By: Benjamin Sanders

The Life of John Maynard Keynes & an Overview of

Keynesian Economics

John Maynard Keynes was born on June 5, 1883

He was born in Cambridge, England into an upper class family of intellectuals

Keynes did very well at Eton as well as Cambridge University, where his focus was mathematics

At Cambridge University, he became friends with members of the Bloomsbury group of intellectuals and artists

Keynes’ Life

Upon graduating, Keynes went to work in the India Office

While at the India Office, he earned a fellowship at King's

College

In 1908, he quit the

civil service and returned

to Cambridge

Keynes’ Life Continued…

After World War One started, Keynes joined the treasury

After the British were victorious, they imposed huge reparations on Germany at the Versailles peace treaty. This did not sit well with Keynes

Keynes’ Role In Post-War Europe

Keynes published the very successful book, 'The Economic Consequences of the Peace'. In this book, he criticized the excessive war reparations demanded from a defeated Germany

He also predicted that it would foster a desire for revenge among Germans…

War Role Continued…

In 1926, he married Lydia Lopokova, a Russian ballerina

Love Life

In 1931, at the invitation of the University of Chicago, Keynes travels to America to give a lecture on the Harris foundation.

His chief desire is to study America's economic conditions at first hand

He has interviews with senior people in the Federal Reserve and with President Hoover. He is pleased with the Federal Reserve's attitude that it should promote economic expansion

Keynes in America

Keynes continues to advocate that the government should borrow money and undertake large-scale public works to stimulate the economy

This helps to foster the “New Deal”

Public Works Projects

While in America, he studies its economy and its stocks and bonds for personal investment purposes

He decides that share prices of public utilities are priced for exceptional value and he invests a large part of his own funds

The risk pays off big time

In June of 1934, Keynes visits America again…

In 1936, Keynes published his best-known work, 'The General Theory of Employment, Interest and Money‘

Heavily anticipated, cheaply priced and favorably timed for a world caught in the grips of the Great Depression, the General Theory made a splash in both academic and political circles

Keynes, the Author

With the ‘General Theory’, as it became known, Keynes sought to develop a theory that could explain the determination of aggregate output, and as a consequence- employment

He stated that the critical determining factor regarding this issue was aggregate demand

‘General Theory’ Continued…

Keynes wanted to show Classic economists that the current system would not just “fix itself” out of the Great Depression. He sought to mathematically prove that the United States was in a state of equilibrium, even with widespread unemployment

GDP= C + I + G + X, where C= Consumers I = Investment (business) G= Government Spending and X= Exports-Imports. The current “X” factor in the United States is approximately -2% currently

Powerful Equation

The best seller discussed the possibility of using government fiscal and monetary policy to help eliminate recessions and control economic booms

By writing 'The General Theory of Employment, Interest and Money', Keynes almost single-handedly laid the framework and ideas behind what became known as "macroeconomics".

Keynes’ Impact

In 1942, he was made a member of the House of Lords in England

During the war years, Keynes played a critical role in the negotiations that would shape the post-war economic order on a global scale

Nearing the End…

In 1944, Keynes led the British delegation to the Briton Woods conference in the United States

At the conference he played a significant part in the planning of the World Bank and the International Monetary Fund

Final Great Achievements

John Maynard Keynes died on April 21st, 1946

Death of Keynes

Keynesian economics is a dynamic system

that would take hundreds, if not thousands, of

hours to describe and analyze in detail. The

following is my attempt to capture some of

Keynes’ central economic concepts and

explain them to the audience in a nutshell.

Disclaimer

Keynesian economics is a theory of total

spending in the economy, called aggregate

demand, and its effects on output and

inflation

In a Nutshell…

Keynes stated that if Investment exceeds Saving, there will be inflation. If Saving exceeds Investment there will be recession. One implication of this is that, in the midst of an economic depression, the correct course of action should be to encourage spending and discourage saving (the current state we find ourselves in).

Keynesian Nuggets

Keynes took issue with Say's Law - one of the economic "givens" of his era. Say's Law states that supply creates demand. Keynes believed the opposite to be true - output is determined by demand.

Say’s Law

Keynes argued that full employment could not always be reached by making wages sufficiently low. Economies are made up of aggregate quantities of output resulting from aggregate streams of expenditure - unemployment is caused if people don't spend enough money.

Full Employment

In recessions the aggregate demand of economies falls. In other words, businesses and people tighten their belts and spend less money.

Lower spending results in demand falling further and a vicious circle ensues of job losses and further falls in spending.

Keynes's solution to the problem was that governments should borrow money and boost demand by pushing the money into the economy. Once the economy recovered, and was expanding again, governments should pay back the loans.

Regarding Recessions

Keynes's view that governments should play a major role in economic management marked a break with the laissez-faire economics of Adam Smith, which held that economies function best when markets are left free of state intervention.

Clashing with the Classics

During the 1970’s, stagflation was plaguing America

Stagflation is a condition of slow economic growth and

relatively high unemployment - a time of stagnation -

accompanied by a rise in prices, or inflation

Stagflation occurs when the economy isn't growing, but

prices are; which is not a good situation for a country to be

in

The Death of Keynesian Economics

During the 1970s, world oil prices rose dramatically, fueling sharp inflation in developed countries including America.

“Stagflation”

This economic system called for widespread tax cuts, decreased social spending, increased military spending, and the deregulation of domestic markets

“Reaganomics” to the Rescue

Reaganomics was partially based on the principles of supply-side economics and the trickle-down theory

These theories hold the view that decreases in taxes, especially for corporations, is the best way to stimulate economic growth: the idea is that if the expenses of corporations are reduced, the savings will "trickle down" to the rest of the economy, spurring growth. 

Trickle Down Theory

America is slowly readopting some Keynesian principles.

The recession is declared over, but we are clearly not out of the woods

GDP must be rising at 3% or more to get us out of the current funk we are in

Current State of America

QUESTIONS?