core of agreed theories – or at least an agreed mathematical toolkit – emerging from years of steady progress. This settled science can effectively be codified in textbooks, which include essentially everything that undergraduates need to know.
From this perspective, teaching undergraduates economics as a series of interconnected debates at best risks needlessly confusing students and at worst actively misleading them by suggesting problems or gaps in the theories where there are none (well, at least none that impressionable young students need to worry about). This is unfortunately the view taken by a leading group of curriculum reformers among mainstream economists – the CORE project group, whose proposals were recently launched with prominent media coverage in a conference at the UK Treasury. Assuming that economics is a settled science, or at least insisting that it be presented as such to undergraduates so as not to confuse them, is a serious obstacle to meaningful reform.
Academic economics, in any flavour or school of thought, is not characterised by steady scientific progress just because economists wish it were so. It is not hard to find evidence of mainstream economists being overconfident about their knowledge – think of all their declarations, in the years before the 2008 crisis, that the days of economic fluctuation and instability were over.
Even after the crisis, some economists show a stubbornness bordering on arrogance in their refusal to acknowledge the flaws in core theory. In a 2010 interview in the depths of recession, Nobel laureate Tom Sargent refused to accept any of the by then standard criticisms of macroeconomics, insisting instead that the critics showed "woeful ignorance or intentional disregard for what much of modern macroeconomics is about and what it has accomplished". Sargent added: "It is just wrong to say that this financial crisis caught modern macroeconomists by surprise."
There is another kind of arrogance at work in the refusal to reform the curriculum, especially in response to proposals to strengthen its "real world" relevance.
John Maynard Keynes famously said that economics should be like dentistry, by which he meant it should be a modest profession providing practical services to noneconomists, rather than indulging in grand theorising for its own sake. Unfortunately many academic economists seem to have an alternative, ivory-tower-centred view of the world: "pure" research is more prestigious than applied or policy-relevant research, and research is more important than teaching. So, the more detached from the real world your work is, the higher up in the intellectual hierarchy you are.
As a result, undergraduate economics courses are designed to prepare students to do further study leading to an academic research career, when in fact less than 10% of them intend to pursue one. No wonder the students and their future employers find the economics course unfit for purpose.
Given the definition of economics in terms of its toolkit and the importance accorded to "pure" research, the curriculum reform acceptable to most mainstream economists is that which proposes more maths – of the kind needed for an academic career.
Among mainstream economists who accept the need for change, the most popular reform proposal is the introduction of mathematical models of complex nonlinear systems – the kinds of models which, at least with hindsight, might have predicted the 2008 financial crisis.
There is no doubt that these models, and related research in "econophysics", represent a promising new research direction in macroeconomics. But that does not make them, even in simplified form, candidates for a new undergraduate curriculum. Most graduate economists will have no contact with these models in their careers; a few of them may need, at most, to understand their broad insights. A civil servant in the Government Economic Service expressed the requirements for the latter group pithily: government economists need to know how to drive the car, not build it.
This point extends to the teaching of models in the undergraduate course more generally. The focus should be on teaching the underlying ideas and mechanisms which drive the models, rather than the ability to derive all the results mathematically. Training students how to do these mathematical manipulations takes an enormous share of teaching time: this could be reallocated to teaching the new topics and skills mentioned earlier.

Bad economics affects us all

Reform of economics teaching is resisted so strongly by mainstream economists because they find it threatening. It is like asking the medieval Catholic clergy to teach their new recruits different interpretations of Christianity, to stop teaching them exclusively in Latin and teach more in the local vernacular, and to encourage them to challenge the intellectual and the moral authority of the Holy See. No wonder it is so strongly resisted by most mainstream economists, even by those who claim to be interested in reform.
But what does this have to do with everyone outside the academic bubble? Why does it matter that those nerds doing economics degrees are made to jump through one set of hoops rather than another?
Reform of economics education is not just a matter for university economists. The current curriculum frustrates thousands of bright young students who started studying economics thinking that they would learn something useful for making the world a better place and find themselves learning an ersatz theory of "everything" instead. Cynicism about the purpose of economics leads some of the smartest students to careers in investment banking. For employers who recruit economists with first-class degrees, only to find that they possess very narrow skill sets, lack communication skills, and have little knowledge of real economies, the current curriculum hurts their bottom line.
Above all, the future of economics education is ultimately a matter for all of us, because what economists learn in their degree influences what they do later when they make important policy decisions that fundamentally affect our lives – financial deregulation, welfare cuts, gas prices, and healthcare reform. It is time that everyone gets involved in this debate.

Ha-Joon Chang and Jonathan Aldred teach economics at Cambridge University. Chang's Economics: The User's Guide has just been published. Aldred is author of The Skeptical Economist. Chang is appearing at the Bristol Festival of Ideas, in association with the Observer, on Wednesday 14 May

The need for a new Economics

The Vice President of the Cambridge Society for Economic Pluralism

by Marco Schneebalg / Varsity/ 

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Friday 17th January 2014, 12:10 GMT

UK in Italy Even after the crash, Economics teaching has changed little

The shape of the world economy has changed dramatically over the last twenty years, but the economic curriculum has not. Curriculum reform is necessary and long overdue to overhaul some of the outdated concepts that are still being taught. A re-introduction of the intellectual dynamism of pluralism would reinvigorate the discipline. The last twenty years have seen the dotcom bubble burst and the worst financial crisis since the Great Depression. It’s fair to say that economists failed to anticipate the coming of the crisis or its magnitude once it had arrived.
In fact, if anything, there was a sense of self-congratulatory complacency. A tranquil period of steady growth, low inflation and wealth for all was set to continue indefinitely. Then the crisis of 2007/8 arrived and shook the economics establishment out of its happy torpor. Suddenly the discipline burst to life, throwing out now defunct ideas like perfect competition and resuscitating neglected concepts like banks and money to reinvigorate their models.
The Institute for New Economics Thinking was set up to promote research at the frontier of economics to the tune of millions of dollars. Despite this blossoming of new ideas in academia, economics education remains broadly static. Economics continues to be taught as if it were a science. Theories are taught as if they are proven beyond reasonable doubt, rather than fallible, as models of human behaviour must be. Little attempt is made to relate the abstract mathematics we are fed back to the real world, to the economy you see in your day-to-day life.
Some will say that this is harmless, but many students graduate straight into a job where their relative ignorance regarding the status of economics is used to make economic policy decisions using a rationale that academic economists have not believed for decades. Perhaps the most striking example of the effect this can have is the Treasury’s policy of austerity, which has been widely derided as economically harmful by economists – including at the IMF – and yet it’s supported in a typical undergraduate curriculum, where austerity is lauded thanks to its oxymoronic properties of expansionary contraction.
Updating the syllabus to bring it into line with current economic thinking and injecting a bit more realism and critical thinking are uncontroversial changes and as such there can be no excuse for not making them. Indeed, the CORE initiative led by Professor Carlin of UCL and funded (once again) by INET is developing a new first-year undergraduate curriculum that intends to do exactly that.
But is this enough? Opportunities for change are rare, so when they arise it is important to consider whether a more radical transformation is necessary. Should other schools of economic thought enter the syllabus? Would students not benefit from learning about Austrian, Ecological or Feminist schools alongside the dominant neoclassical mainstream?
And perhaps economics should rediscover its relationship with its social science cousins. Is not economics so unavoidably intertwined with psychology, politics, sociology and anthropology that teaching it in isolation is unduly monochromatic? A rising chorus of voices would answer ‘yes’. In January 2013, the Post Crash Economics Society of Manchester University launched its campaign for a more pluralist curriculum. In June, a national body, Rethinking Economics, was launched at an LSE conference that has now expanded to become a network of over 2,000 young people. Indeed, the Cambridge Society for Economic Pluralism has been promoting alternative schools of economic thought since 2011.
There has never been a better moment for economics to be self-critical and carefully consider whether the time for greater pluralism has come.

The Case for Economic pluralism

01/28/2014

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Michel Ghassibe, second year economist at Cambridge University and president of CSEP, explains how the different schools of Economics thought were alternatively in the spotlight throughout the 20th century. The integration of Economic pluralism in one's education is the best solution against these monopolistic shifts between different schools of thought. 

Many schools of thought have always competed for the dominant position in both the academia and the policy-making world. John Maynard Keynes’s School managed to establish an intellectual monopoly in the three decades following the end of World War II. It was centred on the notion that the economy is unstable because consumers and investors are driven by the spontaneous animal spirits. Its solution to these challenges, adopted by governments at the time, was to manage these fluctuations in demand through aggregate demand management by the state, nationalisation and fixed exchange rates to promote an export-led recovery.

It then fell out of fashion rather abruptly when it could not respond to the challenges posed by the supply shock caused by the oil crises of the 1970s, as well as by the low productivity of domestic industries. Economists then re-embraced the Neoclassical school, which had its roots in the early 20th century and concentrated mainly on the supply side of the economy to explain its fluctuations. A neo-liberal stance was accepted, leading to more market deregulation, particularly in the financial and housing sectors. The dominance of this school of thought continued until the 2008 financial crisis, when it could not offer much in response to the collapse of the highly unregulated financial system.

What looks to be a common feature of the above-described intellectual monopoly cycles is that the macroeconomic conditions predetermining the demise of a particular stream of thought are self-induced by the very fact that a monopoly was in place. Indeed, the post-war policy-makers in the UK were not hedging their risks by looking for theories alternative to demand-management until the International Monetary Fund forced James Callaghan to declare that Britain “could no longer spend its way out of a recession”. Notwithstanding the political costs, it could be argued the transition could have been much smoother had such non-Keynesian measures as, for instance, the Public Sector Borrowing Requirement, been introduced earlier.

A similar story continues for the rise and demise of the neo-liberal economic agenda. Given the deregulated financial markets leading to ballooning asset prices, little was to cushion the potential risks carried by the above phenomenon. Just like the major corporations were following Chuck Prince’s advice of “dancing…as long as the music is playing”, policy-makers decided to dance along without any major changes in the regulatory framework, despite a number of warnings coming from such experts as Nouriel Roubini and Nassim Taleb to name a few.

Despite the introduction of an updated Basel III regulatory framework, my perspective is that in the aftermath of the 2008 crisis, both policy-makers and academics are still in a process of search for a new monopoly. In the British context, such grand-scale experiments as successive rounds of quantitative easing joined by austerity seems as rehearsals before an establishment of a new intellectual regime, largely similar to the one preceding the crisis. However, given the past history of monopolies being in place, this looks like a rather risky approach, as the new monopoly will be in place until it catalyses macroeconomic conditions that will make it no longer viable.

But could anything else be done? Yes, there could. The perspective offered by economic pluralism is that when it comes to understanding the economy, there should be no intellectual monopoly in the first place. Policy should be borrowing ideas from a number of schools of thought, which in turn requires an equal consideration to be given to all of them. In the context of British experience, this would mean the post-war economists and policy-makers thinking about potential supply-side measures when demand-management seemed to be leading the recovery, and their colleagues in the late 20th century thinking about the limits of human rationality and sudden booms and busts.

My belief that in order for pluralism to enter both the academia and the policy-making world, it has to be integrated into one’s life in the period of intellectual formation. CSEP’s aim has been to build and sustain a platform for a debate between different schools of economic thought that would encourage interdisciplinarity and promote challenges to the economic mainstream. Luckily, we are not alone in our beginnings. CSEP’s creation also foreshadowed the emergence of many similar societies across the UK. In January 2013 the Post Crash Economics Society of Manchester University launched its campaign for a more pluralist curriculum which has featured in a number of Guardian articles. In June 2013 a national body, Rethinking Economics was launched at an LSE conference which has now expanded to become a network of over 2000 young people and has branches as far afield as the US, Canada, Germany, and France...

Michel Ghassibe

CSEP: Cambridge Society for Economic Pluralism

Synopsis of Social Credit

 

The following is a collaborative effort between Wally Klinck and myself (The blogger of Social Credit blogspot).

Introduction

The term Social Credit, as a formal name, originated from the writings of the British engineer and originator of the Social Credit movement, Clifford Hugh Douglas (1879-1952), who wrote a book by that name in 1924. Douglas, a civil engineer who had pursued his higher education at Cambridge University, had published previously, most notably in the British intellectual journal The New Age whose editor, Alfred Orage, became converted to Douglas’s ideas and, subsequently devoted The New Age and latterly The New English Weekly, after a ten year sojourn in the United States, to promulgation of those ideas until his death on the eve of his BBC speech on Social Credit, November 5, 1934, in the “Poverty in Plenty” Series. Douglas’s first book Economic Democracy was published in 1920, shortly after his article “The Delusion of Super-Production” appeared in 1918 in the English Review. Among Douglas’s other early works were The Control and Distribution of Production, Credit-Power and Democracy and Warning Democracy and The Monopoly of Credit. Of considerable interest is the Evidence that he presented to the Canadian House of Commons Select Committee on Banking and Commerce in 1923, to the British Parliamentary Macmillan Committee on Finance and Industry in 1930, which included exchanges with economist J. M. Keynes, and to the Agricultural Committee of the Alberta Legislature in 1934 during the term of the United Farmers of Alberta Government in that Canadian Province.

