Keynes, John Maynard

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Keynes, John Maynard








It is probably agreed that the impact of John Maynard Keynes (1883–1946) on the development of economic theory was greater than that of any other economist in the first half of the twentieth century. There remains some difference of opinion as to whether or not the large reconstruction of economic theory that he attempted is valid and will endure. However, even those most critical of his work acknowledge that he made many valuable specific contributions.

Keynes is also significant for having been, out-side the sphere of economics, a liberal thinker and intellectual leader. His Economic Consequences of the Peace (1919) contains a powerful and de-tailed exposure of the plans put forward at the Paris Peace Conference to impose heavy reparations on Germany. The economic arguments alone, skillful as they were, would probably not have won world-wide fame for this book had it not also made an impassioned plea for magnanimity toward a fallen foe. By publishing this invective against the policy of the Allies only a few months after he himself had been the principal representative of the British government in Paris, Keynes showed he was willing, for a righteous cause, to sacrifice the possibility of a successful career, at least for many years ahead and even, as some thought, forever. Thereafter he was looked to as a liberal leader who could be relied on to fight for good causes, inter-nationally as well as in Britain.

During World War II, Keynes was the principal formulator of British views regarding postwar economic reconstruction, and he served as the leading British representative both at the Bretton Woods Conference in 1944 and at the still more important bilateral discussions between the Americans and the British a year earlier in Washington. Thus he may be regarded as a cofounder of the International Monetary Fund and of the International Bank for Reconstruction and Development, especially of the former. It should be noted, however, that it was American thinking somewhat more than Keynes’s that determined the final form of the International Monetary Fund.

The revolution in economic theory

When Keynes was a student, the influence of Alfred Marshall was paramount in English economics, especially at Cambridge, Keynes’s university. Marshall had sought to bring together and weld into a definitive system all that was valuable in the English classical school from Adam Smith to John Stuart Mill. Further, Marshall was a joint originator of the later nineteenth-century developments in the classical system, which are also associated with the names of Jevons, Menger, and Walras. These developments involve a much more extended use of marginal analysis and stress the interdependence of the processes of price formation throughout the economy. Marshall, combining the older British tradition with these newer elements, offered a general theory of value, which he believed likely to be permanent. Consequently, he saw the task of the next generation of economists not as a fundamental reconstruction of economic theory but as the application of the general principles he had established to the various specialized fields of inquiry.

Keynes fully accepted this program and decided to work in the field of money. In his first book, Indian Currency and Finance (1913), he furnished a penetrating analysis of how the Indian system actually worked. He explained the nature of a gold exchange standard (or a sterling exchange standard). As a member of the Chamberlain Commission on Indian currency in 1913, he argued, in an appendix to the commission’s report, for the need of a country like India to have a central bank.

The ideas that lay behind Keynes’s criticisms of the proposals for German reparations were shared by most contemporary economists; Keynes became their spokesman by virtue of his fine powers of polemic and his practical experience in the British Treasury. He was also fully in line with his fellow economists in condemning the evils of inflation and expressed his view with characteristic forcefulness: “Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency… Lenin was certainly right. There is no subtler, no surer means of over-turning the existing basis of society” ([1919] 1920, pp. 235–236).

Nor did Keynes depart far from contemporary opinion when, after the Americans and British had brought their inflations to an end in 1920, he stressed the evils that might arise from the opposite process of deflation, at least if it were carried too far. And he was still in line with such respected contemporaries as Irving Fisher, Gustav Cassel, and R. G. Hawtrey when he became an advocate for a monetary system that would ensure stability in the general price level. But thereafter one may begin to detect a slight departure from accepted theory, both in Keynes’s opposition to the proposal that Britain should re-establish the prewar gold parity for sterling (as it did in 1925), on the ground that this would lead to more deflation, and in his recommendation that sterling should not return to any fixed parity with the dollar, on the ground that the British authorities would then have complete freedom to maintain the stable purchasing power of sterling in terms of goods.

During and after the deflation of 1920–1921, Britain experienced very heavy unemployment. Keynes early began to advocate public works as a remedy for the situation. While he did have some support among his fellow economists, they were inclined to regard public works as a somewhat un-satisfactory “first aid” measure. The even more strictly orthodox view, known in Britain as the “Treasury view,” was that public works do not tend to increase employment at all, since they merely divert funds to the public sector that would other-wise be used by private enterprise to produce an equal amount of employment in the private sector. One way of regarding the “Keynesian revolution” in economic theory is to consider it as the refutation, at the most fundamental level of abstract theory, of the view that public works cannot provide additional employment. The three most salient features of the Keynesian revolution are his theory of employment, his theory of interest, and his theory of wages. He also developed a new theory of money.

Theory of employment

Keynes held that the level of employment depends on the level of demand, which has two main components—the propensity to invest and the propensity to consume. Income receivers tend to use a certain proportion of their income for consumption; the remainder is saved. If, when the economy is reasonably fully employed, the amount of money that income receivers tend to save exceeds the amount of money required by those responsible for investment, then the total demand will be insufficient to sustain full employment. A recession will result, leading to a low-level equilibrium at which the saving from the reduced incomes is no greater than the amount required for investment. If, on the other hand, at a reasonably full level of employment income receivers save less than is required for investment, inflationary pressures will develop. The main period of Keynes’s important work as a theorist, from 1921 to 1939, was one in which the tendency to-ward depression was preponderant; and it was accordingly upon this tendency that Keynes concentrated his attention.

It was Keynes’s conviction that if the propensity to invest is too low, relative to the propensity to save, depression will be endemic and there will be no natural forces in the system tending to restore the equilibrium of full employment. This was a departure of the first magnitude from the old orthodoxy, according to which there will be such natural forces, whether they operate through Say’s law or otherwise.

Theory of interest

It is an essential feature of Keynes’s thought that he rejected the classical argument that if the propensity to save is excessive, relative to investment requirements, it will bring interest rates down, thereby stimulating fresh investment and, perhaps, reducing the propensity to save. Keynes asserted that the conditions described above do not in themselves suffice to bring down interest rates. For the classical school, a response in the rate of interest is the essential mechanism by which Say’s law operates to sustain full employment; if an increasing thriftiness of income receivers and a corresponding fall in consumption reduce demand, the rate of interest will fall by whatever amount is needed to stimulate investment demand, so that the extra investment demand will exactly fill the gap left by the reduced consumer demand. Keynes denied that this happens.

He put forward the view that the rate of interest is governed by the balance between the community’s need for liquidity and the amount of liquidity furnished to it by the workings of the banking system, or ultimately by the policy of the central bank. If, on the occasion of an increase in thriftiness, as defined above, there is no change in the balance between the demand for and supply of liquidity, there will be no change in interest rates. An equilibrium between investment and saving will then be secured, not by a fall in interest rates, but by a fall in employment, activity, and income. This decline will continue until some fresh factor begins to operate. Such a factor can, by deliberate policy, be introduced by the central bank, which can do something to remedy the situation by increasing liquidity and thus bringing the interest rate down to the level required to stimulate investment by an appropriate amount. The difference between the older school and Keynes is that the former thought that interest rates will fall automatically to an appropriate level by the operation of natural forces while Keynes did not.

One further point must be made here. Keynes held that even appropriate action taken by the central bank with regard to the interest rate would not necessarily secure full employment, for one or both of two reasons. (1) Because of “liquidity preference,” there is probably a level below which the interest rate will not fall, however much liquidity the banking system supplies. Thus there are limits to the power of the central bank to reduce the interest rate. (2) If the prospects of profitable investment have become bad, as a result, for instance, of a severe and prolonged slump, a fall in interest rates may not have a sufficiently powerful effect in stimulating investment to restore employment to a satisfactory level. In this case public works are indispensable.

According to Keynes, there is no reason why the investment constituted by public works should in the least degree diminish the investment undertaken by private enterprise, provided that the central banks ensure that the rate of interest remains low; on the contrary, public works should increase private investment. For, if the increased incomes resulting from public works improve prospects, this may give private enterprise an incentive for making more investment also. If aggregate investment, namely public and private together, rises, then, given a certain propensity to consume, aggregate demand will rise and employment will increase. It should be noted that aggregate demand will increase by an amount greater than the increase in investment. The rise in employment and income resulting from the extra investment will give rise to a higher consumer demand. The relation of the total increase of demand to the increase in demand constituted by the extra investment is known as “the multiplier.”

A subsidiary but very important point about Keynes’s theory of interest may be noted. Distinguished economists, including Marshall, had argued that the prospect of inflation will inevitably raise the rate of interest, on the ground that if prices are rising by, say, 3 per cent, £103 will have the same real value at the end of a year as £100 had at the beginning. Consequently, if one receives back only £103 on a £100 loan, one will have received no real interest at all. Therefore the rate of interest has to be higher than the expected rise in prices. Keynes’s theory implicitly denies this. Cash and bonds are both expressed in money; interest arises because one form is liquid and the other is not; interest remunerates for the sacrifice of liquidity. Interest is thus independent of whether prices are expected to rise or fall, since in this regard one’s position is not affected by whether one holds cash or bonds. If one wants a hedge against inflation one must transfer one’s capital into real property, equities, etc. Thus, the prospect of inflation will affect the relative yield on equities and bonds but will not affect the rate of interest, which merely expresses the difference between two forms of monetary assets.

Theory of wages

Keynes totally rejected the classical argument that if there is unemployment, wages will fall and that if trade unions, etc., prevent this fall, such rigidity is the cause of protracted unemployment. Some have wrongly supposed that in rejecting this position Keynes based his reasoning on the de facto inflexibility of wages. Rather, he held that a downward movement of wages will have no positive effect on employment, given a situation in which the propensity to invest and the propensity to consume are insufficient. A fall in wages will merely be matched by a down-ward movement of prices, leaving incentives to business as insufficient as they were before.

Keynes recognized exceptions to this, however. If there is a fixed rate of foreign exchange, the downward movement of wages can stimulate ex-ports, to the extent that foreign prices remain at their previous level. In addition, a downward movement of wages can cause a decreased demand for liquidity to satisfy the “transactions motive.” Provided that the banking authorities are careful not to reduce the supply of liquidity at the same time, this change in the balance between the demand for and supply of liquidity will cause a fall in interest rates, which may in favorable circumstances increase employment. It should be noted that an increased supply of liquidity by the authorities can produce precisely the same effect as a downward movement of wages, but in a much less painful manner.

