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John Maynard Keynes
John Maynard Keynes was born on 5th June 1883 at 6 Harvey Road, Cambridge. His father, John Neville Keynes was an economist who taught at Cambridge University. His mother, Florence Keynes had been educated at Newnham Collegeand was the city's first woman mayor.
His biographer, Alexander Cairncross, has pointed out: "The family kept three servants - a cook, a parlour maid, and a nursery maid - and there was a German governess. In his first few years Maynard was a sickly child, suffering to begin with from frequent attacks of diarrhoea and thereafter from feverishness... In the summer of 1889 he had an attack of rheumatic fever and a few months later he had to give up attending his kindergarten for a time, suffering from what was diagnosed as St Vitus's dance."
In 1897 Keynes was entered for the Eton College scholarship examination and attained the tenth out of fifteen places and was first equal in mathematics. In his final year he won an Eton scholarship to King's College, in mathematics and classics. One of his tutors was Alfred Marshall. Keynes was invited to join the Apostles, a small, secret society of dons and undergraduates who met to discuss ethical and political issues. The group included Lytton Strachey, Leonard Woolf, E. M. Forster and Bertrand Russell. His friendship with Woolf and Russell brought him into contact with leaders of the Fabian Society, including Sidney Webb, Beatrice Webb and George Bernard Shaw.
When Keynes graduated in 1905 he took up a career in the Civil Service. He gained a Fellowship at King's College in 1909 and as well as teaching Keynes' began writing on economic issues. He became editor of the Economic Journal in 1911 and his first book Indian Currency and Finance was published in 1913. This was based on lectures he had delivered at the London School of Economics two years previously.
Keynes was a pacifist but wanted to contribute to Britain's war effort. He eventually decided to join the Treasury Department of the Civil Service that was dealing with the financial side of the First World War. According to Kingsley Martin, his fellow conscientious objector, Bertrand Russell, claimed that Keynes' work at the Treasury "consisted of finding ways of killing the maximum number of Germans at the minimum expense".
By 1919 Keynes was the senior Treasury official sent as part of the British delegation to the Versailles Peace Conference. John Maynard Keynes totally disagreed with the harsh terms negotiated at Versailles and after resigning returned to England and wrote The Economic Consequences of the Peace (1919). The book was very controversial and although many disagreed with his conclusions, it brought him a great deal of attention. In the book Keynes argued that the war reparations imposed on Germany could not be paid. This he warned, would led to further conflict in Europe.
Although Keynes continued to teach at Cambridge University he also contributed a great number of articles to various newspapers and magazines. In 1923 he became chairman of the Liberal journal, The Nation and used it as a vehicle to attack the economic policies of Stanley Baldwin and his Conservative Government. As Chancellor of the Exchequer, Winston Churchill came under attack for his decision to return Britain to the gold standard.
Keynes always had a strong interest in ballet. When he initially saw Lydia Lopokova he was unimpressed: "she's a rotten dancer - she has such a stiff bottom". When he saw her again towards the end of 1921 in other Sergei Diaghilev ballets, including The Sleeping Princess, he fell deeply in love with her and they began a romantic relationship.
A member of the Bloomsbury Group, Keynes introduced Lopokova to his friends. This included Virgina Woolf, Leonard Woolf, Lytton Strachey, Vanessa Bell, Clive Bell, and Duncan Grant. They did not always make her feel welcome. According to Margot Fonteyn: "When Keynes began to think of marriage, some of his friends were filled with foreboding. They tended to find Lopokova bird-brained. In reality she was intelligent, wise, and witty, but not intellectual... She artfully used, and intentionally misused, English to unexpectedly comic and often outrageous effect. Keynes was constantly amused and enchanted."
Lydia Lopokova and John Maynard Keynes
Quentin Bell claimed that Virginia Woolf liked Lydia Lopokova. "Lydia as a friend, Lydia as a visiting bird hopping gaily from twig to twig was, Virginia thought, very delightful. She was pretty, high-spirited, a comic, a charmer and extremely well-disposed. In that gay, peripatetic capacity she was altogether irreproachable. But how, without two solid ideas to rub together, could she fail to destroy the intellectual comforts of Maynard Keynes's friends, and indeed of Maynard himself?" Lytton Strachey described her as a "half-witted canary".
