Keynes << kaynz >>, John Maynard (1883-1946), was an influential British economist. His General Theory of Employment, Interest, and Money (1936) ranks among the most important books on economics. It changed economic theory and policy and laid the foundations for modern theories of macroeconomics. Macroeconomics deals with the economy as a whole, including total production, overall employment, and general price levels.
Keynes maintained that governments should use fiscal policy (tax and spending programs) to stabilize the economy. He said the overall level of economic activity depends on effective demand—that is, total spending by individuals, businesses, and government.
According to Keynes, major depressions, such as the Great Depression of the 1930’s, occur as a result of a drop in effective demand. He argued that in periods of depression the government should increase its spending, cut taxes, or do both to stimulate the economy. These steps would result in a government budget deficit (shortage). But Keynes said the actions could lead to higher levels of investment and nongovernment spending and to full employment. Keynes’s recommendation that government intervene in the economy was contrary to laissez faire, the economic theory that says government should not interfere in the private market.
By the 1960’s, many governments had adopted Keynes’s ideas. But numerous economists, especially those of the monetarist school, have challenged these ideas. Monetarists question whether Keynesian policies can actually achieve full employment or stabilize the economy. In particular, they blame such policies for the stagflation (high inflation plus high unemployment) that the United States and other countries experienced in the 1970’s.
Keynes was born on June 5, 1883, in Cambridge, England, and studied at Cambridge University. He served in the British Treasury from 1915 to 1919. He won international fame after he wrote The Economic Consequences of the Peace (1919). The book attacks the reparations (payments) that the Allies demanded from the defeated Central Powers after World War I ended in 1918. Keynes then wrote a series of books and essays. He became a government adviser in 1940 and a director of the Bank of England in 1941. He was knighted in 1942. He died on April 21, 1946.