Douglas’s prolific writings spawned a worldwide movement, most prominent in the British Commonwealth but with beachheads in Europe and activities in the United States where Orage, during his sojourn there, promoted Douglas’s ideas. In the United States, the New Democracy group was headed by the American author Gorham Munson who contributed a major book on Social Credit titled Aladdin’s Lamp: The Wealth of the American People (New York: Creative Age Press, 1945.). While Canada and New Zealand had electoral successes with “Social Credit” political parties, the movement in England and Australia was primarily devoted to pressuring existing parties to implement Social Credit: this function was performed especially by Douglas’s Social Credit Secretariat in England and the Commonwealth Leagues of Rights especially in Australia. Douglas continued writing and contributing to the Secretariat’s journals, initially Social Credit and shortly thereafter The Social Crediter (which continues to be published by the Secretariat) for the remainder of his lifetime, concentrating more on political and philosophical issues in his later years.

Political History

In the early years of the movement in the UK there was strong pressure from trade unionists for the Labour Party to consider adopting ‘social credit’ ideals and policies. The Labour leadership proved hostile, however, essentially because its doctrines of Fabian socialism, with its hierarchical view of state-socialism, economic growth and full employment, were incompatible with such ideas as National Dividends and an end to wage/salary slavery. Certain British Labour economists expended considerable effort in an effort to discredit Social Credit. One of the leading Fabians is said to have declared that they didn’t care whether Douglas was technically correct or not—they simply did not like his policy!

In 1935 the first “Social Credit” government was elected in Alberta, Canada under the leadership of William Aberhart. “Bible Bill”, as he was also known, was a high school mathematics teacher and radio evangelist who was given a book on Social Credit, titled The Meaning of Social Credit, written by the English author and actor Maurice Colborne, and decided Douglas’s theories were exactly what Alberta needed to escape the depression. Douglas, having counseled the previous United Farmers of Alberta Provincial Government was sought as an advisor to Aberhart, but withdrew shortly after due to disagreements, or misunderstandings, in policy and strategy. Under the pressures of dealing with the extreme conditions of the Great Depression and being unable to understand Douglas’s advice Aberhart sought the assistance of a representative of orthodox finance to put the Provinces finances in order. The difficult and strained correspondece between Aberhart and Douglas was published by Douglas in his book The Alberta Experiment (London: Eyre and Spottiswoode, 1937).

The Premier wanted to balance the provincial budget, and Douglas stated that the concept of a balanced budget was completely inconsistent with the use of Social Credit, because of the arithmetic impossibility, under the existing rules of financial cost accountancy, of balancing all budgets within an economy simultaneously. (“The Fallacy of a Balanced Budget,” The New English Weekly, July 28, 1932, pp. 346-7) In a letter to Aberhart, Douglas stated, "This seems to be a suitable occasion on which to emphasise the proposition that a Balanced Budget is quite inconsistent with the use of Social Credit [i.e., Real Credit—the ability to deliver goods and services “as, when and where required”] in the modern world, and is simply a statement in accounting figures that the progress of the country is stationary, i.e., that it consumes exactly what it produces, including capital assets. The result of the acceptance of this proposition is that all capital appreciation becomes quite automatically the property of those who create an issue of money [i.e., the banking system] and the necessary unbalancing of the Budget is covered by Debts."

Two other expert Social Credit technical advisors, L. Denis Byrne and George F. Powell, were sent from the United Kingdom by Douglas, but all attempts to pass Social Credit legislation were ruled ultra vires by the Supreme Court of Canada and Privy Council in London. In desperation, William Aberhart attempted to implement the monetary theories of Silvio Gesell by issuing a form of scrip known as "prosperity certificates", which depreciated in value the longer they were held. Douglas, however, was not impressed by Gesell's theories and openly criticized them. "Gesell's theory was that the trouble with the world was that people saved money so that what you had to do was to make them spend it faster. Disappearing money is the heaviest form of continuous taxation ever devised. The theory behind this idea of Gesell's was that what is required is to stimulate trade - that you have to get people frantically buying goods - a perfectly sound idea so long as the objective of life is merely trading." (" The Approach To Reality")

The Alberta Social Credit Party, under Ernest Manning who succeeded Aberhart after his untimely death, slowly departed from its roots and became popularly identified as a right wing populist movement. Meanwhile, Douglas published in the Secretariat’s journal “An Act for the Better Management of the Credit of Alberta” (The Social Crediter, February 8, 1947). Subsequently, in the same journal, he wrote a critical analysis of what went wrong with Social Credit in Alberta (“Social Credit in Alberta”, August 28/September 4-11, 1948) in which he said, “The Manning administration is no more a Social Credit administration than the British government is Labor”. Social Credit also formed governments in British Columbia, Canada, but again the party had little in common with Douglas and his theories. Social Credit Parties also enjoyed some national electoral successes in Canada, with support from Western Canada and more notably from Quebec. Social Credit parties also had some electoral successes in New Zealand.

Political Theory

Douglas opposed the formation of Social Credit Parties, because he felt that a group of elected amateurs should never direct a group of competent experts in technical matters. ( “The Approach to Reality,” Address at Westminster, March 7, 1936.) The goal of politicians should be to pressure the experts to get the policy results desired by the populace, but the experts are ultimately responsible for achieving those results. “The proper function of Parliament, I may perhaps be allowed to repeat, is to force all activities of a public nature to be carried on so that the individuals who comprise the public may derive the maximum benefit from them. Once the idea is grasped, the criminal absurdity of the party system becomes evident.” ("The Tragedy of Human Effort,” Address at Central Hall, Liverpool, October 30, 1936.) Therefore, Social Credit supported by effective public demand could be implemented by any political party, and once implemented, achieving a realistic integration of means and ends, party politics would cease to exist. Douglas defined democracy as the “will of the people”, not rule by the majority. It is the right of the individual to choose freely one thing at a time, and to contract out of unsatisfactory associations. Traditional ballot-box democracy is incompatible with Social Credit, and Douglas advocated what he called the “responsible vote”, where anonymity in the voting process no longer existed. "The individual voter must be made individually responsible, not collectively taxable, for his vote." ("Realistic Consitutionalism")


The establishment of the supremacy of common law is essential to ensuring the rights of individuals are protected from an all powerful parliament. Douglas believed that the constitution was an organism, not an organization. He also believed that the effectiveness of the British government was structurally determined by its application of the Christian concept known as Trinitarianism. "In some form or other, sovereignty in the British Isles for the last two thousand years has been Trinitarian. Whether we look on this Trinitarianism under the names of King, Lords and Commons or as Policy, Sanctions and Administration, the Trinity-in-Unity has existed, and our national success has been greatest when the balance (never perfect) has been approached. ("Realistic Constitutionalism")

Economic Theory

Douglas disagreed with classical economists such as Adam Smith and David Ricardo who divided the factors of production into land, labour and capital. He also disagreed with Marx who claimed that labour created all wealth. Douglas believed the “cultural inheritance of society” was the primary factor in production. Our cultural inheritance is defined as the knowledge, technique and processes that have been handed down to us incrementally from the origins of civilization. Consequently, we do not have to keep “reinventing the wheel”. “We are merely the administrators of that cultural inheritance, and to that extent the cultural inheritance is the property of all of us, without exception.” (“The Monopolistic Idea,” Address at the Melbourne Town Hall, Australia, January 22, 1934.)

Douglas also criticized classical economics because it was based upon a barter economy; whereas, the modern economy is a monetary one. To the orthodox economist, money is a medium of exchange. This may have once been the case when the majority of wealth was produced by individuals who exchanged it with each other, but in the modern economy, where production is split up into multiple processes, wealth is produced by people working in association with each other. For instance, any automobile worker does not produce any wealth by himself ; the wealth that is produced (i.e., the automobile) is only produced in conjunction with other auto workers, the producers of roads, gasoline, insurance etc. Therefore, wealth is a pool upon which people can draw, and the efficiency gained by individuals co-operating in the productive process in known as the “unearned increment of association”—historic accumulations of which constitute what Douglas called the Cultural Heritage. The means of drawing upon this pool are the tickets distributed by the banking system.

Money originally came from the productive system, when cattle owners punched leather discs which represented a head of cattle. These discs could then be exchanged for corn, and the corn producers could then exchange the disc for a head of cattle at a later date. The word “pecuniary” comes from the Latin “pecus,” meaning cattle. Today, the productive system and the distributive/monetary system are two separate entities. Douglas was one of the first to understand that loans create deposits, and he gave a short mathematical proof of this in his book Social Credit. Bank credit comprises the vast majority of money, and is created every time a bank makes a loan. Douglas was also one of the first to understand the creditary nature of money. The word credit derives from the Latin “credere”, meaning to believe. “The essential quality of money, therefore, is that a man shall believe that he can get what he wants by the aid of it.” (C.H. Douglas, “Engineering, Money and Prices,” Paper read at the Institution of Mechanical Engineers, April 22, 1927, reprinted in Warning Democracy, 1935, p. 15)

Money should not be regarded as a commodity but rather as a ticket, a means of distribution of production (“The Use of Money,” Address in St. James’ Theatre, Christchurch, New Zealand, February 13, 1934, p. 11, 13.) “There are two sides to this question of a ticket representing something that we can call, if we like, a value. There is the ticket itself--the money which forms the thing we call ‘effective demand’—and there is something we call a price opposite to it.” (“The Use of Money,” op cit., p. 15) Money is effective demand, and the means of reclaiming that money are prices and taxes. As real capital replaces labour in the process of modernization money should become increasingly an instrument of distribution.

Douglas also claimed the problem of production, or scarcity, had long been solved. The new problem was one of distribution. Douglas criticized the banking system on two counts: 1) for being a form of government which has been centralizing its power for centuries, and 2) for claiming ownership to the money they create. The latter he claimed was equivalent to claiming ownership of the nation. (“Dictatorship by Taxation,” An Address delivered in the Ulster Hall, Belfast, November 24, 1936.) Money, Douglas claimed, was merely an abstract representation of the real credit of the community, which is the ability of the community to deliver goods and services, when, and where they are required.

The first article to appear in the New Age, edited by A.R. Orage, titled “A Mechanical View of Economics” appeared in January, 1919. In this article, we get a glimpse of Douglas’s concerns in regards to the methods by which economic activity is measured when he says, “It is not the purpose of this short article to depreciate the services of accountants; in fact, under the existing conditions probably no body of men has done more to crystallize the data on which we carry on the business of the world; but the utter confusion of thought which has undoubtedly arisen from the calm assumption of the book-keeper and the accountant that he and he alone was in a position to assign positive or negative values to the quantities represented by his figures is one of the outstanding curiosities of the industrial system; and the attempt to mold the activities of a great empire on such a basis is surely the final condemnation of an out-worn method."

Just over a year later, in his book Credit-Power and Democracy (1920), we see Douglas's critique of accounting methodology as it pertains to income and prices in his famous “A+B theorem”. This was not a theory but a theorem. Quoting from the fourth, Australian Edition of 1933:

"A factory or other productive organization has, besides its economic function as a producer of goods, a financial aspect—it may be regarded on the one hand as a device for the distribution of purchasing-power to individuals through the media of wages, salaries, and dividends; and on the other hand as a manufactory of prices—financial values. From this standpoint its payments may be divided into two groups:
Group A - All payments made to individuals (wages, salaries, and dividends).
Group B - All payments made to other organizations (raw materials, bank charges, and other external costs).

Now the rate of flow of purchasing-power to individuals is represented by A, but since all payments go into prices, the rate of flow of prices cannot be less than A+B. The product of any factory may be considered as something which the public ought to be able to buy, although in many cases it is an intermediate product of no use to individuals but only to a subsequent manufacture; but since A will not purchase A+B; a proportion of the product at least equivalent to B must be distributed by a form of purchasing-power which is not comprised in the description grouped under A. It will be necessary at a later stage to show that this additional purchasing power is provided by loan credit (bank overdrafts) or export credit.”. (C.H. Douglas, Credit-Power and Democracy, Aust. Edition, 1933, pp. 22-23)

The theorem itself demonstrates that total prices rise faster than total incomes when regarded as a flow. Douglas proposed to eliminate this problem by giving “debt-free” credits to consumers in the form of a price rebate and a dividend, called formally a Compensated Price and a National (or Consumer) Dividend. A National Credit Office would be charged with the task of calculating the size of the rebate and dividend by determining a national balance sheet, and keeping track of aggregate production and consumption statistics. The price rebate is based upon the observation that the real cost of production is the mean rate of consumption over the mean rate of production for an equivalent period of time. The physical cost of producing something is the materials and capital that were consumed in its production, plus that amount of Labor consumed during its production. This total consumption represents the physical cost of production. Since less inputs are consumed to produce a unit of output as technology advances, and total production increases relative to total consumption over time, the real cost of production is falling over time; hence, prices should be falling with the progression of time.

The price rebate (Compensated Price) is designed to realize this fact. The Dividend is based upon the fact that Labor is being displaced in the productive process due to increases in productivity. Since Labor is being replaced in the productive process, people should be free to consume while enjoying an increasing amount of leisure as machines displace them. The Dividend would give people this freedom. Further, Labor displacement in the productive process implies that overhead charges {B}Bare increasing in relation to income (A), because “B is the financial representation of the lever of capital” (C.H. Douglas Credit Power and Democracy, Aust. Edition, 1933, p. 25). This means that any attempt to stabilize or increase income is met with rising prices. If A is constant or increasing, and B is increasing due to technological advances, then A+B (prices) must also be increasing. From this perspective, inflation and unemployment are trade offs (re the Phillips Curve), unless prices are reduced from debt- free monies that do not derive from the productive system.

