John Maynard Keynes

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John Maynard Keynes, detail of a watercolour by Gwen Raverat, c. 1908; in the National Portrait Gallery, London.

Courtesy of the National Portrait Gallery, London

John Maynard Keyneswas an English economist, journalist, and financier best known for his economic theories (Keynesian economics) on the causes of prolonged unemployment. His most important work, The General Theory of Employment, Interest and Money (1935–36), advocated a remedy for economic recession based on a government-sponsored policy of full employment.

Keynes was born into a moderately prosperous family. His father, John Neville Keynes, was an economist and later an academic administrator at King’s College, Cambridge. His mother was one of the first female graduates of the same university, which he entered in 1902.

At Cambridge he was influenced by economist Alfred Marshall, who prompted Keynes to shift his academic interests from mathematics and the classics to politics and economics. Cambridge also introduced Keynes to an important group of writers and artists. The early history of the Bloomsbury group—an exclusive circle of the cultural elect, which counted among its members Leonard and Virginia Woolf, the painter Duncan Grant, and the art critic Clive Bell—centred upon Cambridge and the remarkable figure of Lytton Strachey. Strachey, who had entered Cambridge two years before Keynes, inducted the younger man into the exclusive private club known simply as “the Society.” Its members and associates (some of them homosexual, like Keynes himself) were the leading spirits of Bloomsbury. Throughout his life Keynes was to cherish the affection and respond to the influence of this group.

After earning a B.A. in 1905 and an M.A. in 1909, Keynes became a civil servant, taking a job with the India Office in Whitehall. His experience there formed the basis of his first major work, Indian Currency and Finance (1913), a definitive examination of pre-World War I Indian finance and currency. He then returned to Cambridge, where he taught economics until 1915. With the onset of World War I, Keynes returned to government employment, this time in the Treasury (an agency even more powerful than its American counterpart), where he studied relations with allies and recommended means of conserving Britain’s scant supply of foreign currencies.

His performance may have marked Keynes for a public career, but the Versailles Peace Conference changed his aspirations. Accompanying Prime Minister David Lloyd George to France as an economic adviser, Keynes was troubled by the political chicanery and burdensome policies that were to be imposed upon the defeated Germany. He resigned his post, depressed, to quote from a letter to his father, by the impending “devastation of Europe.”

He took an activist’s stance, however, by transforming personal distress into public protest. In two summer months he composed the indictment of the Versailles settlement that reached the bookstores by Christmas 1919 as The Economic Consequences of the Peace. The permanent importance of this polemical essay lies in its economic analysis of the stringent reparations placed upon Germany and the corresponding lack of probability that the debts would ever be paid. The popular success of the book, however, came from the blistering sketches of Woodrow Wilson, Georges Clemenceau, and Keynes’s old chief, Lloyd George. As a consequence, in some Whitehall circles Keynes was considered a man not quite to be trusted, an iconoclast willing to rock any boat into which he had imprudently been invited.

Keynes’s reputation at Cambridge was quite different. He was esteemed as the most brilliant student of Marshall and fellow economist A.C. Pigou, authors of large definitive works explaining how competitive markets functioned, how businesses operated, and how individuals spent their incomes. After publication of The Economic Consequences of the Peace, Keynes resigned his lecture post but stayed on as a fellow of King’s College, dividing his time between Cambridge and London.

Although the tone of Keynes’s major writings in the 1920s was occasionally skeptical, he did not directly challenge the conventional wisdom of the period, which favoured laissez-faire—only slightly tempered by public policy—as the best of all possible social arrangements. Two of Keynes’s opinions did foreshadow the theoretical revolution he triggered in the 1930s. In 1925 he opposed Britain’s return to the gold standard at the prewar dollar-to-pound ratio of $4.86, and, long before the Great Depression, Keynes expressed concern over the persistent unemployment of British coal miners, shipyard workers, and textile labourers. Reconciled by this time with Lloyd George (who was never to return to office), he supported the Liberal Party’s program of public works to take the unemployed off welfare by placing them in useful jobs. But “respectable” economists still expected the automatic adjustments of the free market to solve these problems, and the Treasury was convinced that public works were useless, because any increase in the government deficit would likely cause an equal decline in private investment. Although Keynes could not offer a theoretical refutation of his colleagues’ opinions, he agitated for public works nevertheless.