Quantity theory of money

The orthodox school was inclined to argue that a deficient aggregate effective demand cannot cause prices to fall, nor can an excessive one cause prices to rise, provided the authorities keep the money supply level. Keynes did not accept the quantity theory of money in this form. He asserted that the propensity to consume and the propensity to invest are “real” propensities and independent of the money supply; if aggregate demand is excessive, prices will tend to rise, whether the money supply is increased or not; and conversely, if aggregate demand is deficient, prices will fall. Furthermore, Keynes held that increases in factor rewards in excess of increases in productivity will cause prices to rise, whether the money supply is increased or not and whether aggregate effective demand is excessive or not. His position is clearly evident in the equations he presented in A Treatise on Money (1930, pp. 135–138).

While Keynes did not suppose the money supply to have the direct effect on prices that is postulated by some quantity theorists, he by no means thought that the money supply is unimportant. For by increasing the money supply (supply of liquidity) the authorities can bring down interest rates, and conversely, by decreasing it, raise the interest rates. If the fall in interest rates is sufficient to stimulate investment and thus aggregate demand, then the increase in money supply will tend to increase activity. If the economy is initially very much underemployed, this increase may have little or no effect on prices. But if employment initially is at a higher level, then the increased supply of money will tend, in the roundabout way described, to raise prices.

Acceptance of Keynes’s views

One must ask to what extent Keynes’s various views have been generally accepted by economists. With regard to the issue that originally produced the Keynesian re-construction of economic theory, there are few now who would hold that a program of public works will cause an equivalent reduction in the investment undertaken by private enterprise. More widely, Keynes’s analysis of aggregate demand, as governed by the propensity to consume and to invest as well as by export opportunities and governmental expenditures, is now generally adopted by those responsible for economic policy, in such countries as have policy makers. It may be noted here that in the last twenty years much work has been done in providing and elaborating national income statistics, which constitute the essential tool for developing public policy on the basis of Keynesian theory. It was largely due to Keynes’s initiative in the British Treasury during World War II that British national income statistics were compiled and published.

Since the various parts of Keyries’s general theory on employment are logically interconnected, one would suppose that those who accept his theory of aggregate demand would also feel bound to accept the other theories linked with it. However, it appears to be more often the case that at a particular point of time economists concurrently hold views that are not necessarily consistent; indeed, it was Marshall’s exceptional achievement to have gained even temporary acceptance for an integrated and mutually interdependent theory covering a large part of economics.

One part of the Keynesian system that has aroused much controversy is the theory of interest. Keynes put it forward in a rather aggressive spirit vis-a-vis traditional economics, and even some of his close followers have held that he did not give enough thought to integrating it with what is valid in traditional theory, namely the statement of the relationship of interest to the demand for and supply of savings. These followers believe that Keynes could have kept intact his doctrine that actual market interest rates are determined in the short period by the demand and supply of liquidity without discarding the valid part of traditional theory. A related problem, which has created crosscurrents of opinion and some confusion, is the influence of the money supply on the interest rate.

Accompanying Keynes’s pure theory of interest was his judgment that it would be very important in the future to have low interest rates and an ample supply of liquidity—international as well as national. Insofar as this view concerns liquidity inside national borders, at least, it had little practical importance during the decade following World War II, when so many countries were subject to inflationary pressures. Since then, however, the situation has changed, and Keynes’s followers tend to hold that had his views been accepted, some countries would have profited from having lower interest rates and a more ample supply of internal liquidity. Keynes would certainly be much disappointed by the fact that liquid reserves for international settlement have fallen considerably, in comparison with the prewar period, despite the existence of the International Monetary Fund, which he himself did so much to establish.

Social implications

In certain wider social implications, Keynes’s economic theories touch on the part that central governments should play in economic matters. There are two ways of interpreting his views on government control. According to one view, his stress on the need for state interference makes him almost a socialist. But he can also be regarded as a passionate libertarian and a strong believer in the value of individual initiative and enterprise. Indeed, he himself believed that his doctrines could be regarded as a lifeline for private enterprise: if state interference provided the right framework, then the values of free enterprise and choice were much more likely to be fully realized. Keynes held that the adoption of his scheme of thought was an alternative to full-blown socialism, and, indeed, the only available alternative, since systems of undiluted laissez-faire were bound to break down in modern conditions.

Keynes did not restrict state interference to the minimum necessary to sustain full employment. If there were problems (for instance, poverty) to be cured, he was impatient with those who thought that nothing should be done that violated alleged “laws of economics.” He advocated international projects for stabilizing commodity prices, and he believed that in certain cases cartels or other forms of industrial rationalization were desirable, even if they could be implemented only by state action.

In his early days Keynes was, like all liberals, a fervent believer in free trade. Later he saw the possibility of conflict between free trade and full employment. Although he had been opposed to the return of Britain to the gold standard in 1925, he was reluctant to advocate a departure when the slump began, partly because he believed it would be bad conduct toward foreigners who had put their trust in sterling (by holding it). He was pleased, however, when external events compelled Britain to depart from the gold standard in 1931, and he felt that this change gave great scope for a better policy of managed currency.

Keynes dissented when the assembled delegates at the World Economic Conference in London in 1933 pressed for measures removing the trade restrictions that had mushroomed as a consequence of the world slump. He thought it was idle to recommend such measures unless at the same time international liquidity was much increased, and instead he recommended an issue of international gold notes. As balance of payments difficulties continued, he came to favor protectionist measures as a lesser evil than deflation, or as a shield for the inflationary measures that would have to be taken to restore full employment. Keynes took the same position during World War Ii; he felt that Cordell Hull’s efforts to get international agreement for a return to a much greater freedom of international trade would be in vain and, in particular, unacceptable to Britain unless the problem of international liquidity were solved by some agency such as the International Monetary Fund.

In his last work Keynes expressed optimism about the feasibility of returning to greater freedom of trade. He had never felt that his doctrines concerning aggregate demand and full employment were inconsistent with the classical doctrine that, given the right framework, individual enterprise and the international division of labor would ensure the best allocation of productive resources. But all this depends on an adequate supply of international liquidity, that is, a larger supply than existed before the war. In actuality, the supply has become smaller.

Keynes’s life

Keynes was born in Cambridge in 1883. His father, John Neville Keynes, was a fellow of Pem-broke College, Cambridge, and the author of Formal Logic and The Scope and Method of Political Economy. (Both these books were for some years considered clear and up-to-date expositions of their respective subjects.) Keynes’s mother, Florence, was the daughter of a Congregationalist divine called John Brown, who wrote an authoritative life of Bunyan. She was one of the earliest students of Newnham College, Cambridge. Throughout her life she devoted herself to a multitude of good works, and she served a term as mayor of Cambridge. In Keynes’s home there was ceaseless discussion of intellectual matters. The family hero was Henry Sidgwick, philosopher and economist, who at one time had resigned his fellowship at Trinity College as a protest against religious requirements. John Neville Keynes was always in close touch with Alfred Marshall. The Keynes family went to a Congregationalist church in Cambridge, but in his adult life Keynes did not adhere to any religious creed.

Keynes won a scholarship at Eton, where he received the best education available in England. He next obtained a scholarship at King’s College, Cambridge. There he specialized in mathematics and in his final examination was twelfth on the list for the whole of Cambridge. His official tutors do not appear to have contributed much to his intellectual development, but the influence of Cam-bridge was very great indeed.

First and foremost must be mentioned a secret society known as “The Apostles,” to which Keynes was very soon elected. It was a highly select society, only two or three undergraduates being chosen each year. Former undergraduates retained their membership and came to the meetings from time to time, especially if they were teaching at Cam-bridge. The society had an implicit code that had a profound influence on many of its members for the rest of their lives. It may best be summarized as consisting of absolute intellectual integrity and unworldliness in the conduct of one’s life. The code may be thought to have amounted almost to a kind of religion.

In the past the Apostles had had such members as Tennyson, Sidgwick, and Clerk Maxwell. In Keynes’s time the most influential senior member was G. E. Moore, the philosopher, and his philosophical views had an influence that can be detected, certainly in Keynes’s Treatise on Probability (1921), and possibly in his economics also. Of the junior members, the man who had the greatest influence on Keynes, both as an Apostle and as a close friend, was Lytton Strachey, biographer and essayist. Strachey brought within Keynes’s horizon a higher form of culture than was available in his quiet academic home or in Cambridge generally. He had some influence on Keynes as a writer of prose: Keynes’s Economic Consequences of the Peace is as fine an example of polemic writing as anything produced in his generation. It was Strachey also who introduced Keynes to a circle that took a passionate interest in artistic matters. This circle of close friends at Cambridge included Leonard Woolf and Clive Bell. These friendships lasted through life. In London the group, containing also Roger Fry, Duncan Grant, and Virginia Woolf, was for many years commonly known as “Bloomsbury.”

After obtaining his degree, Keynes spent an additional year at Cambridge, studying economics under Alfred Marshall and A. C. Pigou for the British Civil Service Examination. He was second in the examination. Since there was only one vacancy in the Treasury that year, Keynes opted for the India Office. He was bored there for the most part, but his experience doubtless prompted his specializing in Indian currency when, after two years, he returned to Cambridge to teach economics.

During these years and for some time thereafter Keynes directed the greater part of his energy to the study of probability theory. A dissertation on this subject gained him a fellowship at King’s College. The Treatise on Probability was published in 1921, but was completed for the most part be-fore World War I. This substantial volume still holds a certain place in the literature on the subject. It has a very lengthy bibliography, not only of then recent works but also of those of earlier date. Some curious items in the list probably reflect Keynes’s lifelong interest in collecting first editions, mainly of philosophical or economic works, but later branching into general Elizabethan literature. He discovered and was able to prove the authenticity of a hitherto unknown writing by David Hume.

Keynes’s idea in writing the treatise was to do for inductive logic something analogous to what Russell and Whitehead had done for deductive logic in their Principia mathematica. He brought his mathematical expertise to the task as well as his immense learning in various byways of probability theory. His central doctrines are still of interest, especially to the philosophers as distinct from the technicians of probability theory [SeeKeynes, John Maynard, article oncontributions to statistics.] Under the influence of G. E. Moore, Keynes held that probability is a concept that can be comprehended intuitively and requires no definition; this made the book somewhat unsatisfactory to the following generation of scholars.

Shortly after World War i broke out Keynes was taken into the British Treasury, where he rapidly rose. In the later part of the war he was in supreme control of the external work of the Treasury— foreign exchange control, U.S. loans, etc. At the Paris Peace Conference he was the principal Treasury representative, a position from which he eventually resigned in protest. He then returned to Cambridge, where he continued his lecturing and teaching; he also became bursar of King’s College. He wrote a follow-up volume to the Economic Con-sequences, called A Revision of the Treaty, in 1922, and a more theoretical work entitled A Tract on Monetary Reform in 1923.