The cause of these “B” payments, or overhead charges, is described by Douglas in his pamphlet entitled, "The New and The Old Economics" when he says, “I think that a little consideration will make it clear that in this sense an overhead charge is any charge in respect of which the actual distributed purchasing power does not still exist, and that practically this means any charge created at a further distance in the past than the period of cyclic rate of circulation of money. There is no fundamental difference between tools and intermediate products, and the latter may therefore be included.” The cyclic rate of circulation of money measures the amount of time that it takes for a loan to go through the productive system and to come back to the bank. This can be calculated by determining the amount of clearings through the bank in a year divided by the average amount of deposits held at the banks (which varies very little). This number will give you the amount of times money must turnover in order to produce these clearing house figures. Douglas estimated the cyclic rate of circulation of money to be approximately three weeks. As Douglas said in his testimony before the Alberta Agricultural Committee of the Alberta Legislature in 1934, “Now we know there are an increasing number of charges which originated from a period much anterior to three weeks, and included in those charges, as a matter of fact, are most of the charges made in, respect of purchases from one organization to another, but all such charges as capital charges (for instance, on a railway which was constructed a year, two years, three years, five or ten years ago, where charges are still extant), cannot be liquidated by a stream of purchasing power which does not increase in volume and which has a period of three weeks. The consequence is, you have a piling up of debt, you have in many cases a diminution of purchasing power being equivalent to the price of the goods for sale.” (p. 90)

We see the major consequence of the problem that Douglas identified is exponentially increasing debt. Other less noticeable consequences are that society is either forced to engage in production that the consumer does not want, or production he cannot purchase. The latter represents a “favorable balance of trade”, meaning a country exports more than it imports. The former represents excessive capital production and/or military buildup. The problem with pursuing a favorable balance of trade is that not every country can pursue this objective at the same time, since it is necessary for a country to import more than it exports if another exports more than it imports. The long-term consequence of this policy is a trade war, ultimately resulting in real war. Hence, the Social Credit admonition, as expressed by the Social Credit Party of Great Britain and Northern Ireland, led by John Hargrave, that “He who calls for Full-Employment calls for War!” Excessive capital production is only a temporary fix because the cost of the capital ultimately shows up in the cost of consumer goods, or taxes, which only goes to further exacerbate the gap between income and prices at a later date. Military buildup necessitates either it’s use, or stockpiling of weapons leading to inventory accumulation.

Philosophy

Douglas warned against viewing Social Credit solely as a scheme of monetary reform. He described Social Credit as a policy of a philosophy. He coined this philosophy “practical Christianity.” Douglas believed there was a Canon which ran through the universe, and Jesus Christ was the Incarnation of this Canon. However, he also felt that Christianity remained ineffective so long as it remained transcendental. Religion, which derives from the Latin word relegare, meaning to “bind back”, was supposed to be a binding back to reality. Christianity was only effective to the extent that it was rooted in existence. Although Douglas defined Social Credit as a philosophy with Christian roots, he did not envision a Christian theocracy. Social Credit society recognizes the fact that the relationship between man and God is unique. Therefore, it is essential to allow man the greatest possible freedom in order to pursue this relationship. If people are given the economic security and leisure achievable in the context of a Social Credit dispensation, most would end their service to mammon and use their free time pursuing spiritual, intellectual, or cultural goals leading to self-development. Douglas did not believe that religion should be thrust upon anyone through force of law or external compulsion. He emphasized that all policy derives from its respective philosophy and that “. . . Society is primarily metaphysical, and must have regard to the organic relationships of its prototype.”

Douglas said that Social Crediters wants to build a new civilization based upon absolute economic security for the individual—where “. . . they shall sit every man [individual] under his [her] vine and under his [her] fig tree; and none shall make them afraid.” (Micah iv, 4 quoted on the cover of the Douglas Quarterly Review, The Fig Tree, New Series. 1954-55.) In keeping with this goal, Douglas was opposed to all forms of taxation on real property. This set Social Credit at variance from the land-taxing recommendations of the Henry George School.

Douglas opposed what he termed “the pyramid of power.” Totalitarianism reflects this pyramid and is the antithesis of Social Credit. It turns the government into an end instead of a means, and the individual into a means instead of an end—Demon est deus inversus—“the devil is God upside down.” Social Credit is designed to give the individual the maximum freedom allowable given the need for association in economic, political and social matters. Liberty in politics is dependent on the metaphysical concept of free will, for what use is the purpose of liberty if man is not free to choose? Social Credit rejects dialectical materialistic philosophy. Douglas divided philosophy into two schools of thought that he labeled the "classical school" and the "modern school", which are broadly represented by philosophies of Aristotle and Bacon respectively. Douglas was critical of both schools of thought, but believed that "the truth lies in appreciation of the fact that neither conception is useful without the other". (C.H. Douglas: Social Credit. ISBN 0-087968-107-1, p. 6) Social Credit philosophy is best summed by Douglas when he said, “Systems were made for men, and not men for systems, and the interest of man which is self-development, is above all systems, whether theological, political or economic.” (Economic Democracy, Fourth Revised and. Enlarged Edition, 1934, p 18.)

Critics to A+B and Rebuttal

Critics to the theorem argue there is no difference between A and B payments, and Social Credit policies are inflationary. These criticisms are based upon the quantity theory of money, which states that the quantity of money multiplied by its velocity of circulation equals total purchasing power. Following is a brief explanation of the quantity theory of money:
"MV=PQ:

where

M=quantity of money in the hands of the public

P=average level of prices

Q=quantity of output (that is real national product or real national income).

Thus, PQ = national product, measured in nominal (dollar) terms

And V = income velocity of money, that is, the average number of times that the money stock (M) is spent to buy final output during a year. Specifically, V is defined as being equal to PQ/M

Suppose that the money stock is $20 billion. Assume that, in the course of a year, the average dollar bill and the average chequing deposit are spent twelve times to purchase final goods and services. In other words, V is 12. Then, total spending for final output is $20 billion times 12, or $240 billion. In turn, this total spending (MV) equals the total quantity of goods and services (Q) times the average price (P) at which they were sold.

But how can the same dollar be used over and over to purchase final goods? Very simply. When you purchase groceries at the store, the $50 you pay does not disappear. Rather, it goes into the cash register of the store. From there, it is used to pay the farmer for fresh vegetables, the canning factory for canned goods, or the clerk's wages. The farmer or the clerk or the employee of the canning factory will in turn use the money to purchase goods. Once more, the same money is used for final purchases. The same dollar bill can circulate round and round." (Blomqvist, Wonnacott and Wonnacott, "Economics First Canadian Edition" ISBN: 0-07-54815-X: p. 247-248)

It was written in a committee report to the Alberta government in regards to the quantity theory of money: “The fallacy in the theory lies in the incorrect assumption that money "circulates", whereas it is issued against production, and withdrawn as purchasing power as the goods are bought for consumption. “ (“The Alberta Post-War Reconstruction Committee Report of the Subcommittee on Finance") Because all money is created as a debt that needs to be repaid, money does not circulate, but instead operates in an accounting cycle. If a retailer receives money from a customer for its product, the total sum of this money is neither profit, nor income. A retailer has debts to repay, or it must replace working capital. These sums are subtracted from revenues when determining profits. Neither is the profit entirely income; taxes must be paid, and a portion may be re-invested back into the business. Therefore, of the money received from the customer, the retailer may find that only a very small percentage is actually distributed as income that can then be spent on goods or services, the rest is either used to repay debts, replace working capital, or re-invested back into the firm. The fallacy is that the same dollar bill can "circulate round and round"; in reality, money is created as a debt that needs to be repaid. Every loan creates a deposit, and every repayment of a loan destroys a deposit. Therefore; money does not "circulate round and round" but is created and destroyed through the creation of loans and their repayment.

Other critics argue that if the gap between income and prices exists as Douglas claimed, the economy would have collapsed in short order. They also argue that there are periods of time in which purchasing power is in excess of the price of consumer goods for sale.

Douglas replied to these criticisms in his testimony before the Alberta Agricultural Committee when he said, "What people who say that forget is that we were piling up debt at that time at the rate of ten millions sterling a day and if it can be shown, and it can be shown, that we are increasing debt continuously by normal operation of the banking system and the financial system at the present time, then that is proof that we are not distributing purchasing power sufficient to buy the goods for sale at that time; otherwise we should not be increasing debt, and that is the situation." (p. 90)

Incomes are paid out to workers during a multi-stage program of production, and according to the convention of accepted orthodox rules of accountancy, said incomes, are part of the financial cost and price of the final product when it is ready for use at the point of retail sale. For the product to be purchased with incomes earned in respect of its manufacture, all of these incomes would have to be saved until the product’s completion. In the real world earned incomes are largely, and necessarily, spent on past production to meet the present needs of living, and will not be available to purchase goods completed in the future –goods which must include the sum of incomes paid out during their period of manufacture in their price . Because the cyclic rate of circulation of money takes less time than the cancellation of the costs that the money created, orthodox economics can only allow access to the final products of industry by the mechanism of increasing consumer debt that constitutes a mortgage against future incomes. This does not liquidate the financial cost of production inasmuch as it merely passes charges of one accountancy period on as mounting charges against future periods. In other words, supply does not create enough demand to liquidate all the costs of production: Social Credit denies the validity of "Says Law" in economics.

Literary Figures in Social Credit

As lack of finance has been a constant impediment to the development of the arts and literature, the concept of economic democracy through Social Credit had immediate appeal in literary circles. Names associated with Social Credit include Charlie Chaplin, William Carlos Williams, Ezra Pound, T.S. Eliot, Herbert Read, Aldous Huxley, Storm Jameson, Eimar O’Duffy, Sybil Thorndyke, Bonamy DobrÈe and the American publisher James Laughlin . In 1933 Eimar O’Duffy published Asses in Clover, a science fiction fantasy exploration of social credit themes. His social credit economics book Life and Money: Being a Critical Examination of the Principles and Practice of Orthodox Economics with A Practical Scheme to End the Muddle it has made of our Civilisation, was endorsed by Douglas.

Summary

In Social Credit terminology, the words “Economic Democracy” do not mean worker control of industry. They mean conditions of consumer sovereignty wherein the consumer establishes the policy of production through exercise of his money-vote, fully provided with adequate purchasing power. The policy of production is so to be removed from the banking institutions, the government and industry. Social Credit envisages an “aristocracy of producers, serving and accredited by a democracy of consumers.” (C. H. Douglas) The true purpose of production is consumption and production must serve the genuine, freely expressed interests of consumers. Each citizen is to have a beneficial, not direct, inheritance in the communal capital—conferred by complete and dynamic access to the fruits of industry assured by the National Dividend and Compensated Price.Social Credit is distributive and its policy is to disperse power to individuals. “The only safe place for power is in many hands.”

John Maynard Keynes

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John Maynard Keynes

Keynesian economics
John Maynard Keynes
Born	(1883-06-05)5 June 1883 Cambridge, Cambridgeshire, England, United Kingdom
Died	21 April 1946(1946-04-21) (aged 62) Tilton, near Firle, East Sussex, England, United Kingdom
Nationality	British
Field	Political economy, probability
Alma mater	King's College, Cambridge
Opposed	Marx · Hayek · Marshall · Pigou
Influences	Adam Smith · David Ricardo · David Hume · John Stuart Mill · Thomas Malthus · Silvio Gesell · G. E. Moore · Alfred Marshall · Knut Wicksell · Dennis Robertson · Michał Kalecki
Influenced	Simon Kuznets · Paul Samuelson · John Hicks · G. L. S. Shackle · William Vickrey · John Kenneth Galbraith · Hyman Minsky · Robert Shiller · Joseph Stiglitz · Paul Krugman · Joan Robinson · Stephany Griffith-Jones · Inge Kaul
Contributions	Macroeconomics, Keynesian economics, Liquidity preference, Spending multiplier, Aggregate Demand-Aggregate Supply model

John Maynard Keynes, 1st Baron Keynes,^[1] CB, FBA ( /ˈkeɪnz/ KAYNZ; 5 June 1883 – 21 April 1946) was a British economist whose ideas have profoundly affected the theory and practice of modern macroeconomics, and informed the economic policies of governments. He built on and greatly refined earlier work on the causes of business cycles, and is widely considered to be one of the founders of modern macroeconomics and the most influential economist of the 20th century.^[2][3][4][5] His ideas are the basis for the school of thought known as Keynesian economics, as well as its various offshoots.

In the 1930s, Keynes spearheaded a revolution in economic thinking, overturning the older ideas of neoclassical economics that held that free markets would, in the short to medium term, automatically provide full employment, as long as workers were flexible in their wage demands. Keynes instead argued that aggregate demand determined the overall level of economic activity, and that inadequate aggregate demand could lead to prolonged periods of high unemployment. He advocated the use of fiscal and monetary measures to mitigate the adverse effects of economic recessions and depressions. Following the outbreak of World War II, Keynes's ideas concerning economic policy were adopted by leading Western economies. During the 1950s and 1960s, the success of Keynesian economics resulted in almost all capitalist governments adopting its policy recommendations.

