John Maynard Keynes – The Founder of Modern Macroeconomics
If you’re anything like us, you probably wondered what a macroeconomic was and what makes it modern. Fear not, we’ve got you covered. Macroeconomics is the branch of economics concerned with large-scale or general economic factors, such as interest rates and national productivity. As the “founder of modern macroeconomics”, you can probably imagine that John Maynard Keynes was influential in this field and you would be correct. In the modern day, it’s hard to imagine a world where politicians aren’t talking about the economy being bad because people aren’t spending enough money. Well, for better or for worse, you can thank John Maynard Keynes for that. Keynes did a lot of work for pacifism within his life, was an outspoken feminist demanding equal pay and respect for women and argued for changes in homosexuality laws. In a short biography, there’s only so much we can write so we hope this will pique your interest enough to encourage your own research!
He was born in Cambridge on June 5th 1883. He spent most of his young life in Cambridge, first attending a kindergarten where he showed advanced abilities in mathematics for a boy his age. Unfortunately, due to poor health, he couldn’t attend school for much of the time but continued to be home schooled. When his health improved, he began attending St Faith’s Preparatory School. Keynes excelled and was quickly top of his class in mathematics. The headmaster at St Faith’s noted how intelligent Keynes was and believed he would easily receive a scholarship to Eton college, which he did. It was at Eton he met the first “love of his life”, Daniel Macmillan. After his time in Eton, Keynes attended Cambridge University studying mathematics after receiving another scholarship. He received a first-class BA in mathematics in 1904.
We know a great deal about his relationships due to his penchant for keeping diaries, of which he kept two, with one specifically for writing about matters of the heart. Keynes spent many of his early years at Eton and Cambridge in romantic relationships with men, including Dilly Knox, a notable affiliate of Turing in World War 2 and Duncan Grant, an artist who has been described as one of Keyne’s great loves. It was his relationship and subsequent close friendship with Daniel Macmillan that ensured his first paper, “Economic Consequences of the Peace”, was published. It was only in later years that he began to figure out that he was in fact bisexual. In 1906, after meeting Ray Costelloe, Keynes wrote “I seem to have fallen in love with Ray a little bit, but as she isn’t male I haven’t [been] able to think of any suitable steps to take”. He married Lydia Lopokova in 1925 and they remained married until his death.
His career started in civil service as a clerk in the India Office, though he quickly bored of this work and returned to Cambridge to work on probability theory. While here, his first professional economics article in The Economic Journal was published in 1909. In 1911, Keynes was made the editor for the same journal. By 1913, he had published his first book, “Indian Currency and Finance”, a subject he had taken an interest in in 1909 and had led to his founding of the Political Economy Club. This book lead to his appointment to the Royal Commission on Indian Currency and Finance, where Keynes began to show his talent at applying economic theory to practical problems and marked the beginning of his various political and advisory positions.
In 1914, he began advising the government on how to proceed financially just days before the hostilities of World War 1 began. In 1915, he took up an official government position at the Treasury where he was tasked with acquiring scarce currencies and designing terms of credit between Britain and its continental allies. After acquiring a small but notable quantity of Spanish pesetas, he was asked to hand them over to the government as a temporary solution for current financial difficulties. He refused and instead, flooded the market. His boldness paid off and Spanish pesetas became much less scarce and expensive.
Separate to his government work, Keynes had been working on his own projects. In 1921, “A Treatise on Probability” was finally published, despite being finished during much of the war. The work was an important contribution to probability theory, championing the view that probabilities were no more or less than truth values intermediate between simple truth and falsehood. Keynes spent much of the early 20s writing various journals attacking the government’s financial strategy post-wartime. Keynes advocated for reduction of German reparations with “A Revision of the Treaty” in 1922, attacked post-World War 1 deflations policies with “A Tract on Monetary Reform” in 1923, advocated for the government funding public works to create jobs in 1924 and 1925 saw the beginning of a long standing attacking of the gold standard with him publishing “The Economic Consequences of Mr. Churchill”. Britain abandoned the gold standard in 1931.
It was only during the Great Depression that Keynes would really begin to build his legacy. It was now that he began to examine the relationship between unemployment, money and prices. Beginning in 1930, he published “Treatise on Money”. The central idea behind this work is that if money being saved exceeds the amount of money being invested, which occurs if interest rates are too high, then unemployment will rise. This is in part a result of people not wanting to spend too high a proportion of what employers pay out, making it difficult in turn, for employers to make profit. Keynes was highly critical of austerity measures during the Great Depression. He believed budget deficits during recessions were a good thing and a natural product of an economic slump. He wrote, “For Government borrowing of one kind or another is nature’s remedy, so to speak, for preventing business losses from being, in so severe a slump as the present one, so great as to bring production altogether to a standstill”. In 1933, he published “The Means to Prosperity”. While this didn’t have immediate impact in the UK, Sweden and Germany had begun to adopt his financial policies. He also wrote letters to President Roosevelt, who he later met in person, to discuss his policy after which both men spoke highly of each other.
In 1936, he published “The General Theory of Employment, Interest and Money". Considered his magnum opus, this work is often viewed the foundation of modern macroeconomics. Unfortunately, Keynes suffered a heart attack in 1937 that took two full years to recover from, meaning he was unable to attend debates himself. However, that didn’t stop the thinking taking off, with many economists debating in his place and achieving widespread acceptance. After recovery in 1939, he spent the rest of his life publishing journals like “How to Pay for the War” and took a job in the Court of Directors of the Bank of England. He was ultimately rewarded for his life of service with a hereditary peerage in the King’s Birthday Honours and became Baron Keynes, of Tilton, in the County of Sussex.
Keynes died in 1946 of a second heart attack but his legacy did not end there. His work lead to the “Keynesian Revolution” which saw economic policymakers in most of the world using his works to build their policies. While they fell out of favour in the late 70s, we have seen a resurgence in this thinking in 2008 and Keynes’ thinking still has an impact on the way we view economics today.
John Maynard Keynes in 1930, aged 47