Soon after the war, in the autumn of 1919, Keynes embarked upon a career of finance. Borrowing a few thousand pounds from members of his family, he used the funds to deal in foreign exchange and in commodities and, in due course, in stock exchange securities. After repaying his debts, he built up a capital of about half a million pounds during the interwar period. He also constituted himself a financial adviser to firms, some-times working with O. T. Falk. From 1921 to 1938 Keynes was chairman of the National Mutual Life Insurance Company, and his annual speeches be-came important events. As bursar of King’s he greatly increased the endowment of that college.

He had a very active career as a journalist in the decade following the war, being editor of the massive Manchester Guardian supplements on “Reconstruction in Europe” and writing frequently for The Nation, of which he was chairman from 1923 to 1929. From 1911 to 1945 Keynes served as editor of the Economic Journal.

In 1925 Keynes married Lydia Lopokova, a famous Russian ballerina who had been trained in the Imperial Ballet in St. Petersburg but had been for most of her professional life in the Diaghilev Ballet. It was an extremely happy marriage. After his marriage, Keynes spent a considerable part of his time in his small country house, to which farming land was attached, in Sussex in the village of Firle. He took a great interest in farming and carried through various improvements.

In politics Keynes was a Liberal, and in the 1920s he did much work on behalf of the Liberal party. Although a close friend of Asquith and his family and very bitterly opposed to Lloyd George at the Paris Peace Conference, he began to believe as the years wore on that Lloyd George was the man to revive the fortunes of the Liberal party. Lloyd George was willing to take up Keynes’s ideas about public works. Together with H. D. Henderson, Keynes wrote a pamphlet called Can Lloyd George Do It× (1929).

When the Labour party took office under Ramsay MacDonald, Keynes was brought back somewhat into public affairs. He became a member of the Economic Advisory Council in 1930 and of the so-called Macmillan Committee on Finance and Industry, a considerable part of whose classic report he wrote himself.

In 1930 Keynes published A Treatise on Money, his most comprehensive work on monetary theory. In the following years he devoted most of his energy to writing The General Theory of Employment, Interest and Money (1936), which sets out explicitly what may be called the Keynesian revolution. (His had been a lone voice against retrenchment as the proper cure for the great slump, as early as the crisis year of 1931, and he was thus the first person to recommend what is now called the doctrine of “built-in stabilizers.”) Some may think it unfortunate that the General Theory has somewhat overshadowed the Treatise on Money; the latter has a much greater range of interest and a wealth of ideas.

In the 1930s Keynes also devoted much attention to collecting books and modern paintings. He founded the Arts Theatre at Cambridge, of which the university and the borough of Cambridge be-came joint trustees. Even during World War II Keynes continued his interest in artistic questions. In 1942 he became chairman of the newly founded Committee for the Encouragement of Music and the Arts, which was later renamed the Arts Council of Britain and which has played a notable part in the encouragement of the arts in Britain ever since.

When World War II broke out Keynes wrote a pamphlet entitled How to Pay for the War (1940); he may be regarded as the author of the scheme for “postwar credits,” which was adopted. He was taken back into the Treasury, and although he did not have administrative responsibility, as in World War I, his advice was sought on a wide range of day-to-day financial problems arising from the war.

The discussion of article 7 of the projected Mutual Aid Agreement in 1941 led Keynes to give part of his time to the problems of postwar reconstruction. The first draft of his plan for a “Clearing Union,” i.e., the original British version of what became the International Monetary Fund, was com-posed that autumn. He also drafted an elaborate scheme for international buffer stocks, in order to stabilize commodity prices; in 1943 this scheme aroused interest in Washington also.

In addition to his important work in establishing the International Monetary Fund, in Washington in 1943 and the following year at Bretton Woods, Keynes made a number of journeys to the United States during the war to discuss the current financing of the war and reconstruction problems. One of his last major tasks was the negotiation in Washington of the large U.S. loan to Britain during the autumn of 1945. The problems involved were very intricate, and Keynes found himself in disagreement not only with the Americans across the table but also with the directives he received from the British authorities in London. His health had already been damaged by a severe coronary thrombosis in 1937, and the tension of the meetings was a great strain.

At the first meeting of the International Monetary Fund and the International Bank, in 1946 in Savannah, Georgia, Keynes came into sharp conflict with Fred Vinson, secretary of the U.S. Treasury. Some of the decisions taken at the meeting dashed his hopes for the future of these institutions, upon which he had lavished so much work. The emotional strain was great. Back at his home in Sussex, Keynes died on Easter Sunday 1946.

R. F. Harrod

[For the historical context of Keynes’s work, see the biographies ofCassel; Fisher, Irving; Hawtrey; Keynes, John Neville; Marshall; Pigou; Whitehead; for discussion of the subsequent development of his ideas, seeConsumption function; Income and employment theory; Interest; Liquidity preference; Money, article Onquantity theory.]


(1913) 1924 Indian Currency and Finance. London: Macmillan.

(1919) 1920 The Economic Consequences of the Peace. New York: Harcourt; London: Macmillan.

(1921) 1952 A Treatise on Probability. London: Macmillan.

1922 A Revision of the Treaty: Being a Sequel to The Economic Consequences of the Peace. New York: Harcourt; London: Macmillan.

1923 A Tract on Monetary Reform. London: Macmillan.

1929 KEYNES, JOHN MAYNARD; and HENDERSON, H. D. Can Lloyd George Do It× An Examination of the Liberal Pledge. London: The Nation and Athenaeum.

(1930) 1958–1960 A Treatise on Money. 2 vols. London: Macmillan. → Volume 1: The Pure Theory of Money. Volume 2: The Applied Theory of Money.

1936 The General Theory of Employment, Interest and Money. London: Macmillan. → A paperback edition was published in 1965 by Harcourt.

1940 How to Pay for the War: A Radical Plan for the Chancellor of the Exchequer. New York: Harcourt; London: Macmillan.


Dillard, Dudley D. 1948 The Economics of John Maynard Keynes: The Theory of a Monetary Economy. Englewood Cliffs, NJ.: Prentice-Hall.

Hansen, Alvin H. 1953 A Guide to Keynes. New York: McGraw-Hill.

Harris, Seymour E. (editor) (1947) 1965 The New Economics: Keynes’ Influence on Theory and Public Policy. New York: Kelley.

Harris, Seymour E. 1955 John Maynard Keynes: Economist and Policy Maker. New York: Scribner.

Harrod, R. F. (1951) 1963 The Life of John Maynard Keynes. London: Macmillan; New York: St. Martins.

Klein, Lawrence R. (1947)1963 The Keynesian Revolution. New York: Macmillan.

Kurihara, Kenneth K. (editor) 1954 Post-Keynesian Economics. New Brunswick, N.J.: Rutgers Univ. Press.

Lekachman, Robert (editor) 1964 Keynes’ General Theory: Reports of Three Decades. New York: St. Martins.


Keynes took his degree in mathematics: it was therefore natural that his fellowship thesis should be on a mathematical subject. He chose probability as the topic, and out of this thesis grew A Treatise on Probability (1921), his single great contribution to the subject. Of the five parts of this large book, the second attempts to reduce to logical formulas the fundamental theorems of the probability calculus, a mathematical exercise in the tradition of Whitehead and Russell that has had little influence. Another part of the book is historical and bibliographical; the bibliography lists 600 items. Keynes’s passion for collecting reveals itself in this admirable compendium, which brought Todhunter’s and Laurent’s earlier historical treatments of logic up to date. A third feature is a fine critique of some views of probability that were held then and are still popular. Among these are the idea of probability as a subjective degree of belief in a proposition, given the evidence, and the notion of probability as a limiting frequency associated with a certain type of infinite sequence.

The main contribution of Keynes is the argument that probability is a primitive idea—a logical relation between a proposition and the evidence bearing on the truth of the proposition. Thus, with the subjectivists, he held that it is a relation between propositions and evidence; but he supported the frequentists in thinking that it is an objective notion. His conception of probability was pursued with great thoroughness and in a style worthy of attention for its literary merits. For Keynes, the purpose of probability theory is to systematize inference processes. He therefore attempted to formulate certain rules of probability and to develop a calculus. Furthermore, he tried to develop the logical foundations of statistical arguments.

Keynes’s viewpoint and the program were novel and important. They have had a great influence on probabilists and statisticians. Unfortunately, they were marred by a serious restriction that Keynes imposed in refusing to admit that all probabilities can be compared. He was prepared to assume only that probabilities are partially ordered. Related to this difficulty is his refusal to recognize that a numerical measure of probability is always appropriate. As Ramsey was later to point out (1923–1928), this refusal to introduce numbers is surprising in view of Keynes’s obvious knowledge of Russell’s work on the correspondence between order relations and numbers. But without numbers, progress is difficult if not impossible.

In a biographical essay on Ramsey, Keynes (1933, p. 300) later withdrew his objections and admitted the correctness of Ramsey’s view of probability as expressed in terms of bets. He also admitted Ramsey’s argument that the rules of probability are logical deductions from proper betting behavior, and not primitive axioms. In the hands of Savage, Ramsey’s work has led to many interesting developments in what is now often called Bayesian probability, which is having an increasing influence on practical statistics. It is interesting to note that while Keynes was working on the treatise, Jeffreys (1939), also in Cambridge, was developing a similar objective, logical theory. But since he admitted numbers, he made much more progress on the calculus than did Keynes. According to Jeffreys, both he and Keynes were influenced by W. E. Johnson, a lecturer in philosophy at Cam-bridge.

Dennis V. Lindley

[Directly related are the articles on Bayesian inferenceand Probability.]


(1921) 1952 A Treatise on Probability. London: Macmillan. → A paperback edition was published in 1962 by Harper. (1933) 1951 Essays in Biography. New ed. Edited by Geoffrey Keynes. New York: Horizon Press. → A paper-back edition was published in 1963 by Norton.


Jeffreys, Harold (1931) 1957 Scientific Inference. 2d ed. Cambridge Univ. Press.

Jeffreys, Harold (1939) 1961 Theory of Probability. 3d ed. Oxford: Clarendon.

Ramsey, Frank P. (1923–1928)1931 The Foundations of Mathematics and Other Logical Essays. New York: Harcourt.

Savage, Leonard J. 1954 The Foundations of Statistics. New York: Wiley.

