Review of KEYNES- A VERY SHORT

INTRODUCTION Lord Robert Skidelsky

ByDinesh SVidhya VNithin Nanu

About the AUTHOR

LORD ROBERT SKIDELSKY is emeritus professor of political economy at the university of WARWICK.

His biggest work is a three volume biography of JOHN MAYNARD KEYNES; HOPES BETRAYED, THE

ECONOMIST AS SAVIOUR and FIGHTING FOR BRITAN

John Maynard Keynes

John Maynard Keynes was probably the most influential economist of the first half of the twentieth century.

The son of a professor of economics, john Neville Keynes, and destined by family connection to be influential in the narrow British university world. 

He studied at Cambridge

Keynes at College President of the Student Union President of the University Liberal Club Rowed, studied philosophy, played bridge,

visited art galleries, collected rare books, went to the theatre

Became a member of the “Apostles”, a secret and highly exclusive Cambridge intellectual society

Became a member of the literary set called “the Bloomsbury Group.”

Keynes After College Studied economics for perhaps 1 year, but did

poorly on his exams. Took a civil service exam and took a job at the India

Office for 2 years. 1908, his father managed to get him a job as a

lecturer at King’s College. Later he became a Fellow.

1911, he became editor of the Economic Journal. Worked at the Treasury during WWI. 1921, he published A Treatise on Probability. This

was his dissertation. It won him a fellowship at King’s College, Cambridge.

Marries Lydia Lopokova.

Keynes, Inter-war Years Keynes wrote the Economic Consequences of the Peace

(1919), regarding reparation payments› Best Seller› Made him a public celebrity

1923, Tract on Monetary Reform (against returning to the pre-war gold standard)

Economic Consequences of Mr Churchill (1925, warned of depression)

1930, Treatise On Money Makes millions in the stock market, commodity, and forex

markets. 1936, General Theory of Employment, Interest and Money 1937, he has a serious heart attack

Keynes’ Tract

Relates money supply variability and uncertainty to inflation and deflation.

Variability of prices is a major cause of business cycles.

Wages and other costs of production adjust more slowly than prices.

Therefore price variability affects profits and therefore investment.

Investment cycles cause business cycles.

The General Theory of Employment, Interest, and Money

In the classical model, the unemployment caused by the Great Depression should have been solved by wage reductions that would rapidly clear the labor market. However, this did not seem to be happening.

Keynes argued that market forces are not an adequate ‘adjustment mechanism’; only government has the capacity and the responsibility to stabilize the economy.

•The capacity comes from the government control of the budget; the responsibility derives form the imperative of maintaining social order.

•Under conditions of large-scale unemployment, Keynes argued, there is no barrier to the increased supply of goods; equally so, there is a ‘notational’ demand on the part of unemployed workers for goods (i.e. they would buy goods if they had the means).

•However, their unemployment precludes their ability to buy.

The Role of Government The role of government is to stimulate demand through

spending in times of economic slack. Policy makers should manipulate government

expenditures to achieve a desirable level of aggregate demand.

In times of economic downturn, this can be achieved either through lowering tax rates or increasing government expenditures.

According to Keynes, governments should incur deficits and borrow money in times of downturn; these debts can be repaid through higher taxation in times of economic growth.

What happened to Keynesianism?

Government expenditures in the Depression and post-war years culminated in the creation of the ‘welfare state’.

After an unparalleled period of economic growth in the “golden era” of Keynesianism, the “welfare state” in post-industrial societies ran into a series of problems in the late 1960’s and early 1970’s that can be summed up as:

Quotes by Keynes: I do not know which makes a man more

conservative --to know nothing but the present, or nothing but the past.

The day isn't far off when the economic problem will take the back seat where it belongs, and the heart and head will be occupied or reoccupied, by our real problems of life and of human relations, of creation and behavior and religion.

It is ideas, not vested interests, which are dangerous for good or evil.

Quotes by Keynes (cont):

The difficulty lies, not in the new ideas, but in escaping from the old ones which ramify . . . into every corner of our minds.

Most men love money and security more, and creation and construction less, as they get older.

Last words Before his death

“trustees, not of civilization, but of the possibilities of civilization”

THANK YOU