Who was John Maynard Keynes?
John Maynard Keynes was a British economist in the early 20th century, known as the father of Keynesian economics. His theories of Keynesian economics have addressed, among other things, the causes of long-term unemployment. In a document entitled “The General Theory of Jobs, Interest and Money”, Keynes became a strong advocate for full employment and government intervention as a way to end the economic recession. Her career has encompassed academic roles and government services.
Among other features of his economic theories, Keynes believed that governments should increase spending and cut taxes in order to stimulate demand in the face of the recession.
Key points to remember
- British economist John Maynard Keynes is the founder of the Keynesian economy.
- Among other beliefs, Keynes believed that governments should increase spending and lower taxes when faced with a recession, in order to create jobs and boost consumers’ purchasing power.
- Another basic principle of the Keynesian economy is that economies that invest more than their savings will experience inflation.
Understanding John Maynard Keynes
John Maynard Keynes was born in 1883 and grew up to be an economist, journalist and financier, thanks in large part to his father, John Neville Keynes, professor of economics at the University of Cambridge. Her mother, one of the first women graduates from the University of Cambridge, was active in charities for less privileged people.
Keynes’ father was a supporter of the laissez-faire economy, and during his stay in Cambridge, Keynes himself was a conventional believer in the principles of the free market. However, Keynes became relatively more radical later in life and began to advocate for government intervention as a means of reducing unemployment and the ensuing recessions. He argued that a government employment program, an increase in public spending and an increase in the budget deficit would lower high unemployment rates.
Principles of Keynesian economics
The most basic principle of the Keynesian economy is that if the investment of an economy exceeds its savings, it will cause inflation. Conversely, if an economy’s savings are greater than its investment, it will cause a recession. This was the basis of Keynes’ belief that increased spending would, in fact, reduce unemployment and help the economic recovery. Keynesian economics also advocates that it is in fact demand that stimulates production, not supply. In Keynes’s day, the opposite was believed to be true.
From this perspective, the Keynesian economy argues that savings are stimulated when there is a healthy amount of production driven by sufficient amounts of economic spending. Keynes believed that unemployment was due to the lack of spending in an economy, which had lowered aggregate demand. Continued decreases in spending during a recession lead to further declines in demand, which in turn drives higher unemployment rates, which translates into even less spending as the number of unemployed increases.
Keynes argued that the best way to get an economy out of a recession is for the government to borrow money and increase demand by injecting spending capital into the economy. This means that the Keynesian economy contrasts sharply with laissez-faire to the extent that it believes in government intervention.