Who was 'John Maynard Keynes'
John Maynard Keynes was a 19th-century British philosopher and economist who spent his working years with the East India Company and is known as the father of Keynesian economics. He is specifically known for his theories of Keynesian economics that addressed, among other things, the causes of long-term unemployment. In a paper titled "The General Theory of Employment, Interest and Money," Keynes became an outspoken proponent of full employment and government intervention as a way to stop economic recession.
BREAKING DOWN '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, James Mill, a practicing economist. Mill published one of his most influential works, "On Liberty", in 1859 and also wrote a widely used textbook, "Principles of Political Economy", which was based on David Ricardo and Adam Smith's ideas.
Keynes' father was an advocate of laissez-faire economics, and during his time at Cambridge, Keynes himself was a conventional believer in the principles of the free market. However, Keynes became comparatively more radical later in life and began advocating for government intervention as a way to curb unemployment and resulting recessions. He argued that a government jobs program, increased government spending, and an increase in the budget deficit would decrease high unemployment rates.
Principles of Keynesian Economics
The most basic principle of Keynesian economics is that if an economy's investment exceeds its savings, it will cause inflation. Conversely, if an economy's saving is higher than its investment, it will cause a recession. This was the basis of Keynes belief that an increase in spending would, in fact, decrease unemployment and help economic recovery. Keynesian economics also advocates that it's actually demand that drives production and not supply. In Keynes time, the opposite was believed to be true.
With this in mind, Keynesian economics argues that economies are boosted when there is a healthy amount of output driven by sufficient amounts of economic expenditures. Keynes believed that unemployment was caused by a lack of expenditures within an economy, which decreased aggregate demand. Continuous decreases in spending during a recession result in further decreases in demand, which in turn incites higher unemployment rates, which results in even less spending as the amount of unemployed people increases.
Keynes advocated that the best way to pull an economy out of a recession is for the government to borrow money and increase demand by infusing the economy with capital to spend. This means that Keynesian economics is a sharp contrast to laissez-faire in that it believes in government intervention.