“But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task, if in tempestuous seasons they can only tell us, that when the storm is long past, the ocean is flat again.”
– John Maynard Keynes, in “A Tract on Monetary Reform” (1923), Chapter 3
I recently listened to an audiobook about the British economist John Maynard Keynes, who lived from 1883 to 1946. It was a good audiobook, which spoke of both his academic career and his political career. For example, he did some important diplomacy for the British government, and was responsible for some of the economic provisions of the Treaty of Versailles (the treaty that ended World War One). He also helped to secure some loans from the American government, which helped to improve his country's postwar economy somewhat – despite the interest rates which we imposed on this loan.
But he is remembered first and foremost as an economist, and the founder of the Keynesian school of economics. Keynes revolutionized the study of macro-economics. He wrote much of his work during the Great Depression, when unemployment was rampant in much of the industrialized world (and elsewhere, for that matter). He may be best remembered for his work “The General Theory of Employment, Interest, and Money.” Even conservative economists have sometimes remembered his contributions favorably, because he brought some new analytical tools to the study of macro-economics. For example, the conservative economist Thomas Sowell once praised these tools.
John Maynard Keynes
But I have long had some problems with certain aspects of his theories. On the one hand, he believed that one should avoid communism, and did not want to call himself a “socialist.” But on the other hand, he believed that capitalism was inherently unstable, and advocated remedies that were essentially socialist in nature. He subscribed to (perhaps even originated) what I call the “money-in-the-mattress” theory of recessions, which I have long found to be fairly flawed. He believed that saving is a bad thing for an economy, essentially arguing that “a penny saved is a penny lost.” He also did not believe in planning for the long run, saying that “in the long run, we are all dead” – ignoring our effect on future generations as a result.
John Maynard Keynes
But no area of his theories had a greater effect on economic policy, than his advocacy for massive government spending. He believed that government spending was the way out of economic troubles, and did not particularly care about what the government's money was spent on. Virtually anything would do for him, although he especially favored spending on economic infrastructure. He believed in the “multiplier effect,” which posits that the effect of government spending will be multiplied as it stimulates other economic activities. He would seem never to have considered the opposite “multiplier effect,” in which taking money out of the economy via taxation will have a depressing effect on the economic activities of those taxed. He seems to have had a poor understanding of how wealth is created, and his advocacy for spending has influenced many American presidents – including Barack Obama, who would probably describe himself more as a Keynesian than as a Marxist, although he is as much a Marxist as any president we've ever had.
I have serious problems with much of Keynesian theory, but I wholeheartedly admire many of the analytical tools that he did indeed bring to the study of macro-economics. More to the point, I enjoyed hearing their description of his theories in this audiobook, which (like me) had a rather mixed opinion about his ideas and contributions.
See also:
Part of the audiobook series
Great Economic Thinkers
Keynes and the Keynesian Revolution
← Previous: Joseph Schumpeter and Dynamic Economic Change – Next: Frank Knight and the Chicago School →
See also the audiobook series
Secrets of the Great Investors
Others to be covered later
See also the audiobook series
The Giants of Political Thought
Others to be covered later
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