It’s Not His Fault
John Maynard Keynes Life, Theory, Legacy
Andrea Marie Corwin
May 23, 2011
John Maynard Keynes
Life, Theory, and Legacy
For the past 80 years Americans have elected government officials who have been diminishing our children’s hopes and dreams by creating a debt which is more massive than anyone’s human mind can comprehend. In fact, Congress has endorsed one massive stimulus package after another in the hopes of mobilizing our economy. This solution however, has not always been shown to help our economy. One man’s name is often attributed to this theory of economics, but one man did not author this plan on his own. To find out who this man is step back for a moment to the Versailles Peace Conference in Paris, at the end of WWI, where a Deputy for the Chancellor of the Exchequer on the Supreme Economic Council sits in frustration, after just having dragged himself from the sickbed, desiring to protest against what he calls “the Murder of Vienna...” [1]
This man, John Maynard Keynes, is considered to be one of the most influential individuals of the Twentieth Century, however few people know who he is and what he believed. He bears a name surrounded by controversy whether early in his educational years, during his working years as an economist or even to this day.
Keynes was born into our world in 1883, the same year the revolutionary socialist Karl Marx died. He was the first son of the Cambridge economist and lecturer, John Neville Keynes and Florence Ada Keynes, a social reformer and mayor of Cambridge. Both were very attentive and strong influences during John’s entire life. Keynes grew up during the time of Queen Victoria, a devout Christian who ascended the throne in 1837. This Victorian Age was characterised by rapid change and development in nearly every sphere - from advances in medical, scientific and technological knowledge to changes in population growth and location, as people moved from farm life to city life. Prosperity for England resulted and this wealth funded their nation’s desire to conquer countries in the name of Jesus, Manifest Destiny. The world soon identified this empirical expansion by the phrase “The sun never sets on the British Empire.”
“Victorian, in other words, can be taken to mean parent of the modern -- and like most powerful parents, it provoked a powerful reaction against itself.”[2] All of those technological advancements during this time led to the industrial and innovation revolution. In response, people such as Charles Darwin, Karl Marx and Sigmund Freud appeared on the scene to present and promote their interpretation of these new circumstances. Although the people of the Victorian age were fully grounded in the Bible, they forgot to pass on the cause of their successes to their children. They began to believe in wealth and knowledge as the answer and saw no reason to share their Godly Savior with the next generation. Even Keynes in a letter to Virginia Woolf, wrote
“I begin to see that our generation—yours and mine, Virginia, owed a great deal to our fathers' religion. And the young...who are brought up without it will never get so much out of life. They're trivial: like dogs in their lusts. We had the best of both worlds. We destroyed Christianity and yet had its benefits.” [3]
The belief in academic success as the answer to life motivated John to the top of his class throughout his academic years. At the age of fourteen, he won a scholarship to Eton, an esteemed high school in London. Eton has educated boys for nearly six centuries and continues to this day to develop Henry VI's original vision to provide a distinctive education, which Eton aims to make accessible to any talented boy. After four successful years at Eton, Keynes moved back to his home in Cambridge to attend King’s College. King's College was founded in 1441 by Henry VI (1421-1471) and is one of the 31 colleges in the University of Cambridge. King's has an outstanding academic record and is also world-famous for its Chapel and choir.
One of Keynes’ professors at Kings College was Alfred Marshall, a specialist in microeconomics. Marshall wanted to change economics from a rigorous course of mathematics to a scientific profession, He once wrote that “the Mecca of the economist lies in economic biology rather than in economic dynamics.”[4] Marshall believed merchandise should have one steady rate so that supply and demand would stay the same. This theory was later named the economic theory of welfare, because with one steady rate the consumer and the producer would save money in the long run. Marshall contributed much work to the neoclassical economics which continues to evolve to this day.
