John Maynard; Keynesianism
John Maynard Keynes is widely regarded as one of the most influential thinkers of the 20th century. The economic principles established by John Maynard Keynes are commonly referred to as Keynesianism and the school of thought he championed has become synonymous with increased government intervention. Keynesianism gained in popularity during the aftermath of the Great Depression, it came to be viewed as having provided the antidote to the depth and severity of the Great Depression.
Seventy years after his death Keynesian economic concepts are still, contentiously, very much considered sound economic policy by reserve banks the world over. The advent of the financial crisis of 2007–08 represented a resurgence of interest in Keynesian principles as governments around the world almost unanimously embraced Keynesian counter cyclical measures in order to stimulate the world economy. Nine years later in 2017, the effectiveness of this approach, that had been so successful in the 1930s is still a matter of ongoing debate, and the legacy of John Keyes is once again up for debate.
Unlike Marx, with his focus on a social revolution and the toppling of capitalism to bring about socio-economic emancipation, Keynes instead looked to deal with the symptoms of capitalism and its seemingly systematic propensity for crisis. Whilst Keynes himself perceived capitalism as morally objectionable, he felt the stabilisation of the economy would enable other social issues to be more readily addressed. It was in this context that Keynesian economics challenged the ideas of the neoclassical prevailing orthodoxy. Keynes’ assault on neoclassical theory took a much more analytical approach, by utilising comprehensive economic models and diagrammatic representations. Keynes used the tools and techniques often perceived as the great strength of neoclassical analysis and reinterpreted this same approach to highlight its deficiencies. Keynes’ analysis still focused on the concepts of supply and demand, however he drew different conclusions around the concepts of wages and spending, savings, relevance of money and the need for active fiscal policy.
The prevailing orthodoxy of neoclassical economics strongly proliferated the concept that free markets would automatically provide full employment, as long as workers were flexible in their wage demands (Say’s law stipulated that supply creates it own demand). Keynes however observed that the theory didn’t seem to reflect the real world realities of the economy during the Great Depression. Keynes examined these assumptions and argued that the cutting of wages would in all likelihood increase the severity of a recession by reducing effective aggregate demand, feeding a vicious cycle of downward activity pressure and a reduction in confidence and animal spirit. Keynes’ answer to this type of recurrent problem was government intervention to provide counter cyclical economic stimulus for example by increasing spending and reducing taxes during an economic downturn or reducing taxes and decreasing spending in times of prosperity. This hypothesis was in stark contrast to the prevailing conservative orthodoxy of balancing the budget. Another feature of the Keynesian school of thought is its focus on and analysis of the role of money in the economy. Keynes believed that analysis of money markets needed to be integrated with macroeconomic analysis in order to achieve a complete picture of the economy. This distinctive feature of Keynesian economics endeavored to identify aspects of instability and inefficiencies introduced into the broader economy by a liquidity preference for speculation.
Fundamentally Keynesian economics argued against the prevailing neoclassical consensus of the time by illustrating that the summation of an economy’s microeconomic activity does not provide an adequate analytical foundation to draw macroeconomic conclusions. This he asserted required a more comprehensive understanding of real world variables, human psychology and rigorous analysis in order to satisfy the ethical imperative. It is this ethical imperative that sees Keynes in contrast to both neoclassical and Marxist ideology advocate that government should play a significant role in stabilising, and therefore contributing to the making of a good and just society.