Keynes's influence waned in the 1970s, partly as a result of problems that began to afflict the Anglo-American economies from the start of the decade, and partly because of critiques from Milton Friedman and other economists who were pessimistic about the ability of governments to regulate the business cycle with fiscal policy.^[6] However, the advent of the global financial crisis in 2007 caused a resurgence in Keynesian thought. Keynesian economics provided the theoretical underpinning for economic policies undertaken in response to the crisis by Presidents George W. Bush and Barack Obama of the United States, Prime Minister Gordon Brown of the United Kingdom, and other heads of governments.^[7]

In 1999, Time magazine included Keynes in their list of the 100 most important and influential people of the 20th century, commenting that: "His radical idea that governments should spend money they don't have may have saved capitalism."^[8] In addition to being an economist, Keynes was also a civil servant, a director of the British Eugenics Society, a director of the Bank of England, a patron of the arts and an art collector, a part of the Bloomsbury Group of intellectuals,^[9][10] an advisor to several charitable trusts, a writer, a philosopher, a private investor, and a farmer.

Contents  [hide]  1 Early life and education 2 Career 2.1 World War I 2.2 Versailles peace conference 2.3 In the 1920s 2.4 During the Great Depression 2.5 World War II 2.6 Postwar 3 Legacy 3.1 The Keynesian ascendancy 1939–1979 3.1.1 Neo-Keynesian economics 3.2 Economics: out of favour 1979–2007 3.3 Economics: the Keynesian resurgence of 2008–2009 4 Reception 4.1 Praise 4.1.1 Hayek 4.1.2 Lionel Robbins 4.1.3 LePan 4.1.4 Russell 4.1.5 The Times 4.2 Critiques 4.2.1 Hayek 4.2.2 Friedman 4.2.3 Schumpeter 4.2.4 Hazlitt 4.2.5 Harry Truman 4.2.6 Allegations of racism 4.2.7 Allegations of pro-inflationary views 5 Personal life 5.1 Marriage 5.2 Support for the arts 5.3 Investments 5.4 Political causes 5.5 Death 6 Publications 7 See also 8 Notes and citations 9 References 10 Further reading 11 External links

[edit] Early life and education

King's College, Cambridge. Keynes's grandmother wrote to him saying that since he was born in Cambridge, people will expect him to be clever.

John Maynard Keynes was born in Cambridge, Cambridgeshire, England, to an upper-middle-class family. His father John Neville Keynes was an economist and a lecturer in moral sciences at the University of Cambridge and his mother Florence Ada Keynes a local social reformer. Keynes was the first born, and was followed by two more children – Margaret Neville Keynes in 1885 and Geoffrey Keynes in 1887.

According to the economist and biographer Robert Skidelsky, Keynes's parents were loving and attentive. They remained in the same house throughout their lives, where the children were always welcome to return. Keynes would receive considerable support from his father, including expert coaching to help him pass his scholarship exams and financial help both as a young man and when his assets were nearly wiped out at the onset of Great Depression in 1929. Keynes's mother made her children's interests her own, and according to Skidelsky, "because she could grow up with her children, they never outgrew home".^[11]

Keynes had his early education at home and at nursery. He attended The Perse School nursery in 1890 before becoming a day pupil at St Faith's preparatory school in 1892.^[12] Teachers described Keynes as brilliant, but on occasion, careless and lacking in determination. His health was often poor during this period, leading to several long absences.

Keynes won a scholarship to Eton College in 1897, where he displayed talent in a wide range of subjects, particularly mathematics, classics and history. At Eton, Keynes experienced the first "love of his life" in Dan Macmillan, older brother of the future Prime Minister Harold Macmillan.^[13] Despite his middle-class background, Keynes mixed easily with upper-class pupils. In 1902 Keynes left Eton for King's College, Cambridge after receiving a scholarship for this also to study mathematics. Alfred Marshall begged Keynes to become an economist,^[14] although Keynes's own inclinations drew him towards philosophy – especially the ethical system of G. E. Moore. Keynes was an active member of the semi-secretive Cambridge Apostles society, a debating club largely reserved for the brightest students. Like many members, Keynes retained a bond to the club after graduating and continued to attend occasional meetings throughout his life. Before leaving Cambridge, Keynes became the President of the Cambridge Union Society and Cambridge University Liberal Club. In May 1904 he received a first class B.A. in mathematics. Aside from a few months spent on holidays with family and friends, Keynes continued to involve himself with the university over the next two years. He took part in debates, further studied philosophy and attended economics lectures informally as a graduate student. He also studied for his 1905 Tripos and 1906 civil service exams.

The economist Harry Johnson wrote that the optimism imparted by Keynes's early life is key to understanding his later thinking.^[15] Keynes was always confident he could find a solution to whatever problem he turned his attention to, and retained a lasting faith in the ability of government officials to do good.^[16] Keynes's optimism was also cultural, in two sense – he was of the last generation raised by an empire still at the height of its power, in its own eyes and by much of the world (at least outwardly) seen as preeminent in both power and benevolence. Keynes was also of the last generation who felt entitled to govern by culture, rather than by expertise. According to Skidelsky, the sense of cultural unity current in Britain from the 19th century to the end of World War I provided a framework with which the well-educated could set various spheres of knowledge in relation to each other and to life, enabling them to confidently draw from different fields when addressing practical problems.^[11]

[edit] Career

Keynes's Civil Service career began in October 1906, as a clerk in the India Office. He enjoyed his work at first, but by 1908 had become bored and resigned his position to return to Cambridge and work on probability theory, at first privately funded only by two dons at the university – his father and the economist Arthur Pigou. In 1909 Keynes published his first professional economics article in the Economics Journal, about the effect of a recent global economic downturn on India.^[17] Also in 1909, Keynes accepted a lectureship in economics funded personally by Alfred Marshall. Keynes's earnings rose further as he began to take on pupils for private tuition, and on being elected a fellow. In 1911 Keynes was made editor of The Economic Journal. By 1913 he had published his first book, Indian Currency and Finance. He was then appointed to the Royal Commission on Indian Currency and Finance^[18] – the same topic as his book – where Keynes showed considerable talent at applying economic theory to practical problems.

[edit] World War I

The British Government called on Keynes's expertise during the First World War. While he did not formally re-join the civil service in 1914, Keynes travelled to London at the government's request a few days before hostilities started. Bankers had been pushing for the suspension of specie payments – the convertibility of banknotes into gold – but with Keynes's help the Chancellor of the Exchequer (then Lloyd George) was persuaded that this would be a bad idea, as it would hurt the future reputation of the city if payments were suspended before absolutely necessary.

In January 1915 Keynes took up an official government position at the Treasury. Among his responsibilities were the design of terms of credit between Britain and its continental allies during the war, and the acquisition of scarce currencies. According to economist Robert Lekachman, Keynes's "nerve and mastery became legendary" because of his performance of these duties, as in the case where he managed to assemble – with difficulty – a small supply of Spanish pesetas. The secretary of the Treasury was delighted to hear Keynes had amassed enough to provide a temporary solution for the British Government. But Keynes did not hand the pesetas over, choosing instead to sell them all to break the market: his boldness paid off, as pesetas then became much less scarce and expensive.^[19] In the 1917 King's Birthday Honours, Keynes was appointed Companion of the Order of the Bath for his wartime work,^[20] and his success led to the appointment that would have a huge effect on Keynes's life and career; Keynes was appointed financial representative for the Treasury to the 1919 Versailles peace conference. He was also appointed Officer of the Belgian Order of Leopold.^[21]

[edit] Versailles peace conference

Main article: Heavenly Twins (Sumner and Cunliffe)

Keynes's colleague, David Lloyd George. Keynes was initially wary of the "Welsh Wizard," preferring his rival Asquith, but was impressed with Lloyd George at Versailles; this did not prevent Keynes from painting a scathing picture of the then-Prime Minister in his Economic Consequences of the Peace.

Keynes's experience at Versailles was influential in shaping his future outlook, yet it was not a successful one for him. Keynes's main interest had been in trying to prevent Germany's compensation payments being set so high it would traumatise innocent German people, damage the nation's ability to pay and sharply limit her ability to buy exports from other countries – thus hurting not just Germany's own economy but that of the wider world. Unfortunately for Keynes, conservative powers 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 concerning reparations. Their place was taken by the Heavenly Twins – the judge Lord Sumner and the banker Lord Cunliffe whose nickname derived from the "astronomically" high war compensation they wanted to demand from Germany. Keynes was forced to try to exert influence mostly from behind the scenes.

The three principal players at Versailles were Britain's Lloyd George, France's Clemenceau and America's President Wilson.^[22] It was only Lloyd George to whom Keynes had much direct access; until the 1918 election he had some sympathy with Keynes's view but while campaigning had found his speeches were only well received by the public if he promised to harshly punish Germany, and had therefore committed to extracting high payments. Lloyd George did however win some loyalty from Keynes with his actions at the Paris conference by intervening against the French to ensure the dispatch of much-needed food supplies to German civilians. Clemenceau also pushed for high reparations; generally France argued for an even more severe settlement than Britain. Wilson initially favoured relatively lenient treatment of Germany – he feared too harsh conditions could foment the rise of extremism, and wanted Germany to be left sufficient capital to pay for imports. To Keynes's dismay, Lloyd George and Clemenceau were able to pressure Wilson to agree to very high repayments being imposed. Towards the end of the conference, Keynes came up with a plan that he argued would not only help Germany and other impoverished central European powers but also be good for the world economy as a whole. It involved the writing down of war debts which would have the effect of increasing international trade all round. Lloyd George agreed it might be acceptable to the British electorate. However, America was against it; the US was then the largest creditor and by this time Wilson had started to believe in the merits of a harsh peace as a warning to future aggressors. Hence despite his best efforts, the end result of the conference was a treaty which disgusted Keynes both on moral and economic grounds, and led to his resignation from the Treasury.^[23]

In June 1919 he turned down an offer to become chairman of the British Bank of Northern Commerce, a job that promised a salary of £2000 in return for a morning per week of work.

Keynes's analysis on the predicted damaging effects of the treaty appeared in the highly influential book, The Economic Consequences of the Peace, published in 1919.^[24] This work has been described as Keynes's best book, where he was able to bring all his gifts to bear – his passion as well as his skill as an economist. In addition to economic analysis, the book contained pleas to the reader's sense of compassion:

I cannot leave this subject as though its just treatment wholly depended either on our own pledges or on economic facts. The policy of reducing 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,--abhorrent and detestable, even if it were possible, even if it enriched ourselves, even if it did not sow the decay of the whole civilised life of Europe.

Also present was striking imagery such as "...that year by year Germany must be kept impoverished and her children starved and crippled..." along with bold predictions which were later justified by events:

If we aim deliberately at the impoverishment of Central Europe, vengeance, I dare predict, will not limp. Nothing can then delay for very long that final war between the forces of Reaction and the despairing convulsions of Revolution, before which the horrors of the late German war will fade into nothing.

Keynes's predictions of disaster were borne out when the German economy suffered the hyperinflation of 1923, and again by the collapse of the Weimar Republic and the outbreak of World War II. Only a fraction of reparations were ever paid. The Economic Consequences of the Peace gained Keynes international fame, but also caused him to be regarded as anti-establishment – it was not until after the outbreak of World War II that Keynes was offered a directorship of a major British Bank, or an acceptable offer to return to government with a formal job. However, Keynes was still able to influence government policy making through his network of contacts, his published works and by serving on government committees; this included attending high-level policy meetings as a consultant.^[23]

[edit] In the 1920s

Keynes argued against a return to the gold standard after the war.

Keynes had completed his A Treatise on Probability before the war, but published it in 1921.^[23] The work was a notable contribution to the philosophical and mathematical underpinnings of probability theory, championing the important view that probabilities were no more or less than truth values intermediate between simple truth and falsity. Keynes developed the first upper-lower probabilistic interval approach to probability in chapters 15 and 17 of this book, as well as having developed the first decision weight approach with his conventional coefficient of risk and weight, c, in chapter 26. In addition to his academic work, the 1920s saw Keynes active as a journalist selling his work internationally and working in London as a financial consultant. In 1924 Keynes wrote an obituary for his former tutor Alfred Marshall which Schumpeter called "the most brilliant life of a man of science I have ever read."^[25] Marshall's widow was "entranced" by the memorial, while Lytton Strachey rated it as one of Keynes's "best works".^[23]

In 1922 Keynes continued to advocate reduction of German reparations with A Revision of the Treaty.^[23] He attacked the post World War I deflation policies with A Tract on Monetary Reform in 1923^[23] – a trenchant argument that countries should target stability of domestic prices, avoiding deflation even at the cost of allowing their currency to depreciate. Britain suffered from high unemployment through most of the 1920s, leading Keynes to recommend the depreciation of sterling to boost jobs by making British exports more affordable. From 1924 he was also advocating a fiscal response, where the government could create jobs by spending on public works.^[23] During the 1920s Keynes's pro stimulus views had only limited effect on policy makers and mainstream academic opinion – according to Hyman Minsky one reason was that at this time his theoretical justification was "muddled" .^[17] The Tract had also called for an end to the gold standard. Keynes advised it was no longer a net benefit for countries such as Britain to participate in the gold standard, as it ran counter to the need for domestic policy autonomy. It could force countries to pursue deflationary policies at exactly the time when expansionary measures were called for to address rising unemployment. The Treasury and Bank of England were still in favour of the gold standard and in 1925 they were able to convince the then Chancellor Winston Churchill to re-establish it, which had a depressing effect on British industry. Keynes responded by writing The Economic Consequences of Mr. Churchill and continued to argue against the gold standard until Britain finally abandoned it in 1931.^[23]

[edit] During the Great Depression

Keynes had begun a theoretical work to examine the relationship between unemployment, money and prices back in the 1920s.^[26] The work, Treatise on Money, was published in 1930 in two volumes. A central idea of the work was that if the amount of money being saved exceeds the amount being invested – which can happen if interest rates are too high – then unemployment will rise. This is in part a result of people not wanting to spend too high a proportion of what employers pay out, making it difficult, in aggregate, for employers to make a profit.