While studying at King’s College, Keynes was elected as Secretary of the Union, and eventually became the president of this world famous nongovernmental debating society. In addition, he was sought to become a distinguished member of the Apostles, later called the Bloomsbury group. The Bloomsbury Group was an assortment of people, artists, writers, economists, art critics and journalists, like Virginia Woolf and Clive Bell, from Cambridge college who not only met in college, but formed lifelong relationships with each other. Their name was derived from Bloomsbury, London, a series of squares between Gower St. and High Holburn, where this secret society convened near the British Museum and the Royal Academy of Dramatic Arts once a week behind bolted doors. Their faith was based on unworldliness and a desire to pursue a new truth regardless of what their Victorian parents might think. They were tired of the old doctrines and wanted to make a break through and discover new ones for themselves. Their works and Utopian outlook deeply influenced literature, art, and economics as well as modern attitudes towards feminism, pacifism, and sexuality. They believed love and passion ignored gender. They were once described as “a very fascinating, queer, self-absorbed, fantastic set of people. But they are very interesting..."[5] There are numerous books written about this group and their many ideas are still respected to this day.
After graduating from Cambridge in 1906, Keynes joined the civil service to work on Britain's overseas finances at the India company. By the fall of 1908, Keynes resigned and went back to Cambridge to teach economics, which was more to his liking. He was an immediate success and happy he could again meet with his Bloomsbury friends.
During World War I, Keynes was called to the British Treasury to work on overseas finances. It was during this time, while attending the ballet, he met his future wife, Lydia Lopokova (1892-1981), a lead Russian dancer. They did not marry until seven years after the Great War because their relationship was secondary to Keynes's high demanding responsibilities. In fact, it was during this time that the world was introduced to John Maynard Keynes and the philosophies he believes. A fellow economist and biographer, Roy Harrod declares, “Keynes contributed more to winning the war than any other person in civil life.”[6]
Consequently, after the war, we find him in Paris, at the Versailles Peace Conference, sitting frustrated because he possessed no power to interfere directly in this game. The problems of theology, politics and elections were more important to “The Big Four” [7](David Lloyd George,Vittorio Orlando, George Clemenceau, Woodrow Wilson) than the economic future of Europe. This “Murder of Vienna,”[8] as Keynes properly called the astronomical amount Germany would be forced to pay, would not only lead to great resentment on the part of the Germans, but to an even stronger resurgence of German tyranny and militarism. In great despair, Keynes resigned three days before the treaty was signed. In response to his disappointment he wrote the book, The Economic Consequences to the Peace.[9] It accurately predicted the future outcome of the treaty and thus, popularized his name.
At the end of World War I, the world entered a time of economic turbulence as Germany’s economy crashed, Ally countries adjusting to peacetime trade and thousands of soldiers returning home looked for work. In addition, this post wartime economy grew at an enormous rate and people spent money freely, especially in the stock market. Share prices sold at amounts far beyond their real value and most were purchased on credit.
During this time of confusion, Keynes not only returned to teaching at Cambridge, but chaired a life insurance company, edited an economic journal, directed the Bank of England, was the husband to the leading lady, and earned a fortune in the markets. On October 29th, 1929, the bubble burst and the stock market crashed. In fact, share prices dropped so fast that many people lost all their money. Keynes, himself , lost most of his fortune during this great economic crisis. To top it off, America's breadbasket (The Southern Great Plains) suffered a horrendous drought that lasted throughout most of the 1930’s.
In the midst of this Great Depression, Keynes wrote his “magnum opus,” The General Theory of Employment Interest, And Money[10] It became known as the foundation of modern economic theory. Keynes daringly challenged famous economists such as Adam Smith, Karl Marx, and David Ricardo.