Keynes, John Maynard

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Keynes, John Maynard 1883-1946





The doyen of Cambridge economists, bursar of Kings College, and eventual Baron Keynes of Tilton, John Maynard Keynes was a leading member of the Bloomsbury Group, an astute collector of the writings of Isaac Newton (16421727), a long-time editor of the Economic Journal, a U.K. government policy advisor of significant magnitude, and the main instigator of a revolution in economic theory that created an approach (Keynesianism) that came to dominate Western economic discourse from the end of World War II (19391945) until the mid-1970s.

Keynes was undoubtedly the most famous and influential economist of the mid-twentieth century. His 1936 book The General Theory of Employment, Interest, and Money is often cited as the single most important book in economic theory published in the interwar period, and it could reasonably be said to have created modern macroeconomics. One graphical representation of the economy that came out of this bookIS-LM analysisbecame a staple of textbook economics for many years to come, even though it was later shown not to originate from Keyness work alone, but from one individuals particular interpretation of it. Keyness interventionist proposals for helping to regulate the aggregate level of employment through demand management remained in use in various forms for decades after World War II, and his policy advice on financing both World War I (19141918) and World War II was crucial to enabling Allied victories on both occasions. Some of his pithy aphorisms, such as in the long run we are all dead, have become legendary.

Despite his undoubted great influence on economics, his legacy is highly controversial. Criticized from the right for advocating inflationary financing, and from the left for attempting to rescue capitalism rather than replace it, the demise of Keynesianism as the dominant force in mainstream economics is usually dated to the mid-1970s, when inflation combined with high unemployment to produce stagflation, something that Keynes had not predicted. Despite such unforeseen developments, his influence still remained active through a number of heterodox approaches to the subject, such as post-Keynesian economics and even new Keynesianism. Like all truly great intellectuals, fresh interpretations of his work are periodically presented, and neglected aspects of it are continually rediscovered.


Maynard Keynes (as he was known to his friends) was the son of John Neville Keynes (18521949), also a well-known economist and the author of The Scope and Method of Political Economy (1891). Maynard Keynes experienced an elite education at Eton and then studied at Kings College Cambridge, where he was appointed to a lectureship in economics after a period working in the British Civil Service. He was soon involved in providing policy advice on financial affairs in India, which then developed into governmental service in the U.K. Treasury regarding the financing of World War I. He was the main Treasury representative at the signing of the Peace Treaty at Versailles, and after the war he strongly criticized the level of the reparations demands made on Germany. In the early 1920s, he argued that Britain should not return to the prewar gold standard system, and if it did, it should not be at prewar parity. In both these instances, his advice was ignored, but in retrospect his judgment has appeared correct to many commentators. By the end of the 1920s, Keynes was supporting David Lloyd Georges (18631945) call for a program of government-funded economic expansion of around 2.5 percent of national income per year, in order to cure persistent unemployment.

In addition to his economic works, Keynes published A Treatise on Probability (1921), which provided a critique of the frequency conception of probability then in vogue. Instead of this approach, Keynes favored a logical conception in which probability was seen as being relative to human knowledge, rather than being taken as a given fact of nature. He also published various essays on political matters and even some biographical sketches. In an essay on his early beliefs, he stressed the significance of the British philosopher G. E. Moores (18731958) Principia Ethica (1903) to the formation of his general attitudes. Keynes had interpreted Moore as applying logical analysis to such areas as feelings, sense-data, and morality, and he later described such an approach as sweeter air by far than Sigmund Freud (18561939) or Karl Marx (18181883). During World War II, Keynes again successfully served in the U.K. Treasury, where he coordinated his activities closely with the U.S. government. He died in 1946, a year after the war ended.


Keynes is best known for introducing into the vocabulary of economists concepts such as the marginal efficiency of capital, liquidity preference, effective demand, the multiplier, and the propensity to consume. He also developed more rigorous definitions of the basic elements of economic analysis, such as income, savings, and investment. However, it is important to realize that Keynes was not working in isolation; instead he actively participated in debates that occurred throughout the 1920s and 1930s among British economists such as D. H. Robertson (18901963), Richard F. Kahn (19051989), R. G. Hawtrey (18791975), and Joan Robinson (19031983). Consequently, what precisely is taken to constitute the Keynesian revolution in economics is an essentially disputed topic. Keynes himself emphasized that the revolution was directed against the classical theory of employment, but his account of this theory through the work of the economist A. C. Pigou (18771959) was itself controversial. Keynes argued that the classical approach only allowed for the existence of frictional and voluntary unemployment, and denied the possibility of involuntary unemployment. Given the context of the Great Depression of the 1930s, Keynes implied that this approach was unrealistic, and set about showing how capitalism could generate significant levels of involuntary unemployment when certain conditions were met.

Keynes presented effective demand (aggregate demand backed by money) as the key concept of his general theory. He asserted that the volume of total employment was determined by the interrelation of aggregate supply and aggregate demand. As opposed to the classical doctrine, in which supply was said to create its own demand (Says Law), Keynes suggested that in reality an increase in supply did not necessarily lead to a corresponding increase in demand. This was because when employment increased, aggregate real income also increased. However, due to the psychological factors involved (the propensity to consume), when income increased so also did consumption, but (crucially) by not as much as income. In order to cover this deficit, an increase in investment sufficient to absorb the excess was required, but there was no guarantee that the necessary level of increased investment would naturally follow. Keynes outlined that the amount of investment was actually dependent on the inducement to invest, which in turn was determined by the relation between the marginal efficiency of capital and interest rates.

Keynes defined the marginal efficiency of capital as being equal to the interest rate that would make the present value of the future returns from a capital good equal to its supply price, and hence it depended on expected returns. Keynes further outlined how the marginal efficiency of capital declined as investment in any particular capital good increased. Given this declining schedule and with any given rate of interest, there was no reason to assume that actual investment would correspond to the amount required to cover the deficit between increased income and consumption. Thus the level of effective demand required to ensure full employment was not necessarily created by the self-adjusting mechanisms of a market economy. Put another way, the economic system did not automatically generate full employment.

To explain the unusual duration of the Great Depression, Keynes suggested that in the 1930s the marginal efficiency of capital was actually much lower than it had been in the nineteenth century, and hence the rate of interest that would generate higher employment levels was unacceptable to many owners of accumulated wealth. To explain the heightened amplitude of depressions, Keynes christened the ratio between an increment of investment and increased income the investment multiplier, and suggested that a multiplier greater than unity accounted for how relatively small fluctuations in investment could generate much larger fluctuations in employment. Keynes concluded from this analysis that investment was promoted by low rates of interest and that this would be facilitated by the disappearance of the rentier class within capitalism.

The Keynesian revolution was not only directed against classical economists, but also against Keyness earlier approach, which had preached adherence to the framework provided by the Cambridge version of the quantity theory of money. In this respect it is necessary to consider Keyness major works in economics published prior to The General Theory. His first book was Indian Currency and Finance (1913), which provided an analysis of the operation of the gold-exchange standard. This was followed by The Economic Consequences of the Peace (1919), an attack on the terms of the Versailles Peace Treaty, and a Tract on Monetary Reform (1923), dealing with the problems of postwar inflation. These books, although undoubtedly important in practical terms, were less significant in terms of providing innovations in pure theory. The Treatise on Money (1930) was Keyness most significant work in economic theory prior to The General Theory. Here Keynes emphasized the importance of the behavior of the banking system to understanding fluctuations; by controlling credit, banks necessarily controlled aggregate expenditure. Booms and slumps were thus the result of the oscillation of the terms of credit about their equilibrium position, defined as occurring when savings equaled investment. Disequilibrium was possible in this model as international influences adversely affected the domestic banking system, causing the terms of credit to move above or below their equilibrium level at any given time. The difference between this type of analysis of trade cycles and that given in The General Theory was significant; in the latter, emphasis was transferred away from monetary factors to psychological propensities and expectations of future yields on investment goods.


Keyness new economics, brilliant though it undoubtedly was, was not without flaws. The abstract concepts that Keynes deployed with such aplomb were sometimes ambiguous, and his use of them produced much ongoing debate. Milton Friedmans A Theory of the Consumption Function (1957) was devoted to empirically investigating Keyness psychological rule of increased savings (in percentage terms) as income rose. Friedman concluded that Keynes was mistaken in his presentation of the nature of the propensity to consume, as the ratio between income and savings was the same for all levels of income, but depended on other factors, such as interest rates and the ratio of wealth to income. Friedman later led the monetarist counterrevolution against the Keynesian approach. There was also a question over how general Keyness General Theory actually was. Since it was designed in part to explain the historical circumstances of the 1930s, was its relevance limited only to the interwar period?

Despite such ambiguities, the impact of The General Theory on Western economics immediately after 1936 was so great that it swept aside the valuable contributions of contemporary economists like Joseph Schumpeter (18831950), whose monumental work Business Cycles (1939) found little direct resonance in the West due, at least in part, to the phenomenal success of Keyness book. Keynes also became involved in a debate over the importance of the new econometric methodology (as developed by the Dutch economist Jan Tinbergen [19031994]) to economic analysis. Keynes was highly critical of the extensive use of mathematical models in economics being promoted by the econometricians, but his reservations were quickly swept aside. Ironically, it was the success of the Keynesian IS-LM model that added some impetus to the drive for econometric modeling.

The Keynesian system was for many years after World War II hailed by the Left as proof of the inadequacies of capitalism as an economic system and the necessity of increased state control of the commanding heights of the economy. Keynes himself saw his work as a means of improving the internal mechanics of the free-market system, and he criticized state socialism as inefficient and as too restrictive of individual freedoms. Keynes traveled to the USSR on a number of occasions, but he found the fanatical zeal of the Bolsheviks toward Marxs Capital to be incomprehensible. He declared support for significant inequalities of wealth and income, but not to such a degree that it would impede the entrepreneurial function. Yet he disputed the argument that enlightened self-interest always operated in the public interest, and he saw an important role for the directive intelligence of society organized as a whole exercising some control over private business.

Given the level of his fame and the degree of his policy influence, Keyness private life and general views have come under some scrutiny. Early in his life he had intimate relationships with male suitors (such as Duncan Grant [18851978], the Bloomsbury painter), but he went on to marry a Russian ballerina in 1925, his conversion to heterosexuality being the cause of some friction between members of the Bloomsbury set. He has been accused of soft anti-Semitism and also of not realizing the full consequences of his policies of war finance for less developed countries like Russia. Despite such criticism, Keyness status as one of the most important economists since Adam Smith (17231790) remains unshaken, and his legacy of bringing greater sophistication to economic theory is an enduring one. It seems unlikely that any individual economist could replicate Keyness pervasive influence over the subject in the future.