Vanessa Bell, like everyone else, was enchanted by Lydia, until Keynes announced he intended to marry her. Vanessa wrote to Keynes: "Clive (Bell) says he thinks it is impossible for any one of us... to introduce a new wife or husband into the existing circle... We feel that no one can come into the sort of intimate society we have without altering it." Michael Holroyd, the author of Lytton Strachey (1994) pointed out that Duncan Grant, his former lover, had good reason to object to the proposed marriage: "Perhaps Duncan Grant had some excuse for resenting the emergence of a second great love into Maynard's life. But it was the others who were really malicious. As Maynard's mistress, Lydia had added something childlike and bizarre to Bloomsbury - she was a more welcome visitor than Clive's over-chic mistress Mary Hutchinson. But don't marry her.... If he did so Lydia would give up her dancing, Vanessa warned, become expensive, and soon bore him dreadfully. But what Vanessa and the other Charlestonians chiefly minded was Lydia's effect as Maynard's wife on Bloomsbury itself. Living a quarter-of-a-mile from Charleston at Tilton House on the edge of the South Downs, she would sweep in and stop Vanessa painting - and these interruptions were always so scatterbrained!"
Keynes married Lydia Lopokova on 4th August 1925 (the year of her divorce from Randolfo Barocchi) at St Pancras Registry Office. The wedding received a considerable amount of publicity. For example, Vogue Magazine included a full-page picture with the caption: "The marriage of the most brilliant of English economists with the most popular of Russian dancers makes a delightful symbol of the mutual dependence upon each other of art and science."
They visited the Soviet Union on their honeymoon. His biographer, Alexander Cairncross, has argued: "The marriage proved a great success and was a turning point in Keynes's life. Lopokova had gifts to which Bloomsbury was blind and she had a firm hold on his affections. When apart they wrote every day and she took charge of him in his illnesses and in wartime, when his energies had to be carefully husbanded. The couple had no children." The couple lived at 46 Gordon Square and Tilton House near Firle in East Sussex.
Keynes became increasingly interested in what he called "the management of the economy". According to his biographer, Alec Cairncross: "Two forms of economic instability preoccupied him. Of these the first was instability of prices, inflation, deflation, and all that went with them; the second was unemployment and the fluctuations in economic activity giving rise to it. The two were, of course, interconnected since the movement of prices reacted on the level of activity: but the analytical approach to the problem of inflation, for example, was very different from the analysis necessary for an explanation of unemployment."
Virginia Woolf visited the couple at Tilton House on 3rd September 1927 with J. T. Sheppard: "We picked the bones of Maynard's grouse of which there were three to eleven people. This stinginess is a constant source of delight to Nessa - her eyes gleamed as the bones went round. We had a brilliant entertainment afterwards... Maynard was crapulous and obscene beyond words, lifting his left leg and singing a song about women. Lydia was Queen Victoria dancing to a bust of Albert."
Keynes visited the Soviet Union several times. He was interested in the economic measures being taken by the communist regime and when he returned to England he wrote The End of Laissez-Faire. After the onset on the Great Depression in 1929, Keynes began to address the problems of unemployment. In a series of articles, The Means to Prosperity , written in The Times, Keynes argued that the government should "spend its way out of the depression".
During this period he was a member of the Liberal Party and worked closely with its leader, David Lloyd George. In 1929 Lloyd George published a pamphlet, We Can Conquer Unemployment, where he proposed a government scheme where 350,000 men were to be employed on road-building, 60,000 on housing, 60,000 on telephone development and 62,000 on electrical development. The cost would be £250 million, and the money would be raised by loan. Keynes also published a pamphlet supporting Lloyd George's scheme.
These views impressed Richard Tawney who wrote a letter to Ramsay MacDonald, the leader of the Labour Party, about the forthcoming election: "If the Labour Election Programme is to be of any use it must have something concrete and definite about unemployment... What is required is a definite statement that (a) Labour Government will initiate productive work on a larger scale, and will raise a loan for the purpose. (b) That it will maintain from national funds all men not absorbed in such work." MacDonald refused to be persuaded by Tawney's ideas and rejected the idea that unemployment could be cured by public works.