Smith’s economic bible, “The Wealth Of Nations”[11], originating from the time of the signing of the Declaration of Independence proclaims, “The market must be left free so it finds its own natural level of prices, wages, profits, and productions. Any impediment to this does so at the expense of the true wealth of the nation.”[12] Furthermore, Smith wrote about an “invisible hand”[13] that would guide the economy. This invisible hand represents supply and demand and is created by each individual’s own self-interest that unintentionally promotes the public good. Smith also proposed that free markets should take the place of mercantilism. Mercantilism is a economic system that unifies and increases the power of nations by strict governmental regulation of the entire national economy, creating a mega governmental monopoly. Smith believed in a limited role for government and an increase in the role of a free market. This idea is known to this day as the classical “laissez-faire”[14] economic system and is still looked on by most in high regard to this day. Keynes opposed this theory saying, “Smith lived prior to the Industrial Revolution and saw a state grow, but not mature into an industrial world.”[15]
Keynes ideas also conflicted with the economic theory of the German socialist, Karl Marx. Marx believed capitalism was the only way for a country’s economy to grow, even though he himself hated this form of government. Marx upheld the idea of a democracy as the best form of government, although he thought the only way to create this “Utopia” [16] was for the State to control its citizens and place them in two classes: lower class“proletariat” [17]and upper class “bourgeoisie.”[18] When the State or political party gained firm control of the people, through a dictatorship, the state could peacefully transition into a democratic society. Thus, the proletariat class would be liberated and equal to the bourgeoisie class. Although, in reality, this has not been achieved without a revolution or by force. Karl Marx’s life-time colleague, friend, Fredrick Engle, proclaimed prophetically during his eulogy to Marx, “His name will endure throughout the ages.”[19] In the early 1900’s, his name did live on as his radical ideas were implemented in, China, Russia, and Cuba, just to name a few.
Additionally, Keynes’ theories clashed with another classical economist, David Ricardo. Ricardo was born in 1772 and died in 1823. He developed the labor theory of value, an economic theory that stipulates that the value of a good or service is dependent upon the labor used in its production. He edited the theory his entire life. Today most people attribute the labor theory of value to Karl Marx because it is what he used for his socialist theory. Another area of economics that Ricardo supported was free trade: international trade left to its natural course without tariffs, quotas, or other restrictions. In the 18th and 19th century many economist did not like the idea of free trade. They believed there needed to be restrictions to protect their own products from cheaper and more durable foreign products.
John Maynard Keynes’ “General Theory”[20] called for industrial nations to strive for national self- sufficiency, full employment with nominal wages, and zero percent population growth. Striving after a Utopian society motivated Keynes to change the “orientation of his mind”[21] from believing in the Classical economics doctrine of free trade, to all liberal belief in national self-sufficiency. Keynes now held the opinion that the less countries became entangled with one another, the less “interference from the outside world.”[22] “An increased national self-sufficiency is to be considered, not as an ideal itself, but as directed to the creation of an environment in which other ideals can be safely and conveniently pursued...in order to make our own favorite experiments toward the ideal social republic of the future.”[23]
Full employment and nominal wages in each nation was the goal to prevent labor unrest and the threat of revolution which the world was observing in Russia. Thus, government spending, not a “laissez-faire,”[24] policy was necessary during economic downfalls. This was a revolutionary idea, calling for government to borrow money. This meant government budgets were no longer balanced. In fact Keynes said, “It was important to err on the side of too much stimulus. Inflation is not a problem, but unemployment is.”[25]
Keynes concurred with Thomas Malthus’ (1766-1834) belief that the upper class influenced the other classes, if the rich had an uncontrolled amount of children, the poor would also follow in their footsteps and have a lot of children. This would lead to the population growing too fast and not enough food being grown for the excess of people in the world. A further increase in mortality would lead to population crashes caused by natural phenomena like famine or disease. Zero percent population growth would prevent these crises and would further achieve the Utopian state Keynes desired. As a result of these three criteria, “international trade would cease to be what it was, namely, selfish, desperate nations who needed to maintain employment at home who forced their sales on foreign markets and restricted purchases from other countries.” [26]
In 1933, Keynes was able to implement his solution, which Adam Smith would have called an “impediment.”[27] It was for the government to create a demand by giving tax breaks and investing money into government programs. Keynes theory, created tax breaks, increasing stimulus spending and producing new government run programs. This was the premise behind the New Deal legislation. This legislation was Franklin D. Roosevelt's election promise to the American people during his campaign. With the help of many specialists, including Keynes, Franklin wrote up this plan to hopefully spur our economy in an upward direction and get the nation out of the Great Depression.