SEE ALSO Absolute Income Hypothesis; Consumption Function; Economics, Keynesian; Economics, New Keynesian; Economics, Post Keynesian; Interest, Neutral Rate of; Macroeconomics; Policy, Fiscal; Policy, Monetary; Unemployment; Voluntary Unemployment


Barnett, Vincent. 2001. Calling Up the Reserves: Keynes, Tugan-Baranovsky, and Russian War Finance. Europe-Asia Studies 53 (1): 151169.

Clarke, Peter. 1988. The Keynesian Revolution in the Making, 19241936. Oxford: Clarendon Press.

Friedman, Milton. 1957. A Theory of the Consumption Function. Princeton, NJ: Princeton University Press.

Hicks, J. R. 1937. Mr. Keynes and the Classics: A Suggested Interpretation. Econometrica 5 (2): 147159.

Keynes, John Maynard. 1921. A Treatise on Probability. London: Macmillan.

Keynes, John Maynard. 1930. Treatise on Money. London: Macmillan.

Keynes, John Maynard. 1936. The General Theory of Employment, Interest, and Money. London: Macmillan.

Laidler, David. 1999. Fabricating the Keynesian Revolution: Studies of the Inter-War Literature on Money, the Cycle, and Unemployment. Cambridge, U.K.: Cambridge University Press.

Skidelsky, Robert. 1992. John Maynard Keynes: The Economist as Saviour, 19201937. London: Macmillan.

Vincent Barnett

Keynes, John Maynard

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Keynes, John Maynard

(b. Cambridge, England, 5 June 1883; d. Firle, Sussex, England, 21 April 1946)

economics, mathematics.

His father, John Nevile Keynes, was the author of Formal Logic (1884) and Scope and Method of PoliticalEconomy (1890). Both were thoroughly up-to-date in their day and remained standard texts for a number of years. John Nevile was a lifelong fellow of Pembroke College, Cambridge, and registrary (chief administrative officer) of Cambridge University from 1910 to 1925. Maynard’s mother was Florence Ada, daughter of John Brown, who wrote what was for long regarded as the standard life of John Bunyan, the author of The Pilgrim’s Progress. She was an authoress and an ardent worker for social causes and in local government, eventually becoming the mayor of Cambridge.

Keynes went to the Perse School Kindergarten, Cambridge (1890), and to St. Faith’s Preparatory School, Cambridge (1892). He own a scholarship at Eton College (1897) and at Kings College, Cambridge (1902). For his degree he studied mathematics only and in 1905 was twelfth wrangler (i.e., twelfth on the list of those offering mathematics in that year). This was sufficiently distinguished but not eminently so. The fact is that he did little work at academic studies when an undergraduate, devoting this time to wide reading, some political activity (he was president of the Cambridge Union) and, more particularly, to the cultivation of literary friends (Lytton Strachey and others) who were destined to play a notable part in the intellectual life of England.

He spent the next year (1905-1906) as a graduate at Cambridge, not working for a degree but enlarging his reading, including that in economics, in which he had instruction from Alfred Marshall and A. C. Pigou, and which he had also imbibed in early boyhood from his father.

In 1906 he took the British Civil Service examination and was second on the list for all England. There happened to be only one vacancy in the Treasury in that year, and he remained there for two years. During those years and in the three years that followed, he devoted the greater part of his time to work on the theory of probability.

His Treatise on Probability was not published until 1921, owing to the interruption of the war, but had been almost completed by 1911. This was at once at work of great learning ideas. Its bibliography of the literature is one of the most comprehensive that has ever been made.

In regard to the original ideas, his ambition was to provide a firm mathematical basis for the probability theory on lines comparable to those of the Principia Mathematica, in which Russell and Whitehead laid the foundations of symbolic deductive logic. Of Keynes’s book Bertrand Russell afterward wrote, “The mathematical calculus is astonishingly powerful, considering the very restricted premises which form its foundation … the book as a whole is one which it is impossible to praise too highly” (Mathematical Gazette) [July 1922]).

While Keynes was an innovator in expressing probability theory in terms of modern-type symbolism, and in this respect his book constituted a landmark, two of its central doctrines have not been widely accepted since.

(1) Keynes thought it proper to postulate that probability is a concept that is capable of being apprehended by direct intuition and requires no definition. This approach was due to the influence of the Cambridge philosopher G. E. Moore but no longer finds favor.

(2) Keynes translated into his own symbolism the central proposition of Bayes. The Bayes-type approach demonstrates how favorable instances can increase the probability of a given premise. For this reasoning to work, the premise must have some prior probability of its own. The trouble is that in the very beginning of the inductive process there are no empirical propositions with any intrinsic probability of their own. So how to make a start? This is, of course, the crux of the problem of induction. Keynes thought it proper to overcome this difficulty by postulating the principle of limited independent variety, meaning that there is a finite number of “ultimate generator properties” in the universe. This would enable one to assign a positive probability to the proposition that one (or another) of the ultimate properties was operating in a given case. The objection was then made that to get any significant probability for a conclusion it would not be enough to postulate a finite number of ultimate generator properties, but a specific number. The impossibility of doing this is clearly a stumbling block for the Keynes-type approach.

In 1908 he resigned from the India Office and went to Cambridge, without official appointment, on the invitation of Alfred Marshall to assist the new Department of Economics there. Shortly afterwards he was awarded a fellowship at Kings College, open to competition, on the strength of his thesis on probability.

Meanwhile he was also at work on his book Indian Currency and Finance (1913), which included a description of what is called a “gold exchange standard”.He had also been invited to serve on a royal commission on Indian finance and currency. He contributed much to the report and also appended an annex of this was, a revolutionary idea for a less-developed country.

He was in the British Treasury from 1915 to 1919, in the later years as head of the department looking after foreign exchange controls. In 1919 he went to the Paris Peace Conference as principal representative of the British Treasury and deputy for the chancellor of the exchequer. In June 1919 he resigned, on the ground that the proposals put forward for German reparations payments were impractical and unjust. In December 1919 he published The Economic Consequences of the Peace, which own him a worldwide reputation for its brilliant writing and character sketches, its humane and liberal outlook, and the cogency of its arguments about the German reparations problem.

He returned to Kings Colege, Cambridge. For a period hi primary interest was in German reparations.A Revision of Treaty was published in 1922. Other economic matters began to engage his attention, namely the evils of deflation, which became severe both in the United States and the United Kingdom in 1920, and the unemployment question.

On the monetary side he published A Tract on Monetary Reform (1923), which was a lucid exposition of monetary theory partly on traditional lines. He departed from those line, however, in advocating that there should not be a return to a fixed parity between the pound and the dollar but that a floating exchange rate should be regarded normal. When, despite his advocacy, the Unite4d Kingdom returned to the gold standard in 1925, he wrote a devastating pamphlet entitled The Economic Consequence of Mr. Churchill.

On the side of unemployment he began at an early date to advocate public works, mainly in articles in The Nation. Orthodoxy claimed that public works would not decrease unemployment, n the ground that money spent on them would entail that private enterprise had that much less money to spend, so that there would be no net gain of employment at all. This was sometimes known as the “Treasury view”. It was the intellectual challenge presented by this view which drove him to the conclusion that quite a considerable part of economics would have to be rethought, and to that he devoted his main powers for the next dozen years. The fruits of his thinking were published in A Treatise on Money (December 1930), when his intellectual journey was half complete, and in The General Theory of Employment, Interest and Money (January 1936). Note should also be made of his membership (1929-1931) of the of the official Macmillan committee of enquiry into finance and industry. He gave that committee the benefit of a statement of his views on money which lasted for five days. A rescript of this is due eventually t0 be published in his collected works.

Of the two books, the Treatise is the more comprehensive volume and contains much vital material not to be found elsewhere. For knowledge of Keynes the General Theory is compulsory reading, because it contains his final synthesis; but this has had the unfortunate effect that the Treatise has not been read as much as it should be by those who wish to understand Keynes in depth over wide range of subjects.

This is not the place to summarize Keynes’s theory. His position in the history of economic thought may be described by saying that he was the first economist to provide a systematic “macrostatics.” Traditional economics had had a considerable measure of success in what is known as “microstatics” this refers to the analysis of the supply and demand for particular commodities, the allocation of productive resources among different use, the distribution if income, decision by firms, etc.; but there was lacking a systematic account of what determines the level of activity in the economy as a whole, and the balance between saving and investment requirements. Whatever criticisms have been or may in due course be made in detail, Keynes’s work will remain a landmark in the history of theories relating to these topics.

Mention should be made of his influence during World War II in getting the British government first to compile, and later to publish, national income statistics, which give the factual material required for the practical application of his theories. Most countries have come to think it needful to compile such statistics.

Keynes had a serious illness in 1937 and was never thereafter restored to full health. In 1940 he was invited into the British Treasury in an honorary capacity. Although he did not have responsibilities such as he had in World War I, his advice was constantly sought on all matters relating to the economics of the war. Then he began, as early as 1941, to acquire a position of leadership in matters relating to Anglo-American cooperation for postwar world reconstruction. At this point mention should be made of his booklet The Means to Prosperity (1933), which he published shortly before the World Economic Conference (1944) and the foundation of the International Monetary Fund.

Prior to his illness he devoted much time to practical finance, on his own which he was bursar for many years, and of certain insurance and investment companies with which he was associated. He was joint editor of the Economic Journal from 1912 to 1945. He also made important collection of old books and of modern paintings. He was the founder of the Arts Theatre in Cambridge. of the British Arts Council. In 1925 he married Lydia Lopokova, the famous Russian ballerina.

In his book collecting, he specialized in the philosophers and thinkers of the seventeenth and eighteenth centuries and, later, in the general English literature, including drama and poetry, of the sixteenth century. He had an exceptionally important collection of Newton manuscripts. It was this, doubtless, that caused him to prepare an essay on “Newton, the man” for the tricentenary celebrations (1942).

He pays tribute to Newton’ world preeminence as a scientist. “His peculiar gift was his power of holding continuously in his mind a mental problem until he had seen straight through it. I fancy his pre-eminence is due to his muscles of inturtion being the strongest and most enduring with which a man has ever been gifted”, But he gives more space to Newton’s other interests—alchemy and apocalyptic writings, to which, so the manuscripts suggest, he devoted as much time as he did to physics.