Keynes was deeply critical of the British government's austerity measures during the Great Depression. He believed that budget deficits were a good thing, a product of recessions. He 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 to present one, so great as to bring production altogether to a standstill."^[27]

At the height of the Great Depression, in 1933, Keynes published The Means to Prosperity, which contained specific policy recommendations for tackling unemployment in a global recession, chiefly counter cyclical public spending. The Means to Prosperity contains one of the first mentions of the multiplier effect. While it was addressed chiefly to the British Government, it also contained advice for other nations affected by the global recession. A copy was sent to the newly elected President Roosevelt and other world leaders. The work was taken seriously by both the American and British governments, and according to Skidelsky, helped pave the way for the later acceptance of Keynesian ideas, though it had little immediate practical influence. In the 1933 London Economic Conference opinions remained too diverse for a unified course of action to be agreed upon.^[28]

The Great Depression with its periods of world wide economic hardship formed the backdrop against which Keynes's revolution took place. The image is Dorothea Lange's Migrant Mother depiction of destitute pea-pickers in California, taken in March 1936.

Keynesian-like policies were adopted by Sweden and Germany, but Sweden was seen as too small to command much attention, and Keynes was deliberately silent about the successful efforts of Germany as he was dismayed by their imperialist ambitions and their treatment of Jews.^[28] Apart from Great Britain, Keynes's attention was primarily focused on the United States. In 1931, he received considerable support for his views on counter-cyclical public spending in Chicago, then America's foremost centre for economic views alternative to the mainstream.^[17][28] However, orthodox economic opinion remained generally hostile regarding fiscal intervention to mitigate the depression, until just before the outbreak of war.^[17] In late 1933 Keynes was persuaded by Felix Frankfurter to address President Roosevelt directly, which he did by letters and face to face in 1934, after which the two men spoke highly of each other.^[28] 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.^[28]

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 favourite students, later the economist David Bensusan-Butt.^[29] The work served as a theoretical justification for the interventionist policies Keynes favoured for tackling a recession. The General Theory challenged the earlier neo-classical economic paradigm, which had held that provided it was unfettered by government interference, the market would naturally establish full employment equilibrium. In doing so Keynes was partly setting himself against his former teachers Marshall and Pigou. Keynes believed the classical theory was a "special case" that applied only to the particular conditions present in the 19th century, his own theory being the general one. Classical economists had believed in Say's law, which, simply put, states that "supply creates its own demand", and that in a free market workers would always be willing to lower their wages to a level where employers could profitably offer them jobs. An innovation from Keynes was the concept of price stickiness – the recognition that in reality workers often refuse to lower their wage demands even in cases where a classical economist might argue it is rational for them to do so. Due in part to price stickiness, it was established that the interaction of "aggregate demand" and "aggregate supply" may lead to stable unemployment equilibria – and in those cases, it is the state, and not the market, that economies must depend on for their salvation.

The General Theory argues that demand, not supply, is the key variable governing the overall level of economic activity. Aggregate demand, which equals total un-hoarded income in a society, is defined by the sum of consumption and investment. In a state of unemployment and unused production capacity, one can only enhance employment and total income by first increasing expenditures for either consumption or investment. Without government intervention to increase expenditure, an economy can remain trapped in a low employment equilibrium – the demonstration of this possibility has been described as the revolutionary formal achievement of the work.^[30] The book advocated activist economic policy by government to stimulate demand in times of high unemployment, for example by spending on public works. "Let us be up and doing, using our idle resources to increase our wealth," he wrote in 1928. "With men and plants unemployed, it is ridiculous to say that we cannot afford these new developments. It is precisely with these plants and these men that we shall afford them."^[27]

The General Theory is often viewed as the foundation of modern macroeconomics. Few senior American economists agreed with Keynes through most of the 1930s.^[31] Yet his ideas were soon to achieve widespread acceptance, with eminent American professors such as Alvin Hansen agreeing with the General Theory before the outbreak of World War II.^{[32][33] [34]}

Keynes himself had only limited participation in the theoretical debates that followed the publication of the General Theory as he suffered a heart attack in 1937, requiring him to take long periods of rest. Hyman Minsky and other post-Keynesian economists have argued that as result of this, Keynes's ideas were diluted by those keen to compromise with classical economists or to render his concepts with mathematical models like the IS/LM model (which, they argue, distort Keynes's ideas).^[17][34] Keynes began to recover in 1939, but for the rest of his life his professional energies were largely directed towards the practical side of economics – the problems of ensuring optimum allocation of resources for the War efforts, post-War negotiations with America, and the new international financial order that was presented at Bretton Woods, New Hampshire.

[edit] World War II

Keynes (right) and the US representative Harry Dexter White at the Bretton Woods Conference in 1944.

During World War II, Keynes argued in How to Pay for the War, published in 1940, that the war effort should be largely financed by higher taxation and especially by compulsory saving (essentially workers lending money to the government), rather than deficit spending, in order to avoid inflation. Compulsory saving would act to dampen domestic demand, assist in channelling additional output towards the war efforts, would be fairer than punitive taxation and would have the advantage of helping to avoid a post war slump by boosting demand once workers were allowed to withdraw their savings. In September 1941 he was proposed to fill a vacancy in the Court of Directors of the Bank of England, and subsequently carried out a full term from the following April.^[35] In June 1942, Keynes was rewarded for his service with a hereditary peerage in the King's Birthday Honours.^[36] On 7 July his title was gazetted as "BARON KEYNES, of Tilton, in the County of Sussex" and he took his seat in the House of Lords on the Liberal Party benches.^[37]

As the Allied victory began to look certain, Keynes was heavily 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. The Keynes-plan, concerning an international clearing-union argued for a radical system for the management of currencies. He proposed the creation of a common world unit of currency, the bancor, and new global institutions – a world central bank and the International Clearing Union. Keynes envisaged these institutions managing an international trade and payments system with strong incentives for countries to avoid substantial trade deficits or surpluses. The USA's greater negotiating strength, however, meant that the final outcomes accorded more closely to the more conservative plans of Harry Dexter White. According to US economist Brad Delong, on almost every point where he was overruled by the Americans, Keynes was later proved correct by events.^[38]

The two new institutions, later known as the World Bank and International Monetary Fund (IMF), were founded as a compromise that primarily reflected the American vision. There would be no incentives for states to avoid a large trade surplus; instead, the burden for correcting a trade imbalance would continue to fall only on the deficit countries, which Keynes had argued were least able to address the problem without inflicting economic hardship on their populations. Yet, Keynes was still pleased when accepting the final agreement, saying that if the institutions stayed true to their founding principles, "the brotherhood of man will have become more than a phrase."^[39][40]

[edit] Postwar

After the war, Keynes continued to represent the United Kingdom in international negotiations despite his deteriorating health. He succeeded in obtaining preferential terms from the United States for new and outstanding debts to facilitate the rebuilding of the British economy.^[41]

Just before his death in 1946, Keynes told Henry Clay, a professor of Social Economics and Advisor to the Bank of England ^[42] of his hopes that Adam Smith's 'invisible hand' can help Britain out of the economic hole it is in: "I find myself more and more relying for a solution of our problems on the invisible hand which I tried to eject from economic thinking twenty years ago." ^[43]

[edit] Legacy

Prime Minister Clement Attlee with King George VI after his 1945 election victory.

[edit] The Keynesian ascendancy 1939–1979

Main article: Keynesian Revolution

From the end of the Great Depression to the mid-1970s, Keynes provided the main inspiration for economic policy makers in Europe, America and much of the rest of the world.^[34] While economists and policy makers had become increasingly won over to Keynes's way of thinking in the mid and late 1930s, it was only after the outbreak of World War II that governments started to borrow money for spending on a scale sufficient to eliminate unemployment. According to economist John Kenneth Galbraith (then a US government official charged with controlling inflation), in the rebound of the economy from wartime spending, "one could not have had a better demonstration of the Keynesian ideas."^[44]

The Keynesian Revolution was associated with the rise of modern liberalism in the West during the post-war period.^[45] Keynesian ideas became so popular that some scholars point to Keynes as representing the ideals of modern liberalism, as Adam Smith represented the ideals of classical liberalism.^[46] After the war Winston Churchill attempted to check the rise of Keynesian policy-making in the United Kingdom, and used rhetoric critical of the mixed economy in his 1945 election campaign. Despite his popularity as a war hero Churchill suffered a landslide defeat to Clement Attlee whose government's economic policy continued to be influenced by Keynes's ideas.^[44]

[edit] Neo-Keynesian economics

Main article: Neo-Keynesian economics

The IS/LM model is used to analyse the effect of demand shocks on the economy.

In the late 1930s and 1940s, economists (notably John Hicks, Franco Modigliani, and Paul Samuelson) attempted to interpret and formalise Keynes's writings in terms of formal mathematical models. In a process termed "the neoclassical synthesis", they combined Keynesian analysis with neo-classical economics to produce Neo-Keynesian economics, which came to dominate mainstream macroeconomic thought for the next 40 years.

By the 1950s, Keynesian policies were adopted by almost the entire developed world and similar measures for a mixed economy were used by many developing nations. By then, Keynes's views on the economy had become mainstream in the world's universities. Throughout the 1950s and 1960s, the developed and emerging free capitalist economies enjoyed exceptionally high growth and low unemployment.^{[47] [48]} Professor Gordon Fletcher has written that the 1950s and 1960s, when Keynes's influence was at its peak, appear in retrospect as a Golden Age of Capitalism.^[34]

In late 1965 Time magazine ran a cover article with the title inspired by a possibly tongue-in-cheek comment from Milton Friedman, a comment later echoed by U.S. President Richard Nixon, that "We are all Keynesians now". The article described the exceptionally favourable economic conditions then prevailing, and reported that "Washington's economic managers scaled these heights by their adherence to Keynes's central theme: the modern capitalist economy does not automatically work at top efficiency, but can be raised to that level by the intervention and influence of the government." The article also states that Keynes was one of the three most important economists who ever lived, and that his General Theory was more influential than the magna opera of other famous economists, like Smith's The Wealth of Nations.^[49]

[edit] Economics: out of favour 1979–2007

Main article: Post-war displacement of Keynesianism

Keynesian economics were officially discarded by the British Government in 1979, but forces had begun to gather against Keynes's ideas over 30 years earlier. Friedrich Hayek had formed the Mont Pelerin Society in 1947, with the explicit intention of nurturing intellectual currents to one day displace Keynesianism and other similar influences. Its members included Austrian School economist Ludwig von Mises along with the then young Milton Friedman. Initially the society had little impact on the wider world – Hayek was to say it was as if Keynes had been raised to sainthood after his death and that people refused to allow his work to be questioned.^[50][51] Friedman however began to emerge as a formidable critic of Keynesian economics from the mid-1950s, and especially after his 1963 publication of A Monetary History of the United States.