It was only later, in The General Theory of Employment, Interest and Money, that Keynes provided an economic basis for government jobs programs as a solution to high unemployment. The General Theory, as it has come to be called, is one of the most influential economics books in history, yet its lack of clarity still causes economists to debate “what Keynes was really saying.” He appeared to suggest that a reduction in wage rates would not reduce unemployment; instead, the key to reducing unemployment was to increase government spending and to run a budget deficit. Governments, many of them looking for excuses to increase spending, wholeheartedly accepted Keynes’s views, as did most of his professional colleagues.

Keynes’s long-run influence has not been as significant as his short-run impact. The Keynesian model was a core part of economics textbooks from the late 1940s until the late 1980s. But as economists have become more concerned about economic growth, and more informed about inflation and unemployment, the Keynesian model has lost prominence.

The General Theory was Keynes’s last major written work. In 1937 he suffered a severe heart attack. Two years later, though not completely recovered, he returned to teaching at Cambridge, wrote three influential articles on war finance entitled How to Pay for the War (1940; later reprinted as Collected Writings, vol. 9, 1972), and served once more in the Treasury as an all-purpose adviser. He also played a prominent role at the Bretton Woods Conference in 1944. But the institutions that resulted from that conference, the International Monetary Fund and the World Bank, were more representative of the theories of the United States Treasury than of Keynes’s thinking.

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John Maynard Keynes (right) and Assistant Secretary of the U.S. Treasury Harry Dexter White, 1946.

International Monetary Fund

His last major public service was his negotiation in the autumn and early winter of 1945 of a multibillion-dollar loan granted by the United States to Britain. Keynes died the following year.

Primarily biographical works include Roy F. Harrod, The Life of John Maynard Keynes (1951, reissued 1982), written by one of Keynes’s students and colleagues; Robert Skidelsky, John Maynard Keynes (1983); Charles H. Hession, John Maynard Keynes (1984); and D.E. Moggridge, Maynard Keynes: An Economist’s Biography (1992). An exceptionally clear exposition of Keynes’s major work may be found in Dudley D. Dillard, The Economics of John Maynard Keynes: The Theory of a Monetary Economy (1948, reprinted 1983). J.C. Gilbert, Keynes’s Impact on Monetary Economics (1982), surveys the literature of the 1930s to ’60s. Hyman P. Minsky, John Maynard Keynes (1975), reevaluates interpretations of Keynesian economics. D.E. Moggridge, John Maynard Keynes (also published as Keynes, 1976), is an interpretive study of Keynes’s lifework by an editor of the Collected Writings. Don Patinkin, Keynes’ Monetary Thought: A Study of Its Development (1976), was the first full-length work to make use of the Collected Writings. Elizabeth S. Johnson and Harry G. Johnson, The Shadow of Keynes: Understanding Keynes, Cambridge, and Keynesian Economics (1978), is a collection of essays that examines Keynes’s relationship to his social and intellectual environment. Peter Clarke, The Keynesian Revolution in the Making, 1924–1936, corrected ed. (1990), sets his work in the context of contemporary economic conditions and policies, while David Laidler, Fabricating the Keynesian Revolution: Studies of the Inter-War Literature on Money, the Cycle, and Unemployment (1999), examines Keynes’s work in the context of his own era. Peter Clarke, Keynes: The Twentieth Century’s Most Influential Economist (2009), chronicles Keynes’s personal life and its impact on the development of his economic theory. Robert Skidelsky, Keynes: The Return of the Master (2009); Paul Davidson, The Keynes Solution: The Path to Global Economic Prosperity (2009); and Mark Hayes, John Maynard Keynes: The Art of Choosing the Right Model (2020), argue for a fundamental overhaul of economics and economic policy.