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John Maynard Keynes
John Maynard Keynes (1883-1946) is regarded as the father of modern Macroeconomics. Keynes was the son of an eminent English economists, Jon Neville Keynes, ho was a lecturer in economics and logic at Cambridge University. John Maynard Keynes was born in Cambridge, England and educated at Eton College and Cambridge University. There Keynes was educated on mathematics and probability theory, but he chose the field of economics to pursue. He chose economics when he accepted a lectureship in economics at the University of Cambridge. Keynes began his career at the India office of the British government. During this time in his career he wrote a book called “Indian Currency and Finance” in 1913. During World War I he worked in the treasury in which he represented at the Paris Peace Conference 1919. Keynes decided to resign his position in office because he disagreed with economic terms of the Treaty of Versailles. After resigning Keynes wrote another book called “The Economic Consequences of the Peace” in 1919. In this book he predicted that the staggering reparations levied against Germany would goad that country into economic nationalism and resurgence of militarism. Keynes being a well-educated man, made some great investments in a decades time. Within that decade he made his two million fortune by speculating in international currencies, stocks and commodities. In addition to his newly made fortune Keynes served as a trustee of King’s College and built it’s endowment from 30,000 to 380,000 pounds. Keynes went on to write other books like “Treaties on Probability” in 1921 and “The Treaties on Money” in 1930. (Lekachman/Miller).
Being that the depression was at hand during the time, people reviewed Keynes theories, which they discovered did not really explain the prolonging of the recession. Keynes began to study this problem thoroughly which appeared in his major work, “The General Theory of Employment, Investment, and Money” published in 1936. This piece of work that he did placed a convincing attack on the classical theory that capitalism would self-correct from a recession. Also, he proved the theoretical defense for programs that were already being tried in Great Britain and by President Franklin D. Roosevelt in the United States. Keynes based his model on the belief that increasing aggregate demand will achieve full employment, while prices and wages remain inflexible. Moreover, his bold policy prescription was that the government raises its spending and/or reduces its taxes in order to increase the economy’s aggregate demand curve and put the unemployed back to work.
As Great Britain entered World War II, Keynes went and published another book called, “How to Pay for the War”. In this book he talked about how people should automatically take out a portion of their income and invest it into government bonds. Because of this idea he was made a baron. A little later he then headed the British delegation to the United Nations Monetary and Financial Conference, the Bretton Woods Conference. There he promoted establishment of the International Bank for Reconstruction and Development and the International Monetary Fund.
Keynes ideas have profoundly influenced the economy since World War II and many consider his “General Theory of Employment, Interest and Money” one of the most significant theoretical works of the 20th century. (Lekachman).
Reversing back in time a little when Keynes had wrote his famous book on “The General Theory of Employment, Interest and Money”; he challenged the confused classical economics. The classical theory was used by the likes Smith, Say, Marshall, Marx and Mill during the business cycle that took an abrupt downturn on October 29, 1929, the most severe recession in United States had begun. Keynes would argue that theory by turning Say’s law upside down. Keynes believed that demand creates its own supply. Keynes made it a point to say that aggregate expenditures (demand) could be forever inadequate for an economy to achieve full employment. Aggregate expenditures are the sum of consumption (C), Investment (I), government (G), and net exports (X-M). C, I, G, (X-M) are national accounting categories used to calculate GDP following the expenditures approach. According to Keynes he believed that the most important factor is the disposable of income which is the personal income to spend after taxes. Keynes focuses on the on the relationship between consumption and disposable income, which is
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Keynesian economics, Marginal propensity to consume, The General Theory of Employment, Interest and Money, Aggregate demand, Consumption function, John Maynard Keynes, Aggregate expenditure, Marginal propensity to save, Macroeconomics, Economics, Multiplier, Saving
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