In the 1929 General Election the Conservatives won 8,664,000 votes, the Labour Party 8,360,000 and the Liberals 5,300,000. However, the bias of the system worked in Labour's favour, and in the House of Commons the party won 287 seats, the Conservatives 261 and the Liberals 59. MacDonald became Prime Minister again, but as before, he still had to rely on the support of the Liberals to hold onto power.
The election of the Labour Government coincided with an economic depression and Ramsay MacDonald was faced with the problem of growing unemployment. In January 1929, 1,433,000 people were out of work, a year later it reached 1,533,000. By March 1930, the figure was 1,731,000. In June it reached 1,946,000 and by the end of the year it reached a staggering 2,725,000. That month MacDonald invited a group of economists, including John Maynard Keynes, J. A. Hobson, George Douglas Cole and Walter Layton, to discuss this problem.
In March 1931 Ramsay MacDonald asked Sir George May, to form a committee to look into Britain's economic problems. The committee included two members that had been nominated from the three main political parties. At the same time, John Maynard Keynes, the chairman of the Economic Advisory Council, published his report on the causes and remedies for the depression. This included an increase in public spending and by curtailing British investment overseas.
Philip Snowden rejected these ideas and this was followed by the resignation of Charles Trevelyan, the Minister of Education. "For some time I have realised that I am very much out of sympathy with the general method of Government policy. In the present disastrous condition of trade it seems to me that the crisis requires big Socialist measures. We ought to be demonstrating to the country the alternatives to economy and protection. Our value as a Government today should be to make people realise that Socialism is that alternative."
When the May Committee produced its report in July, 1931, it forecast a huge budget deficit of £120 million and recommended that the government should reduce its expenditure by £97,000,000, including a £67,000,000 cut in unemployment benefits. The two Labour Party nominees on the committee, Arthur Pugh and Charles Latham, refused to endorse the report. As David W. Howell has pointed out: "A committee majority of actuaries, accountants, and bankers produced a report urging drastic economies; Latham and Pugh wrote a minority report that largely reflected the thinking of the TUC and its research department. Although they accepted the majority's contentious estimate of the budget deficit as £120 million and endorsed some economies, they considered the underlying economic difficulties not to be the result of excessive public expenditure, but of post-war deflation, the return to the gold standard, and the fall in world prices. An equitable solution should include taxation of holders of fixed-interest securities who had benefited from the fall in prices."
The cabinet decided to form a committee consisting of Ramsay MacDonald, Philip Snowden, Arthur Henderson, Jimmy Thomas and William Graham to consider the report. On 5th August, John Maynard Keynes wrote to MacDonald, describing the May Report as "the most foolish document I ever had the misfortune to read." He argued that the committee's recommendations clearly represented "an effort to make the existing deflation effective by bringing incomes down to the level of prices" and if adopted in isolation, they would result in "a most gross perversion of social justice". Keynes suggested that the best way to deal with the crisis was to leave the gold standard and devalue sterling. Two days later, Sir Ernest Harvey, the deputy governor of the Bank of England, wrote to Snowden to say that in the last four weeks the Bank had lost more than £60 million in gold and foreign exchange, in defending sterling. He added that there was almost no foreign exchange left.
Philip Snowden presented his recommendations to the MacDonald Committee that included the plan to raise approximately £90 million from increased taxation and to cut expenditure by £99 million. £67 million was to come from unemployment insurance, £12 million from education and the rest from the armed services, roads and a variety of smaller programmes. Arthur Henderson and William Graham rejected the idea of the proposed cut in unemployment benefit and the meeting ended without any decisions being made.
The cabinet met on 19th August but they were unable to agree on Snowden's proposals. He warned that balancing the budget was the only way to restore confidence in sterling. Snowden argued that if his recommendations were not accepted, sterling would collapse. He added "that if sterling went the whole international financial structure would collapse, and there would be no comparison between the present depression and the chaos and ruin that would face us."
