Sunday, December 29, 2019

Keynesian economics

John Maynard Keynes (5 June 1883 – 21 April 1946) was one of the most influential economists of the Twentieth Century. 
His groundbreaking work in the 1930s led to the development of a whole new economic discipline dedicated to macroeconomics. His economic theories, which became known as ‘Keynesianism’ advocated government intervention to end the Great Depression.

John M. Keynes believed that, in a recession, the economy can be made to grow and unemployment reduced by increasing government spending and making reductions in interest rates.

Theory based on the ideas that optimum economic performance could be achieved by influencing aggregate demand through government fiscal (public spending and taxation) policy, not through the free market philosophy characterized by the classical and neo-classical schools.

John M. Keynes was born in Cambridge to an upper-middle-class family. His father was a lecturer in economics and moral sciences at Cambridge University. He was a bright scholar who won a scholarship to Eton College. After Eton, he studied Maths at Kings College, Cambridge. At Cambridge, the great economist Alfred Marshall encouraged Keynes to take up the relatively new science of Economics. Keynes published his first economic article in 1909, and by 1911 was editor of the Economic Journal.

During the First World War, Keynes acted as a government advisor for the government. He helped to negotiate terms with Britain’s creditors (UK debt rose sharply in World War One). At the end of the First World War, Keynes took part in the British delegation to the Treaty of Versailles. Keynes was shocked at the level of reparations the Allies wanted to impose on the Germans. Keynes resigned from the British delegation saying it was a recipe for bankrupting Germany. He wrote the Economic Consequences of the Peace in 1919, accurately predicting the difficulties Germany would have and the consequent political resentment at such as harsh peace treaty.
“If we aim deliberately at the impoverishment of Central Europe, vengeance, I dare predict, will not limp.”   -- The Economic Consequences of the Peace (1919)  Chapter VII, Section 1, pg.268
In the 1920s, Keynes wrote a powerful critique of Britain’s decision to return to the Gold Standard at a pre-1914 level. Keynes argued that the artificially high value of sterling would make life difficult for British exporters. The decision to return to the Gold Standard in 1925 was widely blamed for the prolonged deflation and high unemployment the UK experienced in the 1920s. The Chancellor of the Exchequer, Winston Churchill, who was responsible for the decision admitted it was the biggest domestic mistake of his career.

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