John Maynard Keynes

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.

RELATED TERMS
  1. Keynesian Economics

    An economic theory of total spending in the economy and its effects ...
  2. Animal Spirits

    A term used by John Maynard Keynes used in one of his economics ...
  3. Macroeconomics

    The field of economics that studies the behavior of the aggregate ...
  4. Push On A String

    When monetary policy cannot entice consumers into spending more ...
  5. Milton Friedman

    An American economist and statistician best known for his strong ...
  6. Multiplier

    In Keynesian economic theory, a factor that quantifies the change ...
Related Articles
  1. Economics

    Economist Guide: 5 Lessons John Maynard Keynes Teaches Us

    Read about the paradoxical and confusing world of John Maynard Keynes, including the lessons modern economists can still learn from the British thinker.
  2. Personal Finance

    Microeconomics: A Brief History

    by Marc DavisAs early as the 18th century, economists were studying the decision-making processes of consumers, a principal concern of microeconomics. Swiss mathematician Nicholas Bernoulli (1695-1726) ...
  3. Economics

    Deflation and Debt: Is the United States the New Japan?

    Discover how mainstream macroeconomics has failed Japan and why the United States should take care to avoid Japan's borrow, spend and print model.
  4. Economics

    A Look At Fiscal And Monetary Policy

    There's a debate over which policy is better for the economy. Find out which side of the fence you're on.
  5. Fundamental Analysis

    How Influential Economists Changed Our History

    Find out how these five groundbreaking thinkers laid our financial foundations.
  6. Economics

    A Look At Fiscal And Monetary Policy

    Fiscal and monetary policies provide our government and the Federal Reserve with two powerful tools to regulate the economy.
  7. Economics

    What Causes Bubbles?

    A look at how asset bubbles are formed according to different schools of thought.
  8. Economics

    Macroeconomics

    Find out everything you need to know about macroeconomics.
  9. Savings

    Insights Into Robert Schiller's Recession Studies

    Find out what Professor Robert Shiller of Yale University has to say about recessions, what causes them and why human psychology matters.
  10. Investing News

    Will European Deflation Lead to More Stimulus?

    Discover why the European Central Bank is likely to announce a bolder stimulus package after consumer prices declined 0.2% in February 2016.
RELATED FAQS
  1. Where does stimulus economics come from?

    Depending on which type of economist you talk to, stimulus economics originated from the ideas of either a book published ... Read Answer >>
  2. How does disposable income influence the marginal propensity to consume (MPC)?

    Learn about the relationship between disposable income and marginal propensity to consume in the classic Keynesian consumption ... Read Answer >>
  3. Why do Keynesian economists focus on the lower boundary of interest rates?

    Understand the basis of Keynesian interventionism and how low interest rates are used as a policy tool. Examine Japan's Lost ... Read Answer >>
  4. What is the difference between Keynesian economics and monetarist economics?

    Discover how the debate in macroeconomics between Keynesian economics and monetarist economics always comes down to proving ... Read Answer >>
  5. Why is the multiplier effect associated with Keynesian economics?

    Learn what the Keynesian multiplier effect is and how it provided a justification for increased government spending in the ... Read Answer >>
  6. What is the Keynesian multiplier?

    The Keynesian multiplier was introduced by Richard Kahn in the 1930s. It showed that any government spending brought about ... Read Answer >>
Hot Definitions
  1. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  2. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  3. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  4. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  5. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center