Along with Friederich Hayek, Keynes is widely regarded as one of the most important economic theorists of the 20th century.
Alan Wolfe wrote,”if Adam Smith is the quintessential classical liberal, the twentieth-century British economist John Maynard Keynes, whose ideas paved the way for massive public works projects and countercyclical economic policies meant to soften the ups and downs of the business cycle, best represents the modern version.”
Before his economic theories became well-known, Keynes presciently wrote a book in 1919 that anticipated the dangers of huge reparations imposed on Germany.
He was so influential that, according to many, most subsequent developments in 20th century economic thought were either devoted to building Keynes argument or tearing it down.
Time magazine included Keynes in their list of the 100 most important and influential people of the 20th century, commenting that: “His radical idea that governments should spend money they don’t have may have saved capitalism.”
Keynes philosophies were ultimately adopted by almost every Western democracy.
His theories fell out of favor in countries like the United States and Britain in the late 1970s and 1980s, but experienced a resurgence of support following the 2007-2012 global financial crisis.
Economic Philosophy
Keynes rejected the idea that free markets would ensure employment and economic growth. He advocated the use of government policy to mitigate and prevent economic depressions and recessions.
He believed that governments needed to regulate the economy to prevent the boom and bust cycles that characterized capitalism from the 1830s-the time of the Great Depression.
His core philosophy was that government should spend and decrease taxes when private spending was insufficient and threatened a recession; it should reduce spending and increase taxes when private spending was too great and threatened inflation.
Governments could achieve these spending aims through stimulus programs, unemployment assistance, and public works programs.
He argued that governments should enhance Aggregate Demand-the total demand for goods and services in an economy:
Consumption demanded by the household
Investment demand from business
Government expenditure
Net income from other countries
In the most basic sense, Keynes argued that governments should spend during economic downturns, filling the shoes of business by investing in public works and hiring the unemployed.
The theory was that this government investment would stimulate economic growth.
It might also necessitate deficit spending, but only in the short-term.
Once the economic conditions improved, Keynes argued that governments should stop spending programs.
John Maynard Keynes, whose ideas paved the way for massive public works projects and countercyclical economic policies meant to soften the ups and downs of the business cycle, best represents the modern version.”
