In 1919, British economist John Maynard Keynes took a stand that was both brave and wise. A member of the British delegation in Versailles, he abhorred the concessions imposed on Germany by the Allies and the scale of the compensation - the burdens of which would fall on innocent German civilians - they demanded. He thus resigned from the delegation and his advisory role in the Treasury Department, which he had represented in the negotiations.
He finished writing ‘The Economic Consequences of the Peace’ shortly afterward. In it, he explains that the war had destroyed the foundations of the European economy, while the Treaty of Versailles did nothing to ameliorate things. And so, he argued that Germany should not succumb to the sanctions that had been imposed on it, berating the great powers for standing behind an immoral agreement and foreseeing the bitter outcome of this cruelty against Germany. When the thirties began to draw nearer, it became clear just how right he had been. Indeed, as we know, the rise of the Nazis fed on the humiliation and economic hardship that Versailles generated.
When the thirties actually arrived, Keynesianism ripened into a doctrine for analyzing the economy and approaching questions of ethics, with curbing extremism becoming among its primary concerns. This happened through the publication of his most important book, ‘The General Theory of Employment, Interest and Money’ (1936), which laid the foundations of the Western economic system that would be established after the Second World War, the year Keyens died in 1946 and the years that followed.
The “Keynesian Revolution,” as it was called, made him one of the most prominent economists in history. In his book, he argued that the government has a responsibility to ensure full employment or something approaching it by stimulating demand in response to economic downturns, i.e., through public spending on infrastructure and services (building roads, bridges, hospitals, etc. ...).
The book rethinks the question of unemployment with the aim of generating new solutions for the crises of the thirties and for capitalism more broadly.
Classical economics has presented three reasons for unemployment: employees and laborers changing jobs, individuals dependent on state benefits choosing not to work, and wages being raised too high for employers to afford them. In the classical model, the free market corrects this third factor automatically, with labor supply and demand creating an equilibrium that allows for full employment. Keynes, however, disputed these theories: in the thirties, millions were out of work, undermining the explanation consisting of these three factors.
As for the reasons, Keynes argued that soring unemployment was caused neither by transitions from one job to another, nor a refusal to work, laziness, or the intervention of labor unions, especially since the economy had not been generating any employment opportunities to speak of and rising unemployment during the Great Depression had undercut the influence of unions. As for betting on an automatic equilibrium between supply and demand, he argued that this process would take so long that no one who is alive at the time would benefit from it.
Unemployment, then, is a problem explained by a shortage or absence of demand, and intervention is thus needed to break the cycle of stagnation and restore prosperity. And if governments tended to focus on supply during periods of decline, based on their assumption that it is supply that stimulates growth and creates jobs, then Keynes found that supply becomes useless when demand is extremely low.
States must therefore prioritize demand, which they can create through their projects by borrowing to finance public initiatives and infrastructure investments. In his critique, he did not lose sight of the similarity between the traditional approach government took and the narrow parochial mentality of the household, which tends to opt for frugality once incomes evaporate, distinguishing between administering states and managing homes.
In response to the question of who ought to pay for these loans, his answer is that the jobs these massive projects generate save governments the money they would have otherwise spent on unemployment benefits and that the increase in the number of people in work broadens spending and leads to a spike in tax revenues. Meanwhile, since business improves during this period, the revenue needed to pay the debt will be available.
Unlike Adam Smith, Keynes did not believe capitalism is necessarily benign; however, he argued that it is nonetheless as necessary as the need to impose checks on it. With his repudiation of both communism and giving the market a free hand, he was optimistic about the prospect of governments overcoming the diseases of capitalism through public spending and regulation. His money, then, was on the next era being one of unprecedented wealth.
Nowhere was this optimism of his more evident than in his famous 1930 article, ‘The Economic Possibilities for Our Grandchildren.’
Indeed, at the height of the global economic crisis, Keynes takes an almost salvationist tone, explaining that most crises can be overcome and that we could well enter an era in which the greatest challenge for human beings becomes: what are we going to do with all this spare time we now have on a mass scale?
During World War II, Keynes led the British delegation to the Bretton Woods, where the Allies discussed their postwar economies. Once again, he was optimistic about the prospects of a global system for regulating the economy, calling on countries to establish a global central bank and a currency he called ‘Bancor’ to benefit the global economy. Although these proposals were not adopted, other proposals he had put forward for encouraging global trade did contribute to the establishment of the World Bank and the International Monetary Fund.
Keynesianism and the ideas behind the “welfare state” did, in fact, prevail in most Western economies between the end of World War II and the mid-seventies, when they were brought down by a fourfold increase in oil prices, allowing neoliberalism to make its Reaganite and Thatcherite rise. However, since the crisis of 2008, and especially today, Keynesianism, coupled with questions about the difficulties of returning to it, is being reconsidered.
In any case, contrary to popular belief, ‘Lord Keynes’ was not a Labor Party member; rather, he was known for supporting the Liberal Party. And although he later flirted with some Labor movements, he looked down on labor unions, as he despised all forms of mass mobilizations and saw them as herds.
He was born into a wealthy family and studied in elite schools and universities like Eton and Cambridge, remaining part of the British “establishment” throughout his life. A man of literary and artistic interests, he developed friendships with some of the brightest creatives of his time, including Virginia Woolf, and he was part of the liberal Bloomsbury Group that brought together writers, artists, and intellectuals who led the attack, in the first two decades of the previous century, on Victorian views regarding sex and society.
However, with the eclecticism of his ideas and the limitations of his times and knowledge, Keynes advocated the myth of “eugenics” - another testament to the unevenness of human beings. Are we not all, in our consciousness, uneven?