Keynes believed the increase in government spending would result in America’s private sector spending, which would enable the economy to move in an upward direction. FDR became president and the plan was adopted. It did help to re-circulate the money again by creating jobs and giving money and tax breaks to the American people, even if "the government should pay people to dig holes in the ground and then fill them up."[28] Although Roosevelt always wanted to balance the budget after this burst of prescriptive government spending, and Keynes recommended it, World War II obstructed this plan. Even to this day, we are plagued with an increasingly enormous national debt. This legislation has also led to our current problems with the national debt, welfare and social security. “There are many ways of going forward, but only one way of standing still.”[29] -FDR. Roosevelt sure did move our country in a forward direction and this momentous push still affects our country to this day.
In 1937, Keynes suffered a heart attack. Despite this illness, when the Second World War erupted, he became fully immersed in the British war effort. Winston Church-Hill appointed him to the advisory council of the treasury. In order to serve in this position, he had to sail back and forth to America six times. Acknowledging his infirmity, they gave him a room in the treasury and picked his brains, while his wife Lydia stood by ushering dignitaries out of the room when her husband needed rest.
During the Bretton Woods Conferences, also known as United Nations Monetary and Financial Conference, which occurred July 1, thru July 22, 1944, in Bretton Woods, New Hampshire. The council, attended by 730 experts, representing forty-four States and Governments, proposed to establish an International Monetary Fund (IMF) that works to foster a global monetary cooperation, secure financial stability, facilitate international trade, promote high employment, sustain economic growth, and reduce poverty around the world. The council also established an International Bank (IBRD) an international organization whose original mission was to finance the reconstruction of nations devastated by World War II. The council set aside funds to help Germany and Japan recover after World War II, which it did. Today these programs are still in effect. Now, their mission has even expanded to fight poverty by means of financing states. .
Upon returning home, from the Bretton Woods conference, honors poured in and Keynes earned the title of Lord Keynes, Baron of Tilton. He received this title from Queen Elizabeth II on July 7th, 1942. His title included “of Tilton”[30] because that is where he lived at the time he received this prestigious name. A Lord is the most ancient degree of English nobility. Formally they were chosen by the King or Queen or inherited the seat in the House of Lords. However, since 1999, the Lords have been elected by the people. Upon receiving his new title, Keynes took his seat in the House of Lords, sitting on the Liberal Party benches. Normally, the title would be passed on to a son at a baron’s passing. Unfortunately, John did not have any children, so this title has remained solely with Keynesuntil his death, nine months after the conclusion of WWII. Keynes died, at the age of sixty-two. His obituary in the Times accurately stated, “The country has lost a great Englishman.”[31]
This great English economist like all of us, was molded by his parents, teachers, friends and those who came before him. He strove for world peace, the elimination of the poor, and deliberate movement by governments to create economically sound, ideal social-republics. Keynes sacred precincts of economic orthodoxy observed the world’s sickness and wished to cure it. Unfortunately, Keynes’ cure also calls us to invest in this worldly kingdom.