On the practical side of economic life, big government had appeared to be firmly entrenched in the 1950s but the balance began to shift towards private power in the 1960s. Keynes had written against the folly of allowing "decadent and selfish" speculators and financiers the kind of influence they had enjoyed after World War I. For two decades after World War II public opinion was strongly against private speculators, the disparaging label Gnomes of Zürich being typical of how they were described during this period. International speculation was severely restricted by the capital controls in place after Bretton Woods. Journalists Larry Elliott and Dan Atkinson say 1968 was a pivotal year when power shifted in the favour of private agents such as currency speculators. They pick out a key 1968 event as being when America suspended the conversion of the dollar into gold except on request of foreign governments, which they identify as when the Bretton Woods system first began to break down. ^[52]

Criticisms of Keynes's ideas had begun to gain significant acceptance by the early 1970s as they were able to make a credible case that Keynesian models no longer reflected economic reality. Keynes himself had included few formulæ and no explicit mathematical models in his General Theory. For commentators such as economist Hyman Minsky, Keynes's limited use of mathematics was partly the result of his scepticism about whether phenomena as inherently uncertain as economic activity could ever be adequately captured by mathematical models. Nevertheless, many models were developed by Keynesian economists, with a famous example being the Phillips curve which predicted an inverse relationship between unemployment and inflation. It implied that unemployment could be reduced by government stimulus with a calculable cost to inflation. In 1968 Milton Friedman published a paper arguing that the fixed relationship implied by the Philips curve did not exist.^[53] Friedman suggested that sustained Keynesian policies could lead to both unemployment and inflation rising at once – a phenomenon that soon became known as stagflation. In the early 1970s stagflation appeared in both the US and Britain just as Friedman had predicted, with economic conditions deteriorating further after the 1973 oil crisis. Aided by the prestige gained from his successful forecast, Friedman led increasingly successful criticisms against the Keynesian consensus, convincing not only academics and politicians but also much of the general public with his radio and television broadcasts. The academic credibility of Keynesian economics was further undermined by additional criticism from other Monetarists trained in the Chicago school of economics, by the Lucas Critique and by criticisms from Hayek's Austrian School.^[34] So successful were these criticisms that by 1980 Robert Lucas was saying economists would often take offence if described as Keynesians.^[54] Keynesian principles fared increasingly poorly on the practical side of economics – by 1979 they had been displaced by Monetarism as the primary influence on Anglo-American economic policy.^[34] However many officials on both sides of the Atlantic retained a preference for Keynes, and in 1984 the Federal Reserve officially discarded monetarism, after which Keynesian principles made a partial comeback as an influence on policy making.^[55] Not all academics accepted the criticism against Keynes – Minsky has argued that Keynesian economics had been debased by excessive mixing with neo-classical ideas from the 1950s, and that it was unfortunate the branch of economics had even continued to be called "Keynesian".^[17] Writing in The American Prospect Robert Kuttner argued it was not so much excessive Keynesian activism that caused the economic problems of the 1970s but the breakdown of the Bretton Woods system of capital controls, which allowed capital flight from regulated economies into unregulated economies in a fashion similar to Gresham's Law (where weak currencies undermine strong currencies).^[56] Historian Peter Pugh has stated a key cause of the economic problems afflicting America in the 1970s was the refusal to raise taxes to finance the Vietnam War, which was against Keynesian advice.^[57]

A more typical response was to accept some elements of the criticisms while refining Keynesian economic theories to defend them against arguments that would invalidate the whole Keynesian framework – the resulting body of work largely composing New Keynesian economics. In 1992 Alan Blinder was writing about a "Keynesian Restoration" as work based on Keynes's ideas had to some extent become fashionable once again in academia, though in the mainstream it was highly synthesised with Monetarism and other neo-classical thinking. In the world of policy making, free-market influences broadly sympathetic to Monetarism remained very strong at government level – in powerful normative institutions like the World Bank, IMF and US Treasury, and in prominent opinion-forming media such as the Financial Times and The Economist.^[58]

[edit] Economics: the Keynesian resurgence of 2008–2009

Main article: 2008–2009 Keynesian resurgence

Economist and current prime Minister of India Manmohan Singh spoke in favour of Keynesian fiscal stimuli at the 2008 G-20 Washington summit

The 2007–2012 global financial crisis led to public skepticism about the free market consensus even from some on the economic right. In March 2008, Martin Wolf, chief economics commentator at the Financial Times, announced the death of the dream of global free-market capitalism.^[59] In the same month macroeconomist James K. Galbraith used the 25th Annual Milton Friedman Distinguished Lecture to launch a sweeping attack against the consensus for monetarist economics and argued that Keynesian economics were far more relevant for tackling the emerging crises.^[60] Economist Robert Shiller had begun advocating robust government intervention to tackle the financial crises, specifically citing Keynes.^[61][62][63] Nobel laureate Paul Krugman also actively argued the case for vigorous Keynesian intervention in the economy in his columns for the New York Times.^[64][65][66] Other prominent economic commentators arguing for Keynesian government intervention to mitigate the financial crisis include George Akerlof,^[67] Brad Delong,^[68] Robert Reich,^[69] and Joseph Stiglitz.^[70][71] Newspapers and other media have also cited work relating to Keynes by Hyman Minsky,^[17] Robert Skidelsky,^[11] Donald Markwell^[72] and Axel Leijonhufvud.^[73]

A series of major bail-outs were pursued during the financial crisis, starting on 7 September with the announcement that the U.S. government was to nationalise the two government-sponsored enterprises which oversaw most of the U.S. subprime mortgage market – Fannie Mae and Freddie Mac. In October, the British Chancellor of the Exchequer referred to Keynes as he announced plans for substantial fiscal stimulus to head off the worst effects of recession, in accordance with Keynesian economic thought.^[74][75] Similar policies have been adopted by other governments worldwide.^[76][77] This is in stark contrast to the action permitted to Indonesia during its financial crisis of 1997, when it was forced by the IMF to close 16 banks at the same time, prompting a bank run.^[78] Much of the recent discussion reflected Keynes's advocacy of international coordination of fiscal or monetary stimulus, and of international economic institutions such as the IMF and the World Bank, which many had argued should be reformed at a "new Bretton Woods" even before the crises broke out.^[79] IMF and United Nations economists advocated a coordinated international approach to fiscal stimulus.^[80] Donald Markwel argued that in the absence of such an international approach, there would be a risk of worsening international relations and possibly even world war arising from similar economic factors to those present during the depression of the 1930s.^[72]

By the end of December 2008, the Financial Times reported that "the sudden resurgence of Keynesian policy is a stunning reversal of the orthodoxy of the past several decades."^[81] 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 earlier part of the 20th century had returned, making Keynesian policy prescriptions more relevant than ever. In February 2009 Shiller and George Akerlof published Animal Spirits, a book where they argue the current US stimulus package is too small as it does not take into account Keynes's insight on the importance of confidence and expectations in determining the future behaviour of businessmen and other economic agents.

In a March 2009 speech entitled Reform the International Monetary System, Zhou Xiaochuan, the governor of the People's Bank of China came out in favour of Keynes's idea of a centrally managed global reserve currency. Zhou argued that it was unfortunate that part of the reason for the Bretton Woods system breaking down was the failure to adopt Keynes's bancor. Zhou proposed a gradual move towards increased use of IMF special drawing rights (SDRs).^[82][83] Although Zhou's ideas have not yet been broadly accepted, leaders meeting in April at the 2009 G-20 London summit agreed to allow $250 billion of special drawing rights to be created by the IMF, to be distributed globally. Stimulus plans have been credited for contributing to a better than expected economic outlook by both the OECD^[84] and the IMF,^[85][86] in reports published in June and July 2009. Both organisations warned global leaders that recovery is likely to be slow, so counter recessionary measures ought not be rolled back too early.

While the need for stimulus measures has been broadly accepted among policy makers, there has been much debate over how to fund the spending. Some leaders and institutions such as Angela Merkel^[87] and the European Central Bank^[88] have expressed concern over the potential impact on inflation, national debt and the risk that a too large stimulus will create an unsustainable recovery.

Among professional economists the revival of Keynesian economics has been even more divisive. Although many economists, such as George Akerlof, Paul Krugman, Robert Shiller, and Joseph Stiglitz, support Keynesian stimulus, over 300 economists signed a petition stating that they do not believe higher government spending will help the United States economy recover from the late-2000s recession. Some economists, such as Robert Lucas, questioned the theoretical basis for stimulus packages.^[89] Others, like Robert Barro and Gary Becker, say that the empirical evidence for beneficial effects from Keynesian stimulus does not exist.^[90] However, there is a growing academic literature that shows that fiscal expansion helps an economy grow in the near term, and that certain types of fiscal stimulus are particularly effective.^[91][92]

[edit] Reception

[edit] Praise

Keynes's economic thinking only began to achieve close to universal acceptance in the last few years of his life. On a personal level, Keynes's charm was such that he was generally well received wherever he went – even those who found themselves on the wrong side of his occasionally sharp tongue rarely bore a grudge.^[93] Keynes's speech at the closing of the Bretton Woods negotiations was received with a lasting standing ovation, rare in international relations, as delegates acknowledged the scale of his achievements made despite poor health.^[16]

[edit] Hayek

Austrian School economist Friedrich Hayek was Keynes's most prominent contemporary critic, with sharply opposing views on the economy.^[30] Yet after Keynes's death he wrote:^[94]

He was the one really great man I ever knew, and for whom I had unbounded admiration. The world will be a very much poorer place without him.

For his part, Keynes praised Hayek's book The Road to Serfdom, writing to the Austrian economist that, "Morally and philosophically I find myself in agreement with virtually the whole of it."^[27]

[edit] Lionel Robbins

Lionel Robbins, former head of the economics department at the London School of Economics, who had many heated debates with Keynes in the 1930s, had this to say after observing Keynes in early negotiations with the Americans while drawing up plans for Bretton Woods:^[30]

This went very well indeed. Keynes was in his most lucid and persuasive mood: and the effect was irresistible. At such moments, I often find myself thinking that Keynes must be one of the most remarkable men that have ever lived – the quick logic, the birdlike swoop of intuition, the vivid fancy, the wide vision, above all the incomparable sense of the fitness of words, all combine to make something several degrees beyond the limit of ordinary human achievement.

[edit] LePan

Douglas LePan,^[30] an official from the Canadian High Commission, wrote:

I am spellbound. This is the most beautiful creature I have ever listened to. Does he belong to our species? Or is he from some other order? There is something mythic and fabulous about him. I sense in him something massive and sphinx like, and yet also a hint of wings.

[edit] Russell

Bertrand Russell^[95] named Keynes one of the most intelligent people he had ever known, commenting:

Every time I argued with Keynes, I felt that I took my life in my hands and I seldom emerged without feeling something of a fool.

[edit] The Times

Keynes's obituary in The Times included the comment:^[32]

There is the man himself – radiant, brilliant, effervescent, gay, full of impish jokes ... He was a humane man genuinely devoted to the cause of the common good.

[edit] Critiques

As a man of the centre described as undoubtedly having the greatest impact of any 20th-century economist,^[26] Keynes attracted considerable criticism from both sides of the political spectrum. In the 1920s, Keynes was seen as anti-establishment and was mainly attacked from the right. In the "red 1930s", many young economists favoured Marxist views, even in Cambridge,^[17] and while Keynes was engaging principally with the right to try to persuade them of the merits of more progressive policy, the most vociferous criticism against him came from the left, who saw him as a supporter of capitalism. From the 1950s and onwards, most of the attacks against Keynes have again been from the right.

[edit] Hayek

Friedrich Hayek, one of Keynes's most prominent critics

In 1931 Friedrich Hayek extensively critiqued Keynes's 1930 Treatise on Money.^[96] After reading Hayek's The Road to Serfdom, Keynes^[97] wrote to Hayek saying: "Morally and philosophically I find myself in agreement with virtually the whole of it" but concluded the same letter with the recommendation:

What we need therefore, in my opinion, is not a change in our economic programmes, which would only lead in practice to disillusion with the results of your philosophy; but perhaps even the contrary, namely, an enlargement of them. Your greatest danger is the probable practical failure of the application of your philosophy in the United States.

On the pressing issue of the time, whether deficit spending could lift a country from depression, Keynes^[98] replied to Hayek's criticism in the following way:

I should... conclude rather differently. I should say that what we want is not no planning, or even less planning, indeed I should say we almost certainly want more. But the planning should take place in a community in which as many people as possible, both leaders and followers wholly share your own moral position. Moderate planning will be safe enough if those carrying it out are rightly oriented in their own minds and hearts to the moral issue.

Hayek explained the letter by saying:^[99]

Because Keynes believed that he was fundamentally still a classical English liberal and wasn't quite aware of how far he had moved away from it. His basic ideas were still those of individual freedom. He did not think systematically enough to see the conflicts.

Hayek felt that application of Keynes's policies would give too much power to the state and would lead to socialism.^[100]

[edit] Friedman

While Milton Friedman described The General Theory as "a great book", he argues that its implicit separation of nominal from real magnitudes is neither possible nor desirable. Macroeconomic policy, Friedman argues, can reliably influence only the nominal.^[101] He and other monetarists have consequently argued that Keynesian economics can result in stagflation, the combination of low growth and high inflation that developed economies suffered in the early 1970s. More to Friedman's taste was the Tract on Monetary Reform (1923), which he regarded as Keynes's best work because of its focus on maintaining domestic price stability.^[101]

[edit] Schumpeter

Joseph Schumpeter was an economist of the same age as Keynes and one of his main rivals. He was among the first reviewers to argue that Keynes's General Theory was not a general theory, but was in fact a special case.^[102] He said the work expressed "the attitude of a decaying civilisation". After Keynes's death Schumpeter wrote a brief biographical piece called Keynes the Economist – on a personal level he was very positive about Keynes as a man ; praising his pleasant nature, courtesy and kindness. He assessed some of Keynes biographical and editorial work as among the best he'd ever seen. Yet Schumpeter remained critical about Keynes's economics, linking Keynes's childlessness to what Schumpeter saw as an essentially short term view. He considered Keynes to have a kind of unconscious patriotism that caused him to fail to understand the problems of other nations. For Schumpeter^[103] "Practical Keynesianism is a seedling which cannot be transplanted into foreign soil: it dies there and becomes poisonous as it dies."

