John Maynard Keynes Essay

2145 words - 9 pages

John Maynard Keynes
He was a famous economist born on 5th June 1883. His father was an economics professor at Cambridge.

son of a Cambridge economics professor
If ever there was a rock star of economics, it would be John Maynard Keynes. Keynes shares his birthday, June 5th, with Adam Smith and he was born in 1883, the year communist founder Karl Marx died. With these auspicious signs, Keynes seemed to be destined to become a powerful free market force when the world was facing a serious choice between communism or capitalism. Instead, he offered a third way, which turned the world of economics upside down. In this article, we'll examine Keynes' doctrine and its impact. (To read about Adam ...view middle of the document...

Keynes shares his birthday, June 5th, with Adam Smith and he was born in 1883, the year communist founder Karl Marx died. With these auspicious signs, Keynes seemed to be destined to become a powerful free market force when the world was facing a serious choice between communism or capitalism. Instead, he offered a third way, which turned the world of economics upside down. In this article, we'll examine Keynes' doctrine and its impact. (To read about Adam Smith, be sure to check out Adam Smith: The Father Of Economics.)

The Cambridge Seer
Keynes grew up in a privileged home in England. He was the son of a Cambridge economics professor and studied math at university. After two years in the civil service, Keynes joined the staff at Cambridge in 1909. He was never formally trained in economics, but over the following decades he quickly became a central figure. His fame initially grew from accurately predicting the effects of political and economic events.

His first prediction was a critique of the reparation payments that were levied against the defeated Germany after WWI. Keynes rightly pointed out that having to pay out the cost of the entire war would force Germany into hyperinflation and have negative consequences all over Europe. He followed this up by predicting that a return to the prewar fixed exchange rate sought by the chancellor of the exchequer, Winston Churchill, would choke off economic growth and reduce real wages. The prewar exchange rate was overvalued in the postwar damage of 1925, and the attempt to lock it in did more damage than good. On both counts, Keynes was proved right. (For related reading, see War's Influence On Wall Street.)

A Big Miss, But a Great Rebound
Keynes was not a theoretical economist: he was an active trader in stocks and futures. He benefited hugely from the Roaring '20s and was well on his way to becoming the richest economist in history when the crash of 1929 wiped out three-quarters of his wealth. Keynes hadn't predicted this crash, and was among those who believed a negative economic event was impossible with the Federal Reserve watching over the U.S. economy. Although blindsided by the crash, the adaptable Keynes did manage to rebuild his fortune by buying up stocks in the fire sale following the crash. His contrarian investing left him with a fortune of around $30 million at his death, making him the second richest economist in history. (For more on this period in economic history, check out What Caused The Great Depression? and Crashes: The Great Depression.)

The General Theory
Many others fared far worse in the crash and the resulting depression, however, and this is where Keynes' economic contributions began. Keynes believed that free market capitalism was inherently unstable and that it needed to be reformulated both to fight off Marxism and the Great Depression. His ideas were summed up in his 1936 book, "The General Theory of Employment, Interest and Money". Among other things, Keynes...

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