John Maynard Keynes - School of Life

Source

• He believed that government could solve the illness of capitalism
  • He chose a middle point between communism and a free market
• What holds back countries are corruption, knee-jerk (?) policies, and shortsightedness
• His masterpiece: the general theory of employment, interest and money.
  • Written in 1936
• Classical economists give us three reasons why unemployment exists
  • Workers are temporarily unemployed when moving jobs
  • Individuals might elect not to work
  • Wages are higher than employers can afford
• In the 1930s, Keynes thought there were too many unemployed workers for the causes to be the three mentioned above
  • He thought the real problem lay in the lack of demand
• He thought the government should intervene in the economy to prevent suffering
  • The utopia of markets balancing themselves would take too long
  • "In the long run, we are all dead"
• If market mechanisms were unable to stimulate economic recovery, it was the job of the state to step in to create demand, by running a very large budget deficit in order to create jobs
  • This could be done by raising loans and using the money to finance public works
• When money is low, families tend to rein in spending
  • Keynes argued that what works for families doesn't work for the nation as a whole
• Multiplier effect
  • By creating jobs, governments would save money that would have been spent on unemployment benefits
  • The increase in the number of employed people would create additional spending power and therefore boost the economy and tax receipts
  • Increased tax receipts would pay off the initial debt
• He also believed that a global system of economic organization was possible
  • "The Bancor"
  • He proposed the establishment of the World Bank and the International Monetary Fund
• Keynes's ideas were adopted across capitalist countries, and were especially attractive to the political left
  • Initially, his ideas worked, with a high economy boost and low unemployment
• Milton Friedman and Friedrich Hayek criticized his ideas
  • Around the 1970s, inflation increased and unemployment increased again
  • But then the neoliberal ideas lost power in 2008

\