The following day MacDonald and Snowden had a private meeting with Neville Chamberlain, Samuel Hoare, Herbert Samuel and Donald MacLean to discuss the plans to cut government expenditure. Chamberlain argued against the increase in taxation and called for further cuts in unemployment benefit. MacDonald also had meetings with trade union leaders, including Walter Citrine and Ernest Bevin. They made it clear they would resist any attempts to put "new burdens on the unemployed".
At another meeting of the Cabinet on 20th August, Arthur Henderson argued that rather do what the bankers wanted, Labour should had over responsibility to the Conservatives and Liberals and leave office as a united party. According to Malcolm MacDonald, the opposition to the cuts in public expenditure was led by Henderson, Albert Alexander and William Graham. MacDonald went to see George V about the economic crisis on 23rd August. He warned the King that several Cabinet ministers were likely to resign if he tried to cut unemployment benefit.
After another Cabinet meeting where no agreement about how to deal with the economic crisis could be achieved, Ramsay MacDonald went to Buckingham Palace to resign. Sir Clive Wigram, the King's private secretary, later recalled that George V "impressed upon the Prime Minister that he was the only man to lead the country through the crisis and hoped that he would reconsider the situation." At a meeting with Stanley Baldwin, Neville Chamberlain and Herbert Samuel MacDonald told them that if he joined a National Government it "meant his death warrant". According to Chamberlain he said "he would be a ridiculous figure unable to command support and would bring odium on us as well as himself."
On 24th August 1931 MacDonald returned to the palace and told the King that he had the Cabinet's resignation in his pocket. The King replied that he hoped that MacDonald "would help in the formation of a National Government." He added that by "remaining at his post, his position and reputation would be much more enhanced than if he surrendered the Government of the country at such a crisis." Eventually, he agreed to form a National Government.
John Maynard Keynes was extremely active in his campaign to encourage the government to take more responsibility for running the economy. In 1931 he agreed an amalgamation of the Nation with the New Statesman, a journal owned by the Fabian Society. Keynes now became a regular contributor to what was now Britain's leading intellectual weekly.
In 1936 Keynes published his most important book A General Theory of Employment, Interest and Money. It revolutionized economic theory by showing how unemployment could occur involuntarily. In the book Keynes argued that the lack of demand for goods and rising unemployment could be countered by increased government expenditure to stimulate the economy. His views on the planned economy influenced President Franklin D. Roosevelt and was a factor in the introduction of the New Deal and the economic policies of Britain's post-war Labour Government.
Bertrand Russell became friendly with Keynes. He later argued: "I do not know enough economics to have an expert opinion on Keynes's theories, but so far as I am able to judge it seems to me to be owing to him that Britain has not suffered from large-scale unemployment in recent years. I would go further and say that if his theories had been adopted by financial authorities throughout the world the great depression would not have occurred.... Keynes's intellect was the sharpest and clearest that I have ever known. When I argued with him, I felt that I took my life in my hands, and I seldom emerged without feeling something of a fool. I was sometimes inclined to feel that so much cleverness must be incompatible with depth, but I do not think this feeling was justified."
Alexander Cairncross, his biographer, has argued that his wife, Lydia Lopokova, looked after him when he became ill in 1936: "From the summer of 1936 Keynes was affected by a prolonged spell of illness, beginning with chest pains and breathlessness. After a complete collapse in May 1937 heart trouble was diagnosed and a complete rest prescribed. He gradually improved, and was writing occasional letters and even the odd article by July 1937. But when he returned to London and Tilton in late September he still needed Lydia's constant care to prevent overexcitement and overwork, and he continued to need it for the rest of his life." Margot Fonteyn added: "From when Keynes suffered his first serious illness in 1937... the total dedication she had never quite mustered for her career came to flower. She was a devoted wife, forsaking all interests save her husband's health and work while entertaining him and their friends with her unpredictable remarks."
During the Second World War Keynes was an unpaid advisor to the Chancellor of the Exchequer and wrote the influential How to Pay for the War (1940). He attended the Bretton Woods Conference in 1944 and the Savannah Conference in 1946. He was also involved in the negotiations on Lend-Lease and the US loan to Britain.