Keynesianism, the term used today to refer to the economic theories of John Maynard Keynes, has not died. In 1970, Nixon declared "We are all Keynesians now"[32] In the past three years, Americans have let their representatives add to the already incomprehensible debt an unimaginable amount of five trillion dollars. Our current president, President Obama, believes in spending to boost the economy and create jobs.[33] Today’s citizens of the United States who have become conditioned to large government debt and increased stimulus, spending continue to demand a higher and higher standard of living. It is as if they are ignorantly sailing along on the Titanic, a sort of Utopian world, enjoying the biggest and best there is to offer, not realizing, the iceberg lies ahead.[34]
Keynes was the man who encouraged our nation to spend its way out of a crisis. Has his solution really helped the economy? Most would agree it has not. Then, why do we keep spending our children’s future? Newt Gingrich, an author, political consultant and former speaker of the House, summed it up well. “Why eat broccoli when you can go straight to dessert.” Gingrich believesthe government should remain as small as possible, but large enough to fulfill the requirements defined by the Constitution. He opposes borrowing money and stimulus spending legislation. Mr. Gingrich believes his philosophy will result in lower taxes along with long term security and economic stability.
David Breese, (1926-2002) an American evangelical Christian pastor, speaker theologian and writer, of “7 Men Who Rule The World From the Grave.” believes Keynes’ philosophy agrees with the fleshly desires of man.”[35] As Christians and sons of the living God, it is our responsibility to seek the wisdom of God . I Corinthians 3:19 says, “For the wisdom of this world is foolishness with God. For it is written, ‘he catches the wise in their craftiness.’”[36] The chapter in Corinthians is speaks to Christians who are weak in their faith. Paul articulates how a foundation built on the knowledge of finite man is absurd and will result in a ruinous outcome. In fact, he continues to say “a dishonest, worldly-wise man will be exposed by God in his lie.”[37] Therefore, Paul warns us to put all we have in God, because His kingdom is the only thing that will last and have worth in the end.
Considering that worldly wisdom makes the government God by trying to satisfy everyone's’ desires. Isaiah 57:11 describes our problem well:
“The dogs have a mighty appetite; they never have enough. The shepherds also have
no understanding; they have all turned to their own way, each to his own gain, one
and all.”[38]
These dogs refer to an unclean and greedy people. The shepherds refer to the irresponsible leaders. Jeremiah 23:1[39] warns the greedy shepherds to watch out, for they scatter God’s sheep. The chapter continues with a quote, similar to John Maynard Keynes’ “In the long run we’re all dead.”[40], “‘Come,’ they say, ‘let me get wine; let us fill ourselves with strong drink; and tomorrow will be like this day, great beyond measure.”[41]
Today our shepherds are thinking only of themselves and their fleshly desires. Leaders today show the same character qualities Isaiah warned against over 2,000 years ago. They are humans who only think of pleasing themselves. They do not think about future generations and how the children of the tomorrow will suffer as a result of their poor decisions. They fail to understand that their lives on earth will amount to nothing if they fail to follow the true leader, Jesus Christ. .
Keynes was raised to believe education was the key to success, unfortunately his education was built without the Cornerstone. His Utopian Philosophy has been interpreted by many to believe man can create an ideal world. In the view of this, an unspoken concept behind Keynes’ proposals was the idea that the government can do it all. All of his assumptions produce immediate, satisfying, short-term solutions. In fact, someone is reported to have asked Keynes, “yes, this appears to work in the short term, but what about the long-term consequences? Keynes’ famous answer was, “In the long-term, we are all dead.” [42] This abrupt answer is disturbing, and it shows no concern for future generations.
Keynes is half right. In the long run, we are all dead when we serve the wrong God!
I would like to extend much thank to people who have helped me with this Senior Thesis paper, especially my mom who spent countless hours helping me research and edit this paper. I would also like to thank Judy Britton for her corrections and help when the paper was in speech form. Also a big thank you to the many judges who endured ten whole minutes of Keynes. One more thank you goes to my friends who endured my complaints and gave me advice through the whole process, Anna and Thomas Lockwood and Caroline Dunmire Thank you!
[1] Heilbroner, Robert L. The Worldly Philosophers: The Lives, Times, and Ideas of the Great Economic Thinkers. New York: Simon and Schuster, 1953. 258-59. Print.