[edit] Hazlitt

Austrian School economic commentator and journalist Henry Hazlitt's The Failure of the New Economics is a paragraph-by-paragraph critique of The General Theory. In 1960 he published the book The Critics of Keynesian Economics where he gathered together the major criticisms of Keynes made up to that year.^[31]

[edit] Harry Truman

President Harry Truman was skeptical of Keynesian theorizing. "Nobody can ever convince me that Government can spend a dollar that it's not got," he told Leon Keyserling, a Keynesian economist who chaired Truman's Council of Economic Advisers.^[27]

[edit] Allegations of racism

Keynes was on occasion heard making statements which could be perceived as racist: for example, he would use the word "niggers" to refer to black people in casual conversations.^[104] This term was often used neutrally in British circles at that time, and was not necessarily an expression of negative feelings, as when, for example, he wrote to Duncan Grant that “the only really sympathetic and original thing in America are the niggers, who are charming”.^[105] Nonetheless fellow British observers recount being shocked by some statements he made, such as the following, apropos the Washington summer: "It's far too hot. Much too hot for white men. All right for niggers."^[104] He also wrote that there was "beastliness in the Russian nature” as well as "cruelty and stupidity”, and other comments which may be construed as anti-Russian.^[106] Some critics, such as Rothbard, have sought to infer that Keynes had sympathy with Nazism, and a number of writers have described him as anti-Semitic. Keynes's private letters express portraits and descriptions some of which can be characterised as anti-Semitic, others as pro-Semitic.^[107][108] Scholars have suggested that these reflect clichés current at the time that he accepted uncritically, rather than any racism.^[105] Keynes had many Jewish friends, including Isaiah Berlin and Piero Sraffa.^[109][110] Keynes several times used his influence to help his Jewish friends, most notably when he successfully lobbied for Ludwig Wittgenstein to be allowed residency in the United Kingdom explicitly in order to rescue him from being deported to Nazi-occupied Austria. Keynes was, furthermore, a supporter of Zionism, serving on committees supporting the cause.^[105]

Allegations that he was racist or had totalitarian beliefs have been rejected by biographers such as Robert Skidelsky.^[16] Professor Gordon Fletcher writes that "the suggestion of a link between Keynes and any support of totalitarianism cannot be sustained".^[34] Once the aggressive tendencies of the Nazis towards Jews and other minorities became apparent, Keynes made clear his loathing of Nazism. As a lifelong pacifist he had initially favoured peaceful containment, yet he began to advocate a forceful resolution while many conservatives were still arguing for appeasement. After the war started he roundly criticised the Left for losing their nerve to confront Hitler.^[30]

The intelligentsia of the Left were the loudest in demanding that the Nazi aggression should be resisted at all costs. When it comes to a showdown, scarce four weeks have passed before they remember that they are pacifists and write defeatist letters to your columns, leaving the defence of freedom and civilisation to Colonel Blimp and the Old School Tie, for whom Three Cheers.

[edit] Allegations of pro-inflationary views

Keynes has been characterised as being indifferent or even positive about inflation.^[111] Keynes had indeed expressed a preference for inflation over deflation, saying that if one has to choose between the two evils it is "better to disappoint the rentier" than to inflict pain on working-class families. However, Keynes was consistently adamant about the need to avoid inflation where possible.

In The Economic Consequences of the Peace, Keynes had written:

Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

Keynes remained convinced of the dangers of inflation to the end of his life;^[34] during World War II he argued strongly for policies that would minimise post-war inflation.

[edit] Personal life

Painter Duncan Grant with Keynes.

Keynes's early romantic and sexual relationships were almost exclusively with men.^[112] At Eton and at Cambridge, Keynes had been prolific in his homosexual activity; significant among these early partners were Dilly Knox and Daniel Macmillan.^[13][113] Keynes was open about his homosexual affairs, and between 1901 to 1915, kept separate diaries in which he tabulated his many sexual encounters.^[114] Keynes's relationship and later close friendship with Macmillan was to be fortuitous; through Dan, Macmillan & Co first published his Economic Consequences of the Peace.^[115] Attitudes in the Bloomsbury Group, in which Keynes was avidly involved, were relaxed about homosexuality. Keynes, together with writer Lytton Strachey, had reshaped the Victorian attitudes of the influential Cambridge Apostles; "since [their] time, homosexual relations among the members were for a time common", wrote Bertrand Russell.^[116] One of Keynes's greatest loves was the artist Duncan Grant, whom he met in 1908. Like Grant, Keynes was also involved with Lytton Strachey,^[112] though they were for the most part love rivals, and not lovers. Keynes had won the affections of Arthur Hobhouse,^[117] as well as Grant, both times falling out with a jealous Strachey for it.^[118] Strachey had previously found himself put off by Keynes, not least because of his manner of "treat[ing] his love affairs statistically".^[119]

Ray Costelloe (who would later marry Oliver Strachey) was an early heterosexual interest of Keynes.^[120] Of this infatuation, Keynes had written "I seem to have fallen in love with Ray a little bit, but as she isn't male I haven't [been] able to think of any suitable steps to take."^[121]

[edit] Marriage

In 1921, Keynes fell "very much in love" with Lydia Lopokova, a well-known Russian ballerina, and one of the stars of Sergei Diaghilev's Ballets Russes. For the first years of the courtship, Keynes maintained an affair with a younger man, Sebastian Sprott, in tandem with Lopokova, but eventually chose Lopokova exclusively, on marrying her.^[122][123] They married in 1925.^[95][112] The union was happy, with biographer Peter Clarke writing that the marriage gave Keynes "a new focus, a new emotional stability and a sheer delight of which he never wearied".^[124][125] Lydia became pregnant in 1927 but miscarried.^[125] Among Keynes's Bloomsbury friends, Lopokova was, at least initially, subjected to criticism for her manners, mode of conversation and supposedly humble social origins – the latter of the ostensible causes being particularly noted in the letters of Vanessa and Clive Bell, and Virginia Woolf.^[126][127] In her novel Mrs Dalloway (1925), Woolf bases the character of Rezia Warren Smith on Lopokova.^[128] E. M. Forster would later write in contrition: "How we all used to underestimate her".^[126]

46 Gordon Square in London, where Keynes lived from 1916 to 1946.

[edit] Support for the arts

Keynes was interested in literature in general and drama in particular and supported the Cambridge Arts Theatre financially, which allowed the institution, at least for a while, to become a major British stage outside of London.^[95]

Keynes's personal interest in classical opera and dance led him to support the Royal Opera House at Covent Garden and the Ballet Company at Sadler's Wells. During the War as a member of CEMA (Council for the Encouragement of Music and the Arts) Keynes helped secure government funds to maintain both companies while their venues were shut. Following the War Keynes was instrumental in establishing the Arts Council of Great Britain and was the founding Chairman in 1946. Unsurprisingly from the start the two organisations that received the largest grant from the new body were the Royal Opera House and Sadler's Wells.

Like several other notable British authors of his time, Keynes was a member of the Bloomsbury Group. Virginia Woolf's biographer tells an anecdote on how Virginia Woolf, Keynes and T. S. Eliot would discuss religion at a dinner party, in the context of their struggle against Victorian era morality.^[129] Keynes had attended church up to his teens,^[130] but by university he had become agnostic, which he remained until his death.^[131]

[edit] Investments

Keynes was ultimately a successful investor, building up a private fortune. His assets were nearly wiped out following the Stock Market Crash of 1929, which he failed to foresee, but he soon recouped. At Keynes's death, in 1946, his worth stood just short of £500,000 – equivalent to about £11 million ($16.5 million) in 2009. The sum had been amassed despite lavish support for various causes and his personal ethic which made him reluctant to sell on a falling market when if too many did it could deepen a slump.^[132]

Keynes built up a substantial collection of fine art, including works, not all of them minor, by Paul Cézanne, Edgar Degas, Amedeo Modigliani, Georges Braque, Pablo Picasso, and Georges Seurat (some of which can now be seen at the Fitzwilliam Museum).^[95] He enjoyed collecting books: for example, he collected and protected many of Isaac Newton's papers. It is in part on the basis of these papers that Keynes wrote of Newton as "the last of the magicians."^[133]

[edit] Political causes

Keynes was a lifelong member of the Liberal party, which until the 1920s had been one of the two main political parties in the United Kingdom, and as late as 1916 had often been the dominant power in government. Keynes had helped campaign for the Liberals at elections from as early as 1906, yet he always refused to run for office himself, despite being asked to do so on three separate occasions in 1920. From 1926 when Lloyd George became leader of the Liberals, Keynes took a major role in defining the party's economics policy, but by then the Liberals had been displaced into third party status by the Labour party.^[11]

In 1939 Keynes had the option to enter Parliament as an independent MP with the University of Cambridge seat. A by-election for the seat was to be held due to the illness of an elderly Tory, and the master of Magdalene College had obtained agreement that none of the major parties would field a candidate if Keynes chose to stand. Keynes declined the invitation as he felt he would wield greater influence on events if he remained a free agent.^[125]

Keynes was a proponent of eugenics. He served as Director of the British Eugenics Society from 1937 to 1944. As late as 1946, shortly before his death, Keynes declared eugenics to be "the most important, significant and, I would add, genuine branch of sociology which exists."^[134]

Keynes once remarked that "the youth had no religion save Communism and this was worse than nothing."^[129] Marxism "was founded upon nothing better than a misunderstanding of Ricardo", and, given time, he, Keynes, "would deal thoroughly with the Marxists" and other economists to solve the economic problems their theories "threaten[ed] to cause".^[129]

In 1931 Keynes went on to write the following on Marxism:^[135]

How can I accept the Communist doctrine, which sets up as its bible, above and beyond criticism, an obsolete textbook which I know not only to be scientifically erroneous but without interest or application to the modern world? How can I adopt a creed which, preferring the mud to the fish, exalts the boorish proletariat above the bourgeoisie and the intelligentsia, who with all their faults, are the quality of life and surely carry the seeds of all human achievement? Even if we need a religion, how can we find it in the turbid rubbish of the red bookshop? It is hard for an educated, decent, intelligent son of Western Europe to find his ideals here, unless he has first suffered some strange and horrid process of conversion which has changed all his values.

[edit] Death

Throughout his life Keynes worked energetically for the benefit both of the public and his friends – even when his health was poor he laboured to sort out the finances of his old college,^[136] and at Bretton Woods, he worked to institute an international monetary system that would be beneficial for the world economy. Keynes suffered a series of heart attacks, which ultimately proved fatal, beginning during negotiations for an Anglo-American loan in Savannah, Georgia, where he was trying to secure favourable terms for the United Kingdom from the United States, a process he described as "absolute hell."^[26][137] A few weeks after returning from the United States, Keynes died of a heart attack at Tilton, his farmhouse home near Firle, East Sussex, England, on 21 April 1946 at the age of 62.^[11][138] Both of Keynes's parents outlived him: father John Neville Keynes (1852–1949) by three years, and mother Florence Ada Keynes (1861–1958) by 12 years. Keynes's brother Sir Geoffrey Keynes (1887–1982) was a distinguished surgeon, scholar and bibliophile. His nephews include Richard Keynes (1919–2010) a physiologist; and Quentin Keynes (1921–2003), an adventurer and bibliophile. His widow, Lydia Lopokova, lived on until 1981.

[edit] Publications

• 1913 Indian Currency and Finance
• 1914 Ludwig von Mises's Theorie des Geldes (EJ)
• 1915 The Economics of War in Germany (EJ)
• 1919 The Economic Consequences of the Peace
• 1921 A Treatise on Probability
• 1922 The Inflation of Currency as a Method of Taxation (MGCRE)
• 1922 Revision of the Treaty
• 1923 A Tract on Monetary Reform
• 1925 Am I a Liberal? (N&A)
• 1926 The End of Laissez-Faire
• 1926 Laissez-Faire and Communism
• 1930 A Treatise on Money
• 1930 Economic Possibilities for our Grandchildren
• 1931 The End of the Gold Standard (Sunday Express)
• 1931 Essays in Persuasion
• 1933 An Open Letter to President Roosevelt (New York Times)
• 1936 The General Theory of Employment, Interest and Money
• 1940 How to Pay for the War: A radical plan for the Chancellor of the Exchequer

[edit] See also

Animal spirits (Keynes) Embedded liberalism Global financial system

Wikiquote has a collection of quotations related to: John Maynard Keynes Post-war consensus Stockholm school (economics)

