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John Maynard Keynes was an English journalist, economist, and financier, born on 5 June 1883 in Cambridge, England. His family was moderately prosperous. His father was an economist and an academic administrator later on at the King’s College Cambridge. His mother graduated, among of the first females, from the Cambridge University that Keynes attended from 1902. While at the university, Alfred Marshall, an economist, influenced and prompted Keynes to change his academic choices from classics and mathematics to economics and politics (Ventelou and Nowell 38). The university also introduced him to a group of artists and writers who would later influence his life. Among them was Bloomsbury group, an exclusive group of the cultural elect, which included members like Duncan Grant, the painter, Clive Bell, the art critic, Virginia Woolf and Leonard. The members and associates of this group formed the leading spirit of Bloomsbury. Keynes experiences a lot of affection and response throughout his life.
After attaining his Bachelor of Arts and M.A. in 1905 and 1909 respectively, he took up a job at the India office as a civil servant. His experience at this job laid the foundation for his first main work, referred to us as the Indian Currency and Finance in 1913. This piece of work provided a definitive analysis of the pre-World War I Indian currency and finances. Keynes then returned to Cambridge where he started teaching economics until 1915. With the start of the First World War, he went back to government employment in the treasury, where he analyzed relations with the allies and gave recommendations on ways of conserving Britain’s scarce supply of foreign currencies.
His record of accomplishment and performance may have publicly marked John Keynes, but the Versailles Peace Conference altered his ambitions. Accompanying David Lloyd George, the then prime minister, to France as the economic adviser, he came across the burdensome policies, and political chicanery imposed on Germany, which troubled him greatly. Consequently, he resigned from his post as the economic adviser a highly depressed person. He then took activist's stand by converting his personal anguish into public protest. In just two months, he composed The Economic Consequences of the Peace (Ventelou and Nowell 40). This essay analyzed the repercussions of the stringent reparation imposed on Germany and the consequent lack of chance that the debts would ever be paid. This book was successful and attracted the attention of many people, among them Lloyd George. Consequently, some people from his group started referring to him as a person who could not be trusted after trying to rock a boat into which he had prudent invitation.
John Keynes’ reputation was quite different at the Cambridge. The university esteemed him as the most brilliant student of Alfred Marshall and associate economist A.C. Pigou. After publishing The Economic Consequences of the Peace, he resigned from his lecturing position, but remained on as a fellow of King’s college and divided his time between London and Cambridge. He contributed many articles for magazines and newspapers. He became the chairperson of the liberal journal in 1923, and used it as means of attacking the existing economic policies. He raised concerns over the increased unemployment of the shipyard workers, the coal miners and the textile laborers. He became a supporter of the liberal party and reconciled with Lloyd George in the public work program, which attempted to solve the unemployment problem (Minsky 5). He opposed the respectable economists. Theories that free markets would solve the unemployment issue since government expenditure would increase the deficit and result to an equal decline in private investment.
Keynes’ Economic Theories
In 1936, John Maynard Keynes published the book A General Theory of Employment, Interest and Money, which formed the basis of his economic theories’ Keynes Theory of economics, introduced new economic concepts and terms. It involved shifting from the classical concerns on wealth production and its consumption. According to him, the assumption that supply does not create its own demand by Say's law is untrue since, supply has the ability to outstrip demand to the extent that goods remain unsold, subsequently, leading to a cutback in production and employment. The solution to unemployment, therefore, would not be reducing prices and wages as advocated by the classical economists, but increasing consumption though public expenditure by the government.
Keynes held that the savings and investment activities taking place independent of each other, and are thus, uncoordinated. In modern economic conditions, people who save include the low and middle-income classes while those who invest are the upper class and businesspersons. The investment by the upper class requires a large number of workers, which in its turn results to higher employment levels. However, the investment decision depends on a collection of irrational and subjective psychological factors and not necessarily on the availability of law interest rates savings (Minsky 8). Moreover, an investment depends on the availability of profitable opportunities, which mostly follow the established business patterns that are dependent on the emergence of new technologies, which are in most cases nonexistent.
The decision to save by the lower and middle income people, on the other hand, does not depend on the levels of investments needed by the business people. Liquidity preference makes people prefer to holding cash than saving, limiting available money for investment (Keynes 97). When savings for investments are not available, it results in unemployment, which in its turn, leads to overproduction as the already produced goods cannot be sold since the people who would be buying them are unemployed and do not have money to spend. This gives way to general depression of the economy, and from the nature of liberal markets, Keynes believes that this situation is likely to last indefinitely. His reason is that, during the depression, there are no surplus savings since people withdraw savings in attempts to survive. Without the savings, there are no investments, resulting to no employment, which in its turn results to no spending and without spending the overproduced goods cannot sell since there is no money. This aggravates the economic depression with unemployed population and underutilized plants and machineries.
To get the economy rolling again, Keynes believed that the government must itself start spending money since the population cannot be so self-sufficiently successful. He holds that how or where the government decides to spend money, and whether or not it satisfies the public and the private sector are not relevant. The sole purpose of such expenditure is to buy the unsold goods so that the producers can be able to produce more and employ more people to carry out the production. For Keynes, government spending fills the gap that exits freely between savings and investment.
According to Keynes theory of economics, the wealth is not an amount of static, physical goods manufactured in an economy, but an amount of money that passes through such an economy. It is not the houses, cars, or the TV-sets that people have; rather it is an amount of money spent in the passing of such goods from one person to another (Keynes 102). Keynes emphasizes on the need for consumption. He holds that without continuous consumption, stimulated by the government, then produced goods would not sell, but with the government expenditure, people will be able to consume and get employments, earn money and be able to spend more on the goods thus resulting in economic growth.
Keynes also holds that spending and not savings is what benefits the economy. The attempts by people to save money are destructive to the economy since it amounts to a leakage of money circulate in trade. Spending benefits the economy through the multiplier effect, where a small fraction of each cent circulates around so that there is a wave of spending created which in turn benefits the entire economy. Keynes did not oppose the free market economy as many people and economists believed. He only felt that free markets would not be sufficient to deal with the unemployment problems.
Keynes Influence on Economics
The influence of Keynes and the Keynesian economics has been enormous over the years. His theory had direct influences on various government policies, for instance, the British white paper on employment policy acknowledged that the government had the responsibility of maintaining a stable and high-level employment after the war. In the US, the 1946 employment act included a declaration by the Congress that the federal government has the responsibility of promoting maximum production, employment and purchasing power. Sweden, Australia, and Canada have also adopted similar policies based on Keynes theories of economics. Other African countries have also taken his policies in investing in public expenditure in an attempt to deal with the unemployment issues (Wattle 143). His books and his students’ books still help scholars in many colleges and institutions of learning. His works from the General Theory of Employment, Interest and Money earned the title of the most influential economist in Britain and became the standard for future economic theories.
Keynes amassed a substantive amount of fortune from the financial markets and as the bursar of king’s college. He became a popular arts patron and a board member for various companies. He married a Russian ballerina, Lydia Lopokova in 1926. Keynes died at the age of 62 at Tilton following a heart attack.