[2] "Victorian England." Victorian England. University of Wisconsin Oshkosh. Web <http://www.english.uwosh.edu/roth/VictorianEngland.htm>.
[4] Liberty Fund. "Alfred Marshall." : The Concise Encyclopedia of Economics. 2008. Web. <http://www.econlib.org/library/Enc/bios/Marshall.html>.
[6] Heilbroner, Robert L. The Worldly Philosophers: The Lives, Times, and Ideas of the Great Economic Thinkers. New York: Simon and Schuster, 1953. 257. Print.
[8] Heilbroner, Robert L. The Worldly Philosophers: The Lives, Times, and Ideas of the Great Economic Thinkers. New York: Simon and Schuster, 1953. 258-59. Print.
[9] Keynes, John Maynard. A Revision of the Treaty: Being a Sequel to The Economic Consequences of the Peace. New York: Harcourt, Brace, 1922. Print.
[10] Keynes, John Maynard. The General Theory of Employment, Interest and Money. New York: Harcourt, Brace, 1936. Print.
[11] Smith, Adam, Edwin Cannan, and Max Lerner. An Inquiry into the Nature and Causes of the Wealth of Nations. New York: Modern Library, 1937. Print.
[13] Smith, Adam ibid
[14] “a doctrine opposing governmental interference in economic affairs beyond the minimum necessary for the maintenance of peace and property rights. "Laissez-faire.”" Merriam-Webster. Merriam-Webster. Web. <http://www.merriam-webster.com/dictionary/laissez-faire>.
[15] Keynes, John Maynard. The General Theory of Employment, Interest and Money.New York: Harcourt, Brace, 1936. 392.Print.
[17] “the laboring class; especially : the class of industrial workers who lack their own means of production and hence sell their labor to live” "Proletariat." Merriam-Webster. Merriam-Webster. Web. <http://www.merriam-webster.com/dictionary/proletariat>.
[18] “middle class” "Bourgeoisie." Merriam-Webster. Merriam-Webster. Web. <http://www.merriam-webster.com/dictionary/bourgeoisie>.
[21] "John Maynard Keynes, "National Self-Sufficiency," The Yale Review, Vol. 22, No. 4 (June 1933), Pp. 755-769." John Maynard Keynes, "National Self-Sufficiency," The Yale Review, Vol. 22, No. 4 (June 1933), Pp. 755-769.
[22] ibid
[24] Smith, Adam, ibid
[25] Keynes, ibid
[27] Smith, “Wealth of Nations” Ibid
[28] John Maynard Keynes, quote.
[29] Franklin D Roosevelt, quote.
[30] John Maynard Keynes Baron of Tilton
[33] Davidson, Adam, and Alex Blumberg. "Obama Gives Keynes His First Real-World Test."NPR. NPR, 29 Jan. 2009. Web. <http://www.npr.org/templates/story/story.php?storyId=100018973>.
[34] Pastor Harry D. Long, "Our Pastors." The Day the Light Came On! Luke 9:18-22 The Life of Jesus In the Gospel of Luke By: Harry Long Web. <http://www.sycamorepres.com/our_pastors.cfm>.
[35] Ibid
[36] "Bible Gateway." New King James Version (NKJV Bible). 1 Corinthians 3:19. Web. <http://www.biblegateway.com/versions/New-King-James-Version-NKJV-Bible/>.
[37] Ibid
[38] "Bible Gateway." New King James Version (NKJV Bible). Isaiah 57:11. Web. <http://www.biblegateway.com/versions/New-King-James-Version-NKJV-Bible/>.
[39] “Woe to the shepherds who are destroying and scattering the sheep of my pasture!” declares the Lord.
[42] Breese, Dave. 7 Men Who Rule the World from the Grave. Oklahoma City: Hearthstone Pub., 1980. Print.
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