Had Keynes completed his work, he would doubtless have inserted the fact (of relevance to Keynes’s own work!) that Newton became Master of the Mint and established a new bimetallic parity or Britain (1717). Alexander Hamilton was responsible for the original parity of the U. S. gold and silver dollars, and expressed indebtedness to Newton’s writings on the topic.

In 1942 Keynes was made a member of the House of Lords, where he sat on the Liberal benches.

The Royal Society paid him the honor, rare for a nonscientist, of making him a fellow, doubtless in recognition of his basically scientific approach to all things.

He died in his country home, Tilton, 21 April 1946, shortly after his return from a meeting in Savannah, which was concerned with details relating to the setting up of the International Monetary Fund and the International Bank for Reconstruction and Development.


For a list of Kenynes’s writings see British Museum General Catalogue of Printed Books, CXXII, cols. 706-710.

Recent works in English on Keynes are Dudley Dillard, The Economics of John Maynard Keynes (New York, 1948), with bibliography, PP. 336-351 Seymour E. Harris, The New Economics (London, 1960). with bibliography, PP. 665-686 Roy Forbes Harrod, The Life of John Maynard Keynes (New York- 1951; repr. 1969); and the obituary by A. C. Pigou in Proceedings of the British Academy,32 (1946), 395-414, with portrait.

Roy Forbes Harrod

John Maynard Keynes

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John Maynard Keynes

John Maynard Keynes 1st Baron of Tilton (1883-1946), was an English economist who revolutionized economic theory and policy by linking employment and income to public and private expenditure. He is also known for his role in the creation of new international monetary institutions in World War II.

John Maynard Keynes was born on June 5, 1883, the son of John Neville Keynes, registrar of the University of Cambridge and eminent logician and economist. John Maynard's mother, a charming and talented woman, was onetime mayor of Cambridge. He was educated at Eton and King's College, Cambridge, and began a career in the civil service, where he was assigned to the India Office from 1906 to 1909. There he acquired an intimate knowledge of the government service and an interest in Indian currency and finance that was to bear fruit a few years later.

His Writings

In 1909 Keynes was elected fellow of King's College and returned to Cambridge. In 1911 he was chosen, in spite of his youth and inexperience, as editor of the Economic Journal, the publication of the Royal Economic Society and one of the leading professional journals. From that time until 1945 his duties were carried out with outstanding promptness and efficiency. In 1913 his first book, Indian Currency and Finance, was published shortly after he was appointed to the Royal Commission on Indian Currency and Finance. His book has been referred to as the best in the English language on the gold exchange standard.

With the outbreak of World War I Keynes entered the Treasury, first as an unofficial and unpaid assistant. Before the end of the war he held a position equivalent to an assistant secretary and was largely responsible for handling Interallied finances.

At the conclusion of the war Keynes went to the Paris Conference as principal representative of the Treasury and deputy for the chancellor of the Exchequer on the Supreme Economic Council. It soon became apparent to him that the economic terms of the treaty and particularly the reparations settlement were impossible of fulfillment. He resigned in June 1919 and set forth his case in The Economic Consequences of the Peace (1919). Although the book aroused tremendous controversy, subsequent events have demonstrated the substantial correctness of his position.

Having left the public service, Keynes returned to Cambridge as second bursar of King's College. In 1921 he assumed the first of a number of important company directorships. Also that year, he published A Treatise on Probability and, a year later, A Revision of the Treaty, a sequel to The Economic Consequences. In 1923 his Tract on Monetary Reform appeared. From 1924 until his death he was first bursar of King's College and through his expert management made King's what a contemporary has described as "indecently rich."

In 1925 Keynes married Lydia Lopokova, a Russian ballerina, who was as outstanding a person in her own way as he was in his. Although he had for many years been a collector of rare books and fine art, he now became an active patron of the theater, helping in later years (1932) as treasurer of the Camargo Society to bring about a union of the resources of the Camargo, the Vic-Wells, the Rambert Ballet, and others. In 1936 he founded and generously financed the Cambridge Arts Theatre.

Keynes's Treatise on Money, a two-volume work that generations of students have found full of brilliant insights but incomprehensible as a whole, was published in 1930. In it Keynes attempted with little success to break free of the shortcomings and limitations of the Cambridge version of the quantity theory of money. In retrospect, one can see the germ of many of the ideas that distinguish his later work— but as isolated flashes of insight lacking the proper framework and, as a result, not leading to any very useful or interesting conclusions.

Finally, in 1936, came Keynes's General Theory of Employment, Interest and Money, a book that not only revolutionized economic theory but also had a direct impact on the lives of a large proportion of the world's population. Here Keynes took issue with the classical theory which found in a competitive capitalist economy a set of mechanisms that automatically move the economy toward a state of full employment. (The term "classical" is used here to mean the mainstream of orthodox economic theory beginning with Adam Smith and running through the work of Ricardo, Mill, Marshall, and others.) These mechanisms functioned in the labor market and in the market for goods and services.

Classical Position

In the labor market, competition among workers assures full employment on the condition that the real rate of wages responds to the forces of supply and demand. In the market for goods and services, however, the question arises if there is any assurance that all of the output produced at full employment will find buyers. The classical economists found the answer to this question to be in the affirmative. To understand the rationale of their position, it is necessary to keep firmly in mind the truism that, in the aggregate, the value of output and income are identical. It follows from that truism that if all output is to be purchased, expenditures must be exactly equal to income.

Given this truism, how did the classical economists see this mechanism working? There are two types of expenditures made, those on goods and services for consumption purposes and those for goods and services purchased with an eye for resale or to be used to produce more goods and services. The first type of expenditure is called consumption, and the second, investment. If that part of income that is not spent on consumers goods is called "saving," then income and expenditures will be equal if saving is equal to investment. Hence, expenditures are equal to the value of output.

The classical economists believed that saving and investment were both functions of the rate of interest, with savers saving more and investors investing less as the rate of interest rises, and the reverse happening when the rate of interest falls. The interest rate would always adjust in such a way as to assure that all of current output would be purchased.

Keynes's Theory

Keynes disagreed with both the labor market analysis and the goods market analysis of the classicists. He argued that changes in money wage rates do not result in corresponding changes in real wages because of their impact on the incomes and, therefore, on the expenditures of wage earners. Lower money wages, he argued, would force lower demand for goods and services and therefore lower their prices. Real wages would be unchanged.

With respect to the product market, Keynes held that saving is a function of the level of income rather than of the rate of interest. There is no reason to believe that the amount that investors will be willing to invest (determined, according to Keynes, by the rate of interest and by the expectations about the future held by potential investors) will turn out to be equal to the amounts that savers wish to save out of a full employment level of income. Where savers wish to save more than investors wish to invest, part of current output will go unsold. This will lead producers to cut back on current output and therefore on employment and income. As income falls, saving will fall. Income will keep on falling until savers are willing to save no more than investors wish to invest.

Liquidity Trap

Since the system, as Keynes saw it, does not tend to seek full employment when left to itself, it is necessary for policy makers to do so. Basically, two possibilities exist: monetary authorities may induce investors to invest the desired amounts through their control over the rate of interest, or fiscal authorities may close the gap between investment and full employment levels of saving with government expenditures.

Keynes was somewhat pessimistic about the ability of monetary authorities to bring about the necessary changes in private investment expenditures. Under some circumstances the central bank can drive interest rates down by increasing the money supply. The public, finding itself with more money than it wishes to hold, will attempt to convert it into interest-earning assets. This will drive the prices of securities up and, consequently, interest rates down.

Once the interest rate is driven down to a level at which the public believes that it must rise again, holding securities entails the risk of taking a capital loss. Under these circumstances the public will not convert additional money balances into securities, and the interest rate will not be driven down any further. This floor on interest rates is known as the liquidity trap and represents a severe limitation on the central bank's ability to stimulate private investment.

Keynes also saw another and perhaps more serious limitation to monetary policy. Private investors, he maintained, make their decisions not only on the basis of the interest rate but also on the basis of their expectations about costs and demand for their product in the future. All of these expectations are lumped together for convenience's sake into what he called the marginal efficiency of capital. The important thing about the marginal efficiency of capital is that it is based, not upon known facts, but upon expectations about the future which must, of necessity, be very uncertain. The uncertainty means that the marginal efficiency is likely to be very unstable. Keynes regarded it as entirely possible that the marginal efficiency of capital could be so low that even a rate of interest of zero would not be sufficient to stimulate a full employment level of investment.

Thus, although in later years he was less pessimistic about the usefulness of monetary policy, Keynes was inclined to believe that fiscal policy would have to bear the main part of the burden of assuring full employment. Further, he was inclined to believe that in mature economies, such as those of the United States and western Europe, high levels of income had led the public to save large proportions of their income, while the factors that had historically provided expanding investment opportunities were disappearing. This idea is known as the stagnation hypothesis and enjoyed a wide acceptance during the 1930s and 1940s.

Return to Public Service

With the beginning of World War II, Keynes again entered the public service. In July 1940 he was asked to serve as adviser to the chancellor of the Exchequer, and he was soon after elected to the Court of the Bank of England and was raised to the peerage as Lord Tilton in 1942. Through his work, national income and expenditure accounts were developed and utilized in the preparation of wartime budgets. In addition to internal finance, he had special responsibility for intergovernmental finance, lend-lease, and mutual aid. This work required that he become a sort of special envoy to Washington and Ottawa in particular.

In the closing days of the war, Keynes played a major role in negotiating the United States loan to Great Britain and in the establishment of the International Monetary Fund and the Bank for Reconstruction and Development. Keynes died of a heart attack on Easter Sunday, April 21, 1946, shortly after having returned from the inaugural meetings of the International Monetary Fund and the World Bank in Savannah, Ga.

Further Reading

The most definitive study of Keynes's life and work is The Life of John Maynard Keynes (1951), written by R. F. Harrod, who was a friend and an eminent economist in his own right. A shorter but highly readable biography is Seymour E. Harris, John Maynard Keynes, Economist and Policy Maker (1955). Robert Lekachman, The Age of Keynes (1966), contains some material not found in the earlier volumes, including an up-to-date appraisal of Keynes's influence. See also Lawrence R. Klein, The Keynesian Revolution (2d ed. 1966). □

Keynes, John Maynard

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(b. Cambridge, United Kingdom, 5 June 1883; d. Firle, Sussex, United Kingdom, 21 April 1946),

economics, macroeconomics, unemployment, inflation, probability, rationality, politics. For the original article on Keynes see DSB, vol. 7.