[edit] Notes and citations

1. ^ Jenkins, Nicholas. "John Maynard Keynes 1st Baron Keynes (I7810)". W. H. Auden – 'Family Ghosts'. Stanford University. http://www.stanford.edu/group/auden/cgi-bin/auden/individual.php?pid=I7810&ged=auden-bicknell.ged. Retrieved 18 October 2011. 
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3. ^ "How to kick-start a faltering economy the Keynes way". BBC. 22 October 2008. http://news.bbc.co.uk/1/hi/magazine/7682887.stm. Retrieved 13 November 2008. 
4. ^ Cohn, Steven Mark (2006). Reintroducing Macroeconomics: A Critical Approach. M.E. Sharpe. p. 111. ISBN 0-7656-1450-2. 
5. ^ Davis, William L, Bob Figgins, David Hedengren, and Daniel B. Klein. "Economic Professors' Favorite Economic Thinkers, Journals, and Blogs," Econ Journal Watch 8(2): 126–146, May 2011.[1]
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8. ^ Robert Reich (29 March 1999). "The Time 100: John Maynard Keynes". Time (magazine). http://205.188.238.181/time/time100/scientist/profile/keynes.html. Retrieved 18 June 2009. ^{[dead link]}
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29. ^ Keith Tribe, Economic careers: economics and economists in Britain, 1930–1970 (1997), p. 61
30. ^ ^{a b c d e} Skidelsky, Robert (2003). John Maynard Keynes: 1883–1946: Economist, Philosopher, Statesman. Pan MacMillan Ltd. pp. 530, 572 , 586, 750, 789 , 833. ISBN 0-330-488678. 
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45. ^ Barry Stewart Clark, Political economy: a comparative approach. p. 101. "Modern liberalism was the dominant ideology in Western nations from the end of World War II until the early 1970s. Its appeal stemmed from not only the success of Keynesian economics in maintaining prosperity during that period, but also from the postwar revulsion towards any pure form of ideology."
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89. ^ "The other-worldly philosophers". The Economist. 16 July 2009. http://www.economist.com/printedition/displaystory.cfm?story_id=14030288. Retrieved 20 July 2009. 
90. ^ Robert J. Barro, Gary Becker, Wall Street Journal editorials, 24 August 2011, and 2 September 2011
91. ^ Romer, Christina D., 'What do we know about the effects of fiscal policy? Separating evidence from ideology', Hamilton College, 7 November 2011
92. ^ Guajardo, Jaime; Leigh, Daniel; Pescatori, Andrea (July 2011). "Expansionary Austerity: New International Evidence". IMF Working Paper, WP/11/158. International Monetary Fund. http://www.imf.org/external/pubs/ft/wp/2011/wp11158.pdf. Retrieved 18 January 2012. "Using this new dataset, our estimates suggest fiscal consolidation has contractionary effects on private domestic demand and GDP." 
93. ^ McCann, Charles Robert (1998). John Maynard Keynes – critical responses. 4. Taylor & Francis. p. 21. ISBN 0-415-15193-7. 
94. ^ Keynes Hayek: The Clash That Defined Modern Economics, By Nicholas Wapshott, p 206.
95. ^ ^{a b c d} Liz Hoggard (21 October 2008). "Ten things you didn't know about Keynes". Evening Standard (UK). http://www.thisislondon.co.uk/standard/article-23575559-details/Ten+things+you+didn't+know+about+Mr+Keynes/article.do. 
96. ^ Hayek, Friedrick August von (August 1931). "Reflections on the Pure Theory of Money of Mr. J.M. Keynes" (PDF). Economica 11. http://www.mises.org/etexts/reflections.pdf. Retrieved 20 May 2008. 
97. ^ Hoover, Kenneth R. (2008). Economics as Ideology. Lanham, Maryland: Rowman & Littlefield. p. 152. ISBN 0-7425-3113-9. 
98. ^ Heilbroner, Robert (2000). The Worldly Philosophers. pp. 278–8. ISBN 0-671-63482-8. 
99. ^ Hazlett, Thomas W. (July 1992). "The Road from Serfdom". Reason. Archived from the original on 15 May 2008. http://web.archive.org/web/20080515233513/http://reason.com/hayekint.shtml. Retrieved 20 May 2008. 
100. ^ Dransfield, Robert; Dransfield, Don (2003). Key Ideas in Economics. Nelson Thornes. p. 81. ISBN 0-7487-7081-X. 
101. ^ ^{a b} Friedman, Milton (Spring 1997). "John Maynard Keynes". Quarterly Journal of Economics (Federal Reserve Bank of Richmond) 83/2. 
102. ^ Thomas K. McCraw (7 February 2009). "Dividends from Schumpeter's Noble Failure". Harvard Business School. http://hbswk.hbs.edu/item/5626.html. Retrieved 21 June 2009. 
103. ^ Symour E Harris; Joseph Schumpter (1 March 2005). The New Economics: Keynes's Influence on Theory and Public Policy [Keynes the Economist by Schumpter]. and Kessinger Publishing. pp. 73–101. ISBN 978-1-4191-4534-6. http://books.google.com/?id=jTDo58DZi1cC&dq=The+New+Economics:+Keynes'+Influence+on+Theory+and+Public+Policy&printsec=frontcover. Retrieved 13 June 2009. 
104. ^ ^{a b} Isaiah Berlin: A Life, (London 1998) Michael Ignatieff, page 128
105. ^ ^{a b c} Nina Paulovicova. "The Immoral Moral Scientist. John Maynard Keynes". University of Alberta. https://ejournals.library.ualberta.ca/index.php/pi/article/viewFile/1591/1117. Retrieved 14 June 2009. 
106. ^ A Short View of Russia, Essays in Persuasion, (London 1932) John Maynard Keynes, 297–312
107. ^ Reder, Melvin Warren, 1919– The Anti-Semitism of Some Eminent Economists, History of Political Economy – Volume 32, Number 4, Winter 2000, pp. 833–856
108. ^ Chandavarkar, A. (2000). "Was Keynes Anti-Semitic?". Economic and Political Weekly 35 (6 May 2000): 1619–1624. JSTOR 4409262. 
109. ^ Isaiah Berlin: A Life, (London 1998) Michael Ignatieff
110. ^ Ray Monk, Wittgenstein: The Duty of Genius (London 1991), page 260.
111. ^ Daniel Yergin; Joseph Stanislaw. "Keynes on Inflation". PBS. http://www.pbs.org/wgbh/commandingheights/shared/minitext/ess_inflation.html. Retrieved 30 June 2009. 
112. ^ ^{a b c} "The man who made us all Keynesians". The New York Times. 11 May 1986. http://www.nytimes.com/books/98/12/06/specials/skidelsky-keynes.html. Retrieved 20 May 2008. 
113. ^ Holroyd, pp. 123, 127, 715.
114. ^ The Sex Diaries of John Maynard Keynes The Economist, 28 January 2008, Evan Zimroth (Clare Hall, Cambridge)
115. ^ Thorpe, p.18
116. ^ Holroyd, p. 103
117. ^ Holroyd, pp. 108–110.
118. ^ Holroyd, pp. 181–3.
119. ^ Holroyd, Michael (1995). Lytton Strachey. Vintage. p. 128. 
120. ^ Holroyd, p. 129.
121. ^ Moggridge, Donald Edward (1995). Maynard Keynes: an economist's biography. Routledge. p. 104. 
122. ^ The unlikely Lydia LopokovaThe Telegraph, 25 April 2008, Rupert Christiansen
123. ^ "The firebird of Gordon Square" Kathryn Hughes, The Guardian, 19 April 2008
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126. ^ ^{a b} Lady Talky, Alison Light, London Review of Books, Vol. 30 No. 24, 18 December 2008
127. ^ "Review: Keynes and the Celestial Dancer", by Anand Chandavarkar, Reviewed work(s): Lydia and Maynard: Letters between Lydia Lopokova and Maynard Keynes by Polly Hill; Richard Keynes, Economic and Political Weekly, Vol. 25, No. 34 (25 August 1990), p. 1896
128. ^ Polly Hill, Richard Keynes, ed. (1989). Lydia and Maynard: letters between Lydia Lopokova and John Maynard Keynes. André Deutsch. p. 97. 
129. ^ ^{a b c} Quentin Bell. Virginia Wolf, A Biography.. 2 (revised Edition 1996, ed.). The Hogarth Press. 1972;. p. 177. 
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131. ^ Lubenow, William C (1998). The Cambridge Apostles, 1820–1914. Cambridge University Press. ISBN 0-521-57213-4. 
132. ^ See John Maynard Keynes by Skidelsky (2003) , pp 520–21, p563 & esp p565 where Keynes is quoted saying "It is the duty of a serious investor to accept the depreciation of his holding with equanimity ... any other policy is anti-social, destructive of confidence and incompatible with the working of the economic system."
133. ^ Keynes, John Maynard (1956). James R. Newman. ed. The World of Mathematics (2000 ed.). Dover. p. 277. ISBN 0-486-41153-2. 
134. ^ Keynes, John Maynard (1946). "Opening remarks: The Galton Lecture". Eugenics Review 38 (1): 39–40. 
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137. ^ Marr, Andrew (2007). A History of Modern Britain. London: Macmillan. p. 12. ISBN 978-0-330-43983-1. 
138. ^ To, Wireless (22 April 1946). "Lord Keynes Dies of Heart Attack. Noted Economist Exhausted by Strain of Recent Savannah Monetary Conference". New York Times. http://select.nytimes.com/gst/abstract.html?res=F60A1EFF385D177A93C0AB178FD85F428485F9. Retrieved 10 February 2010. "John Maynard Lord Keynes, distinguished economist, whose work for restoring the economic structure of a world twice shattered by war brought him world-wide influence, died of a heart attack today at his home in Firle, Sussex. His age was 63." 

[edit] References

• Backhouse, Roger E. and Bateman, Bradley W.. Capitalist Revolutionary: John Maynard Keynes. 2011
• Barnett, Vincent. John Maynard Keynes. London: Routledge, 2013. ISBN 978-0415567695.
• Beaudreau, Bernard C.. The Economic Consequences of Mr. Keynes: How the Second Industrial Revolution Passed Great Britain By. iUniverse, 2006, ISBN 0-595-41661-6
• Clark, Barry. Political Economy: A Comparative Approach. Westport: Greenwood Publishing Group, 1998, ISBN 0-275-96370-5
• Clarke, Peter. Keynes: The Twentieth Century's Most Influential Economist. Bloomsbury, 2009, ISBN 978-1-4088-0385-1
• Clarke, Peter. Keynes: The Rise, Fall and Return of the 20th Century's Most Influential Economist, Bloomsbury Press, 2009
• Davidson, Paul. John Maynard Keynes (Great Thinkers in Economics). Palgrave Macmillan, 2007, ISBN 1-4039-9623-7
• Harrod, R. F.. The Life of John Maynard Keynes. Macmillan, 1951, ISBN 1-125-39598-2
• Markwell, Donald. John Maynard Keynes and International Relations: Economic Paths to War and Peace. Oxford University Press, 2006, ISBN 0-19-829236-8, ISBN 978-0-19-829236-4
• Keynes, Milo (editor). Essays on John Maynard Keynes. Cambridge University Press, 1975, ISBN 0-521-20534-4
• Moggridge, Donald Edward. Keynes. Macmillan, 1980, ISBN 0-333-29524-2
• Patinkin, Don. "Keynes, John Maynard", The New Palgrave: A Dictionary of Economics. v. 2, 1987, pp. 19–41. Macmillan ISBN 0-333-37235-2 (US Edition: ISBN 0-935859-10-1)
• Skidelsky, Robert. John Maynard Keynes: Hopes Betrayed 1883–1920. Papermac, 1992, ISBN 0-333-57379-X (US Edition: ISBN 0-14-023554-X)
• Skidelsky, Robert. John Maynard Keynes: The Economist as Saviour 1920–1937. Papermac, 1994, ISBN 0-333-58499-6 (US Edition: ISBN 0-14-023806-9)
• Skidelsky, Robert. John Maynard Keynes: Fighting for Britain 1937–1946 (published in the United States as Fighting for Freedom). Papermac, 2001, ISBN 0-333-77971-1 (US Edition: ISBN 0-14-200167-8)
• Skidelsky, Robert. Keynes: The Return of the Master. PublicAffairs, 2009, ISBN 1-58648-897-X
• Wapshott, Nicholas. Keynes Hayek: The Clash That Defined Modern Economics. 2011
• Wolfe, Alan. The Future of Liberalism. New York: Random House, Inc., 2009, ISBN 0-307-38625-2
• Yergin, Daniel with Stanislaw, Joseph. The Commanding Heights: The Battle for the World Economy. New York: Simon & Schuster, 1998, ISBN 0-684-82975-4

[edit] Further reading

• Bradley Bateman (2010). The return to Keynes. Harvard University Press. ISBN 0-674-03538-0. 
• Dillard, Dudley (1948). The Economics of John Maynard Keynes: The Theory of Monetary Economy. Prentice-Hall, Inc. p. 384. ISBN 978-1-4191-2894-3. 
• Keynes, John Maynard (1998) (30 Volume Hardback). The Collected Writings of John Maynard Keynes. Cambridge: Cambridge University Press. ISBN 978-0-521-30766-6. 
• Lorenzo Pecchi and Gustavo Piga (2010). Revisiting Keynes. MIT Press. ISBN 0-262-51511-3. 
• Skidelsky, Robert (2010). Keynes: A Very Short Introduction. Oxford: Oxford University Press. ISBN 978-0-19-959164-0. 

[edit] External links

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• Professor Robert Skildesky explains J.M Keynes theories video
• Professor Robert Skidelsky on economist John Maynard Keynes video
• Works by John Maynard Keynes at Project Gutenberg
• Archival material relating to John Maynard Keynes listed at the UK National Archives
• John Maynard Keynes, The Economic Consequences of the Peace (1919)
• John Maynard Keynes, The end of laissez-faire (1926)
• John Maynard Keynes, An Open Letter to President Roosevelt (1933)
• John Maynard Keynes, The General Theory of Employment, Interest and Money (1936)
• Keynes biography at the New School: History of Economic Thought
• Booknotes interview with Robert Skidelsky on John Maynard Keynes: Fighting for Freedom, 1937–1946, April 28, 2002.

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Peerage of the United Kingdom
New creation	Baron Keynes 1942–1946	Extinct

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Authority control WorldCat LCCN: n79004113

Persondata
Name	Keynes, John Maynard, 1st Baron Keynes
Alternative names
Short description	A British people
Date of birth	5 June 1883
Place of birth	Cambridge, Cambridgeshire, England, United Kingdom
Date of death	21 April 1946