John Maynard Keynes, who had suffered from heart problems for many years, died on 21st April 1946.
(1) Kingsley Martin was a conscientious objector to conscription in the First World War. He commented on the large number of his friends who were also conscientious objectors.
Lytton Strachey had been a conscientious objector; Clive Bell and other conscientious objectors had accepted alternative service; Keynes had been a conscientious objector to conscription, though he had not appeared before a tribunal because of Treasury intervention. Bertrand Russell, who himself refused any kind of compromise, had accused Keynes of continuing to work at the Treasury, which "consisted in finding ways of killing the maximum number of Germans at the minimum expense".
(2) John Maynard Keynes, The Economic Consequences of Peace (1920)
The Treaty includes no provision for the economic rehabilitation of Europe - nothing to make the defeated Central Powers into good neighbours, nothing to stabilise the new States of Europe, nothing to reclaim Russia; nor does it promote in any way a compact of economic solidarity amongst the Allies themselves; no arrangement was reached at Paris for restoring the disordered finances of France and Italy, or to adjust the systems of the Old World and the New.
It is an extraordinary fact that the fundamental economic problem of a Europe starving and disintegrating before their eyes, was the one question in which it was impossible to arouse the interest of the Four. Reparation was their main excursion into the economic field, and they settled it from every point of view except that of the economic future of the States whose destiny they were handling.
(3) In his book, Father Figures, Kingsley Martin explained the influence that Maynard Keynes had on his political and religious opinions.
Maynard Keynes was to play a crucial part in my life. He had a reputation for arrogance when he was young, and I doubt if he ever learnt to suffer fools gladly. He had the most powerful and formidable mind I ever worked with; he had imagination and was constructive as well as iconoclastic. He was often unscrupulous in argument, and for years was the only person I feared, because he could so easily make me feel a fool. He was one of the few economists I've ever known who realised that statistics represented human beings.
(4) In his autobiography, Father Figures, Kingsley Martin described the amalgamation of the New Statesman and The Nation in 1930.
My appointment as editor of the New Statesman seemed to Keynes a golden opportunity for getting rid of a costly incubus. He wrote in August 1930 that in view of the Manchester Guardian's "very non-committal attitude to everything" he was not surprised that I was leaving. Later we had a long conversation, while, for some reason or other, he was changing his socks.
"Are you a Socialist or a Liberal?" I said, "A Socialist". I did not then understand fully what was in his mind. He had decided that England must break sharply with the Liberal tradition.
"Are you going to stand for the necessary interference with free trade and laissez-faire?"
Reassured on this point, he offered an amalgamation of the Nation with the New Statesman, only stipulating that it should not be a merger but a genuine union of the two newspapers.
I do not know enough economics to have an expert opinion on Keynes's theories, but so far as I am able to judge it seems to me to be owing to him that Britain has not suffered from large-scale unemployment in recent years. I would go further and say that if his theories had been adopted by financial authorities throughout the world the great depression would not have occurred. There are still many people in America who regard depressions as acts of God. I think Keynes proved that the responsibility for these occurrences does not rest - with Providence.
The last time that I saw him was in the House of Lords when he returned from negotiating a loan in America and made a masterly speech recommending it to their Lordships. Many of them had been doubtful beforehand, but when he had finished there remained hardly any doubters except Lord Beaverbrook and two cousins of mine with a passion for being in the minority. Having only just landed from the Atlantic, the effort he made must have been terrific, and it proved too much for him.
Keynes's intellect was the sharpest and clearest that I have ever known. When I argued with him, I felt that I took my life in my hands, and I seldom emerged without feeling something of a fool. I was sometimes inclined to feel that so much cleverness must be incompatible with depth, but I do not think this feeling was justified.
(6) Robert Skidelsky, The Guardian (23rd November 2009)
The economic downturn has produced an explosion of popular anger against bankers' "greed" and their "obscene" bonuses. This has accompanied a wider critique of "growthmanship" – the pursuit of economic growth or the accumulation of wealth at all costs, regardless of the damage it may do to the earth's environment or to shared values.