Keynes was one of the greatest economists of the twentieth century, theoretically and practically. He also made a pioneering contribution to the philosophy of probability, and advanced political ideas relevant to modern societies. His energies were often focused on problems on a world scale, including World War I, the inflation of the 1920s, the Great Depression of the 1930s, World War II, and the post-1945 global trade and financial system. He was also a patron of the arts, an eloquent writer, a prolific correspondent, a longtime editor of the Economic Journal, an unflagging journalist, and a member of the Bloomsbury group of writers and artists.

Keynes was born into a middle-class family, with an academic father and a social activist mother. After Eton College, he graduated from Cambridge University with a degree in mathematics, not economics. He received his primary economics education from Alfred Marshall in preparation for the civil service examination, two years after which he began lecturing in economics at Cambridge. His first intellectual love at Cambridge, however, was philosophy. He became a follower of George Edward Moore, the Cambridge ethical philosopher, and was also influenced by Bertrand Russell.

Philosophy . It was one of Keynes’s criticisms of Moore’s practical ethics that led him to philosophical work on probability. Not published until 1921 because of World War I, Keynes’s Treatise on Probability laid the foundations for the logical theory of probability as distinct from the relative frequency and subjective theories. The question Keynes sought to resolve was how to theorize rational but nonconclusive arguments. His solution, which conceived of probability as a logical relation between two sets of propositions (the premises and the conclusion of an argument), cast probability theory as the general logic of argument in which deductive logic was a special case. Such probabilities, known by logical intuition, express the degree of belief that it is rational to have in the conclusion, given the information supplied by the premises. Keynes developed these ideas into a distinctive theory of rational belief and action under uncertainty. On this theory, the rational is not necessarily identical with the true, and probabilities fall into heterogeneous noncomparable classes that limit their mathematical manipulation. His theory of rationality under uncertainty departs significantly from the theory of rationality deployed in mainstream economics.

Economics . Keynes first made his name internationally with his 1919 book, The Economic Consequences of the Peace, a trenchant critique of the rationality and morality of the Versailles Treaty at the end of World War I. His Tract on Monetary Reform of 1923 then explored the deleterious

effects of inflation and deflation, and proposed remedies to enhance price stability, including central bank regulation of the interest rate. In 1930 he produced A Treatise on Money, intended as his magnum opus on monetary theory. This remained within the quantity theory of money framework of his earlier work, but analyzed the price level in terms of efficiency wages and the gap between saving and investment with a view to embracing price level dynamics. Although original and insightful, the work came under considerable criticism, and Keynes set to work to remedy its inadequacies.

To this point, Keynes was essentially an orthodox economist in the Marshallian tradition, though always interested in criticism and innovation to improve theory and policy. The mass unemployment of the Great Depression, however, impelled him toward a new economic theory that rejected much orthodox thinking. This new approach, published in 1936 as The General Theory of Employment, Interest, and Money, inaugurated a revolution in economic theory and policy, put macroeconomics on a sounder footing as the study of the economic system as a whole, and encouraged the collection of aggregate economic statistics. Two main ideas informed the new theory. First was the concept of unemployment equilibrium, which posited that deficiencies in aggregate demand could cause the economy to settle into equilibria with unemployed labor. The second was radical or nonprobabilistic uncertainty, which meant that much rational behavior was actually based on factors other than calculable forecasts, thus leading to suboptimal levels of private investment and aggregate demand. These ideas led to interdependency between real and monetary factors, which previous theory had kept separate. In policy terms, given that capitalism had no automatic tendency to full employment, state action would be required to achieve this goal, chiefly (but not exclusively) via investment in public works.

During World War II, Keynes vigorously assisted the British government’s war effort and postwar planning. In How to Pay for the War (1940), he outlined a plan of deferred pay to manage civilian demand so as to avoid inflation and strengthen social justice. In 1941 he proposed a scheme for an International Clearing Union with adjustment requirements on both creditor and debtor nations. With its demise, he contributed to the discussions that led to the 1944 Bretton Woods system for international finance and trade (a system reflecting American more than British views), and negotiated the American loan of 1945, which saved Britain from financial disaster. He fought hard to retain Britain’s independence within the Anglo-American alliance, but by war’s end a marked transfer of economic and financial power from Britain to the United States had occurred. Throughout the 1940s he also promoted policies to generate high levels of postwar employment. He died in 1946 of a heart attack, mainly brought on by overwork.

In the twenty-first century, Keynesian ideas still have considerable influence and powers of rejuvenation, although they are less widely accepted relative to the 1950s and 1960s, when they formed part of the economic mainstream.

Politics . Keynes sought a particular middle way between laissez-faire liberalism and state socialism. He favored planning but not central planning, individual liberty but not unfettered economic freedom, and greater social justice but not complete equality of outcomes. His vision of a better world was driven not by acquisitive materialism but by ethical ends for which a well-functioning economy was a prerequisite. For Keynes, economic prosperity was not to be pursued for its own sake, but only as a means to noneconomic activities promoting greater goodness and civilization.

Keynes was a marvelous (but not always clear) writer who created numerous memorable passages. His most famous saying is probably “In the long run we are all dead,” by which he meant that long-run thinking on its own is inadequate, and that rational policy making needs to be based on both short- and long-run considerations.

Keynes left many legacies, but the most enduring of all is an undying commitment to reason and persuasion, and to the capacity of humans to make the world a better place.


Keynes’s extensive writings (not all of which have been published) have given rise to numerous interpretations and a huge secondary literature. While some of this literature is suitable for the general reader, much of it requires more specialized knowledge.


The Collected Writings of John Maynard Keynes. 30 vols. London: Macmillan; New York: St. Martin’s Press, for the Royal Economic Society, 1971–1989. Contains all his writings published in his lifetime and much previously unpublished material. General readers could start with Essays in Persuasion (vol. 9), Essays in Biography (vol. 10), or The Economic Consequences of the Peace (vol. 2), before turning to other volumes.


Intellectual Biographies

Moggridge, D. E. Maynard Keynes: An Economist’s Biography. London: Routledge, 1992. A lengthy, single volume biography.

Skidelsky, Robert. John Maynard Keynes: A Biography. Vol. 1, Hopes Betrayed, 1883–1920. London: Macmillan, 1983. The first of a long three-volume biography; see below for the subsequent volumes.

———. John Maynard Keynes: A Biography. Vol. 2, The Economist as Saviour, 1920–1937. London: Macmillan, 1992.

———. John Maynard Keynes: A Biography. Vol. 3, Fighting for Britain, 1937–1946. London: Macmillan, 2000.

———. John Maynard Keynes, 1883–1946: Economist, Philosopher, Statesman. New York: Penguin, 2005. A single volume condensation of the above three volumes.


Carabelli, Anna M. On Keynes’s Method. Basingstoke, U.K.: Macmillan, 1988.

O’Donnell, R. M. Keynes: Philosophy, Economics, and Politics: The Philosophical Foundations of Keynes’s Thought and Their Influence on His Economics and Politics. Houndmills, U.K.: Macmillan, 1989.


Cate, Thomas, ed. An Encyclopedia of Keynesian Economics. Cheltenham, U.K., and Brookfield, VT: Elgar, 1997. Technical work.

Clarke, Peter. The Keynesian Revolution in the Making, 1924–1936. Oxford: Clarendon Press; New York: Oxford University Press, 1988. General work.

Harcourt, G. C., and P. A. Riach, eds. A “Second Edition” of the General Theory. 2 vols. New York: Routledge, 1997. Technical work.

Moggridge, D. E. Keynes. London: Macmillan, 1976. General work Stewart, Michael. Keynes and After. 3rd ed. Harmondsworth, U.K.: Penguin, 1986. General work.

Trevithick, J. A. Involuntary Unemployment: Macroeconomics from a Keynesian Perspective. London and New York: Harvester Wheatsheaf, 1992. Technical work.

Rod O’Donnell

Keynes, John Maynard

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Considered one of the most important economic theorists of the modern era, John Maynard Keynes (18831946) was a genius who used his extraordinary gift for mathematics to deepen his understanding of economics. He helped to revolutionize modern thought about the workings of the free-trade marketplace and modern industrial capitalism. He is credited with helping to pull the United States and much of Western Europe out of the Great Depression and with creating a kind of capitalism that works with the federal government to stabilize the ups and downs of a market economy.

John Keynes was the only son born to John Neville Keynes and Florence Keynes, on June 5, 1883. His father was a lecturer at Cambridge University, England, and became the top administrative official at Cambridge. As young John grew up, his parents doted on him, and his mother kept a thorough file of his early achievements.

Keynes was a brilliant student at Saint Faith's Preparatory School. Later, at Eton, he finished first in his class in the classics (the study of the language and culture of ancient Greece and Rome) and second in mathematics. He later went on to Cambridge University to complete his formal education, where, at age sixteen, he decided to pursue the study of economics.

His first job out of college was in India, working as a junior clerk for the British civil service for two years. Keynes then took a position back in England as an economics lecturer at King's College. In 1911, at age twenty-eight, he was named editor of the prestigious Economic Journal published by the Royal Economic Society, a position he retained for the next 33 years.

In his mid-30s, Keynes married a ballerina, Lydia Lopokova, and they remained together until his death in 1946. They had no children.

Keynes worked on international aspects of the economy for the British Treasury office in 1917, and in 1920 he began his own career speculating successfully on foreign exchange and commodities. Later that same year Keynes joined the board of directors of the National Mutual Life Insurance Company, where he became the board director in 1923, a position he held until 1938.

Throughout his life Keynes occupied a variety of influential posts where his economic and financial advice was sought. During World War II (19391945), both English Prime Minister Winston Churchill, and U.S. President Franklin Delano Roosevelt (19331945) sought his advice.

Outspoken and controversial, Keynes wrote books on all aspects of economics, beginning with his small classic titled Indian Currency and Finance (1913), and ending with his last book, How to Pay for the War (1940). In 1936 he published his major work, The General Theory of Employment, Interest, and Money. With respect to its importance in economic literature, this work has been compared to Adam Smith's The Wealth of Nations, and Karl Marx's Das Kapital. It was a shrewd analysis of how economics works in daily life.

Keynes' book contained little on sociology, philosophy, or ideology. He supported capitalism and focused on resolving the question of how a capitalist economy could recover from a depression, which seemed to be an inevitable affliction in the free market system. The answer Keynes proposed may have helped the capitalist world pull itself out of the Great Depression, as well as provided a way for capitalist societies to normalize after war. Keynes theorized that economic difficulties were not the result of overproduction, as was commonly believed, but rather of problems in the distribution of goods. He further stated that it was the shortage of money that prevented goods from being distributed properly during a depression. The solution was the government involvement. Keynes believed that if the government put money into the economy, without taxing citizens, the economy would experience some temporary debt, but the stimulation would bring the stagnant capitalist economy back to life.

