The Legacies of John Maynard Keynes by Tadit Anderson
John Maynard Keynes (June 1883 – 21 April 1946) was a British economist whose ideas should have affected the theory and practice of modern macroeconomics and fiscal policies much more than they did. He identified the causes of business cycles, and advocated the use of fiscal and monetary measures to manage and reduce the adverse effects of economic recessions and depressions. His ideas are the basis for the school of thought known as Keynesian economics.
Keynes actually has two different main economic legacies. One is legitimate and is often described as "anti-establishment," which it wasn't. And the other legacy is sometimes described as "neo-Keyesianism," which is kindred in intent to putting lip-stick on a pig. It was also described as "bastard Keynesianism" in 1962 by Joan Robinson a former colleague of Keynes. This falsified legacy was neo-classical economics and favorable to the banking and corporate establishment. Keynes regarded the economy as a commons rather than the domain of private interests. Keynes also made important changes in his theoretical approach along the way.
His body of work is also within the approach described as "institutional economics." Other participants in this economic conversation include Adam Smith, Karl Marx, Joesph Schumpeter, Thorstein Veblen, and more recent participants such as Hyman Minsky.
In the 1930s, Keynes led a revolution in economic thinking, overturning the older ideas of neoclassical economics that held that free markets would automatically provide full employment as long as workers were flexible in their wage demands. Keynes instead argued that aggregate demand determined the overall level of economic activity, and that inadequate aggregate demand would lead to prolonged periods of high unemployment.
Bastard Keynesianism was based upon debt based deficit spending beginning in the 1950s and 1960s. One part of this application was used for the funding social infra-structure and services. The larger use was to fund the enlargement of the military budget during the "cold war," which has extended into the present. Anti-deficit politics was used to dismantle social infrastructure beginning in the early 90s though the analysis failed to include that the related fiscal problems were based on a debt based currency system and an economic model based upon gold era based assumptions.
Franklin D. Roosevelt was also given credit for using Keynes's proposals, but in fact Roosevelt's program was only a moderate response to that economic depression. He only pressed for part of the reforms proposed as necessary by US progressive economists of that period. There was a group of economists led by Irving Fisher who produced what is known as the "Chicago Plan" who were friendly to Keynes's analysis, and who were also largely ignored.
Bastard Keynesianism became a straw man used to discredit Keynes work. Critiques from free market economists such as Milton Friedman and others expressed pessimism about the ability of governments to regulate the business cycles with fiscal policy, again this chooses to ignore the effects of having the monetary process privatized. These economists should have no credibility whatsoever since they provided the credibility for the deregulation of financial markets and for the free trade doxology. These articles of faith have been disastrous in creating the current world wide economic collapse. Yet the deficit terrorism continues.
Paul Samuelson and others attempted to convert Keynes's ideas into a mathematical model, which was a different attempt to gain credibility for the neo-classical variety of economics. Keynes himself had included few formula and no explicit mathematical models in his The General Theory.... Hyman Minsky believed that Keynes's limited use of mathematics was partly the result of his skepticism about whether phenomena as uncertain as economic activity could ever be captured by mathematical models. As Minsky has demonstrated, Keynes rejection of mathematical modeling did not include rejecting the use of of sociometrics and statistics.
His first major work, The Economic Consequences of the Peace, was a very critical analysis of the Versailles Treaty which defined the terms of end of World War I. He predicted that the heavily punitive nature of the treaty including the reparations would bring about World War II. The Economic Consequences of the Peace gained Keynes international fame, but also caused him to be marginalized as "anti-establishment."
He attacked the post World War I deflation policies with A Tract on Monetary Reform in 1923 which included his argument that countries should target stability of domestic prices, avoiding deflation even at the cost of allowing their currency to depreciate. The 1920s saw high unemployment in Britain even before the outbreak of the Great Depression. Keynes advocated the depreciating the currency as a way to boost jobs by making British exports more affordable. This was also against the interests of the banking corporations. From 1924 Keynes recommended a countercyclical fiscal response to unemployment by having government expand its expenditures on public works and infrastructure. This proposal had only limited effect on policy makers and mainstream academic opinion.
The Tract also called for an end to the gold standard and the application of a fiat basis for money. Keynes advised it was no longer a net benefit for countries such as Britain to participate in the gold standard. His reason was that it ran counter to the need for domestic policy autonomy. It could force countries to pursue deflationary policies at exactly the time when expansionary measures were called for to address rising unemployment. The British Exchequer and the privately held Bank of England remained in favor of the gold standard. In 1925 they were able to convince the then Chancellor Winston Churchill to re-establish the gold standard, which had a major depressing effect on British industry.
During the Great Depression
Keynes began theoretical work to examine the relationship between unemployment, money and prices back in the 1920s. At the height of the Great Depression, in 1933, Keynes published The Means to Prosperity, which contained specific policy recommendations regarding unemployment in a global recession, chiefly counter cyclical public spending. The Means to Prosperity contains one of the first mentions of the multiplier effect.
The General Theory of Employment, Interest, and Money (1936) argues that demand, not supply, is the key variable governing the overall level of economic activity. Aggregate demand, which equals total un-hoarded income in a society, is defined by the sum of consumption and investment. In a state of unemployment and unused production capacity, one can only enhance employment and total income by first increasing expenditures for infrastructure, consumption, and investment. This includes an assumption that an appropriate supply of currency be available. The General Theory is often viewed as the foundation of modern macroeconomics.
Keynes was the leader of the British delegation and chairman of the World Bank commission during the 1944 negotiations that established the Bretton Woods system. The Keynes plan included an international clearing-union argued for a system for the management of currencies. He proposed the creation of a common world unit of currency, the Bancor. and of a new a world central bank and the International Clearing Union. Keynes imagined these institutions as managing an international trade and payments system with strong incentives for countries to avoid substantial trade deficits or surpluses. The US's greater negotiating strength, however, meant that the final outcomes fit more closely to the more banking friendly proposals of Harry Dexter White. According to US economist Brad Delong, on almost every point where he was overruled by the Americans, Keynes was later proved correct by events.
Keynes also opposed the final agreement of the Bretton Woods conference in 1946, which was decided in favor of the US sponsored plan presented by Harry Dexter White. White was then a former banker and the current U.S. Secretary of the Treasury. It is the Bretton Woods agreement which established the US dollar as the international reserve currency which is a cause of the current global economic collapse. The position of the Dollar has been abused from early on. The Dollar was taken off the gold standard on 1971 by US Pres. Nixon, due to its diminishing gold reserves. In 1973 through an agreement with OPEC the Dollar became effectively based upon the oil standard.
The Bretton Woods organizations, the International Monetary Fund and the World Bank have been the enabling organizations to inflict damage upon the economies of the developing world as a direct result of its "free market and free trade" assumptions . The IMF and the World Bank were created to serve the interests financial capitalism not to serve the interests of developing countries. Their economic model remained in its fundamentals neo-classical and firmly bonded to the assumption of debt based sovereign deficits. This is exactly contrary to any authentic interpretation of Keynes's advancement of economics as a body of practice.
Keynes had written against the folly of allowing "decadent and selfish" speculators and financiers the kind of influence they had enjoyed after World War I. For two decades after World War II public opinion was strongly against private speculators.
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