John Maynard Keynes addressed this issue in 1930, in his little essay "Economic Possibilities for our Grandchildren". Keynes predicted that in 100 years – that is, by 2030 – growth in the developed world would, in effect, have stopped, because people would "have enough" to lead the "good life." Hours of paid work would fall to three a day – a 15-hour week. Human beings would be more like the "lilies of the field, who toil not, neither do they spin."
Keynes's prediction rested on the assumption that, with a 2% annual increase in capital, a 1% increase in productivity, and a stable population, average standards of living would rise eight times on average. This enables us to work out how much Keynes thought was "enough." GDP per head in the United Kingdom in the late 1920s (before the 1929 crash) was roughly £5,200 ($8,700) in today's value. Accordingly, he estimated that a GDP per capita of roughly £40,000 ($66,000) would be "enough" for humans to turn their attention to more agreeable things.
It is not clear why Keynes thought eight times the average British national income per head would be "enough." Most likely he took as his standard of sufficiency the bourgeois rentier income of his day, which was about 10 times that of the average worker.
Eighty years on, the developed world has approached Keynes's goal. In 2007 (ie, pre-crash), the IMF reported that average GDP per head in the United States stood at $47,000, and at $46,000 in the UK. In other words, the UK has had a five-fold increase in living standards since 1930 – despite the falsification of two of Keynes's assumptions: "no major wars" and "no population growth" (in the UK, the population is 33% higher than in 1930).
The reason we have done so well is that annual productivity growth has been higher than Keynes projected: about 1.6% for the UK, and a bit higher for the US. Countries like Germany and Japan have done even better, despite the hugely disruptive effects of war. It is likely that Keynes's "target" of $66,000 will be achieved for most western countries by 2030.
But it is equally unlikely that this achievement will end the insatiable hunt for more money. Let's assume, cautiously, that we are two-thirds of the way towards Keynes's target. We might therefore have expected hours of work to have fallen by about two-thirds. In fact they have fallen by only one-third – and have stopped falling since the 1980s.
This makes it highly improbable that we will reach the three-hour working day by 2030. It is also unlikely that growth will stop – unless nature itself calls a halt. People will continue to trade leisure for higher incomes.
Keynes minimised the obstacles to his goal. He recognised that there are two kinds of needs, absolute and relative, and that the latter may be insatiable. But he underestimated the weight of relative needs, especially as societies got richer, and, of course, the power of advertising to create new wants, and thus induce people to work in order to earn the money to satisfy them. As long as consumption is conspicuous and competitive, there will continue to be fresh reasons to work.
Keynes did not entirely ignore the social character of work. "It will remain reasonable," he wrote, "to be economically purposive for others after it has ceased to be reasonable for oneself." The wealthy had a duty to help the poor. Keynes was probably not thinking of the developing world (most of which had hardly started to develop in 1930). But the goal of global poverty reduction has imposed a burden of extra work on people in rich countries, both through the commitment to foreign aid and, more importantly, through globalisation, which increases job insecurity and, particularly for the less skilled, holds down wages.
Moreover, Keynes did not really confront the problem of what most people would do when they no longer needed to work. He writes: "It is a fearful problem for the ordinary person, with no special talents, to occupy himself, especially if he no longer has roots in the soil or in custom or in the beloved conventions of a traditional economy." But, since most of the rich – "those who have an independent income but no associations or duties or ties" have "failed disastrously" to live the "good life," why should those who are currently poor do any better?
Here I think Keynes comes closest to answering the question of why his "enough" will not, in fact, be enough. The accumulation of wealth, which should be a means to the "good life," becomes an end in itself because it destroys many of the things that make life worth living. Beyond a certain point – which most of the world is still far from having reached – the accumulation of wealth offers only substitute pleasures for the real losses to human relations that it exacts.
Finding the means to nourish the fading "associations or duties or ties" that are so essential for individuals to flourish is the unsolved problem of the developed world, and it is looming for the billions who have just stepped on to the growth ladder. George Orwell put it well: "All progress is seen to be a frantic struggle towards an objective which you hope and pray will never be reached."
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© John Simkin, April 2013