Other economists were skeptical of Keynes' ideas, but eventually came to accept them as they saw the U.S. and European economies improve, behaving as Keynes had predicted. Keynes gave to capitalists a method to help economies rebound after periodic downturns.

Unlike most economists before him, Keynes analyzed problems in the economy as if they were arithmetic and not social. He had little use for ideas that glorified either the businessman or the common worker. He believed that the success of an economy depended on following certain basic rules that he had described in his writing. Keynes died in 1946.

See also: Capitalism, Free Trade, Great Depression, Great Depression (Causes of), Keynesian Economic Theory, Adam Smith


Collins, Robert. The Business Response to Keynes. New York: Columbia University Press, 1981.

Harrod, Sir Roy. Life of John Maynard Keynes. New York: Avon Books, 1971.

Heilbroner, Robert. The Worldly Philosophers. New York: Touchstone Press, 1992.

Hession, Charles. John Maynard Keynes. New York: MacMillan Pub., 1984.

Muggridge, D. E. John Maynard Keynes. New York: Penguin Books, 1976.

john maynard keynes was. . . credited with helping to pull the united states and much of western europe out of the great depression.

Keynes, John Maynard

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British economist John Maynard Keynes was a civil servant in the India Office from 1906 to 1908, and a lecturer in economics at Cambridge University from 1908 to 1913. He was the editor of the Economic Journal from 1912 to 1945.

He joined Britain's Treasury in 1915 and was its principal representative at the Versailles Peace Conference in 1919. Believing the Versailles proposals on borders and reparations to be destructive and counter-productive, he resigned in 1919, setting out his objections in The Economic Consequences of the Peace (1919).

Keynes was closely associated with the Liberal Party; his influential and brilliantly written works attacked laissez-faire economics and the return to the gold standard, proposing a radically new approach to economic management. He returned to the Treasury in 1940, and in 1944 played a leading part in the Bretton Woods Conference that set up the International Monetary Fund and the International Bank for Reconstruction and Development (better known as the World Bank).

Keynes wrote extensively and influentially, producing, among others, the Treatise on Money (1930) and the controversial General Theory of Employment, Interest and Money (1936), arguably the most influential work on economics since Adam Smith's Wealth of Nations. The General Theory showed how aggregate demand, and therefore unemployment, was determined, and that economic systems at equilibrium had no necessary tendency toward full employment, not even with the most depressed wages. Because individual consumer spending could not create sufficient demand, unemployment must be cured by state demand management funded by a budget deficit.

Keynes devoted no major work specifically to population issues, but population concerns recur in his work. A neomalthusian view is prominent in the Economic Consequences of the Peace. There he noted that before World War I, Europe's dense population had enjoyed a high standard of living without self-sufficiency in agriculture or raw materials, relying instead on manufactured exports. He feared that such large populations could no longer be sustained following the destruction of industry and in the absence of opportunities for mass emigration.

Keynes was thus initially concerned with what he called the "Malthusian devil O of Overpopulation." This, chained up when productivity was rising, would be released when the temporarily advantageous conditions ended. Keynes campaigned against the then current pronatalist opinion, fearing that population growth would tend to reduce the standard of living, although he also feared adverse eugenic consequences if the more prudent nations, and classes, reduced their fertility before others. These views were summarized in a 1912 lecture, Population, not published until 2000 (in Toye's Keynes on Population).

In the late 1920s, Keynes changed his mind, rejecting his earlier economic pessimism and some of his Malthusian views on the perils of overpopulation. Instead he became more concerned with inadequate demand. In his 1933 biographical essay on T.R. Malthus he gave much more prominence to Malthus the economist (worried, like Keynes, about underconsumption) than to Malthus the demographer (worried about overpopulation). His Galton Lecture of 1937 was perhaps his most balanced view of population issues. In it, Keynes points to the risk that population decline–in the 1930s, for the first time in centuries, a real possibility–might unchain the other "Malthusian devil U of Underemployed resources" through excessive savings and underconsumption.

In a stationary population, he argued that the two Malthusian devils could only be kept in balance by increased consumption, more equal incomes, and low interest rates. He ended up promoting family allowances, which he had earlier condemned, while recognizing that overpopulation could exist elsewhere. Keynes was probably the most prominent economist of the twentieth century, but his inconstant efforts on population, little supported by data or technical understanding, did not show him at his best.

See also: Population Decline; Population Thought, Contemporary.


selected works by john maynard keynes.

Keynes, John Maynard. 1919. The Economic Consequences of the Peace. London: Macmillan.

——. 1930. "Economic Possibilities for Our Grandchildren." In his Essays in Persuasion. New York: W. W. Norton, 1991.

——. 1930. A Treatise on Money. 2 vols. London: Macmillan.

——. 1933. "Robert Malthus," in his Essays in Biography. London: Macmillan.

——. 1936. The General Theory of Employment, Interest and Money. London: Macmillan.

——. 1937. "Some Economic Consequences of a Declining Population." The Eugenics Review 29: 13–17.

selected works about john maynard keynes.

Blaug, Mark. 1990. John Maynard Keynes. London: Macmillan with the Institute of Economic Affairs.

Blaug, Mark., ed. 1991. John Maynard Keynes. 2 vols. Aldershot, Eng.: Edward Elgar.

Hutchison, T. W. 1977. Keynes versus the 'Keynesians'…? An Essay in the Thinking of J. M. Keynes and the Accuracy of Its Interpretation by His Followers. London: Institute of Economic Affairs.

Keynes, Milo. 1975. Essays on John Maynard Keynes. Cambridge, Eng.: Cambridge University Press.

Petersen, William. 1955. "J. Maynard Keynes' Theories on Population." Population Studies 8: 228–246

Skidelsky, Robert. 1983–1992. John Maynard Keynes: A Biography. 3 vols. London: Macmillan.

Toye, John. 2000. Keynes on Population. Oxford: Oxford University Press.

David Coleman

Keynes, John Maynard

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John Maynard Keynes (June 5, 1883–April 21, 1946) was a brilliant, colorful, and outspoken English economist whose General Theory of Employment, Interest, and Money (1936) provided the academic rationale for governmental use of a compensatory fiscal policy in countering the peaks and valleys of economic cycles. Keynes was born in Cambridge; his father, John Neville Keynes, was a noted philosopher and economist, and his mother, Florence Ada Keynes, was mayor of the city.

John Maynard Keynes was educated at the finest British schools, Eton and then King's College, Cambridge, becoming in his youth a part of the Bloomsbury Group, which consisted of a dozen privileged aesthetes, including Virginia Woolf, Lytton Strachey, and Clive Bell. Unsettled as to métier, Keynes took a position with the Foreign Service, but soon tired of his assignment at the India desk.

In 1915 Keynes joined the British Treasury staff, distinguishing himself in the effort to manage national financing of World War I. He gained international fame as a key member of the British delegation to the Paris Peace Conference during the drafting of the Versailles treaty in 1918 and 1919. Deeply concerned about the vindictive peace treaty and the impossible level of reparations imposed on Germany, he published in 1919 The Economic Consequences of the Peace, a book sharply critical of the treaty and the heads of state who drafted it.

Keynes continued to write and offer advice on public economic issues during the 1920s, publishing at the end of the decade what he considered to be his magnum opus, the two-volume A Treatise on Money (1930). Critics noted that it failed to address adequately key economic issues of the time, including especially the relationship between production, employment, and money. Keynes immediately began to address the criticism through another project, which became his General Theory.

Deeply concerned about the economic crisis of the 1930s, Keynes quickly became persuaded of the wrong-headedness of the widely held business cycle theory of the time that advised policy makers to let "natural" adjustment of money supply and interest rates ameliorate the crisis without governmental intervention. In Keynes's view, when times were so bad that potential investors were unwilling to borrow and initiate new enterprises, even with interest rates near zero, the government should step in and stimulate demand by borrowing and investing. Keynes advocated these views in an open letter to Franklin D. Roosevelt published in the New York Times on December 31, 1933, and in a meeting with the president in June 1934. Yet, neither the letter, the meeting with the president, nor the publication of the General Theory were significant in shaping New Deal economic policy. When, during the recession of 1937 to 1938, Roosevelt's advisors moved him toward acceptance of a rationale for a compensatory fiscal policy, they did so principally on the basis of their independently-derived observations and experience.

Though Keynes had little direct influence upon New Deal policy formation, his General Theory provided the most coherent after-the-fact academic explanation for the crisis and recovery of the 1930s and 1940s, and it became the foundation of postwar economic policies and perspectives. In 1944 Keynes was the chief British Treasury representative at the Bretton Woods Conference held in New Hampshire to provide a foundation for the postwar world economy. His influence there helped in the design and establishment of the World Bank and the International Monetary Fund.

Keynes was knighted in 1942; his ideas, as interpreted against the backdrop of the Great Depression, informed a generation of economic thinkers and made him the best-known economist of the twentieth century.



Keynes, John Maynard. Essays in Persuasion. 1932.

Skidelsky, Robert. John Maynard Keynes: The Economist as Savior 1920-1937. 1992.

Dean L. May

Keynes, John Maynard

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Keynes, John Maynard (1883–1946). Arguably the foremost economist of the 20th cent., Keynes was born in Cambridge and combined a successful academic career with that of civil servant and government adviser. His early work in economics evolved out of the Marshall tradition in Cambridge, but through the 1920s and 1930s he increasingly broke new ground. His Treatise on Money (1930) and The General Theory of Employment, Interest and Money (1936) heralded the Keynesian revolution, which regarded government control of spending as the key to providing full employment. But his influence stretched beyond macro-economic policy. He was critical of the 1919 treaty with Germany and a main architect of the international monetary system created at Bretton Woods in 1944. As a prolific writer in newspapers and popular journals, occasional broadcaster, and speaker, he had a major impact upon the cultural and intellectual life of his time.

John R. Presley

Keynes, John Maynard

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Keynes, John Maynard (1883–1946) English economist. In The General Theory of Employment, Interest and Money (1936), which was strongly influenced by the Great Depression, Keynes laid the foundation of modern macroeconomics. He advocated the active intervention of government in the economy to stimulate employment and prosperity. He was influential as an economic adviser in World War II, and took a leading role in the Bretton Woods Conference of 1944.