John Maynard Keynes (Lord Keynes), 1883-1946
Maynard Keynes was an active Liberal as well as one of the most important liberal writers of the twentieth century. He revolutionised economics, creating the case for deficit spending to stimulate employment which became the basis of government economic policy throughout the Western world for almost four decades. He helped to found the international economic institutions which played such a key role in the post-war economic boom.
Many of his views, however, would cause apoplexy in modern Liberal Democrats. For example, at a Liberal Summer School he gave an impassioned defence of privilege in general and inherited wealth in particular (so that there would be a leisured class able both to pursue politics, especially in opposing government, and also patronise the arts). Despite this belief in the necessity of private patronage to ensure cultural freedom, he was the founding father of the Arts Council. This was a development of his work with the Cambridge Arts Theatre (founded in 1936), where he was apparently as concerned that students should enjoy good champagne at low prices as with the more cultural aspects of the theatrical experience. This illustrates both Keynes’s ability to be infuriating and apparently paradoxical, and a style that both charmed and irritated. He was also notoriously gay (later bisexual), which probably contributed to the reaction to him. Galbraith and others have told amusing anecdotes about the need to conceal many of Keynes’s personality traits when his ideas were introduced to an American audience, and a similar coyness over Keynes’s private life marked Harrods Life (1951). Indeed, it is arguable that reactions to Keynes have more often reflected a reaction to his style and image rather than his ideas.
John Maynard Keynes was born into a traditional haute bourgeois Cambridge academic family on 5 June 1883. In a brilliant essay (1978), Harry Johnson argued that this was the key to Keynes thought. He was an optimist who believed that government could solve all ills in the hands of the right people, preferably Cambridge-educated. By contrast, Milton Friedman was a pessimist as the scion of penniless emigrants from the Habsburg Empire. Certainly, such stylistic differences are probably as important as theoretical matters in understanding why Keynes and Friedman are the totems of rival economic camps. Keynes’s review of Hayek’s Road to Serfdom (1944), and his correspondence with the author, support this view.
Educated initially at Eton, Keynes graduated from King’s College, Cambridge in 1906 after becoming a devotee of G. E. Moore’s philosophy (like so many liberals and Liberals) and a member of what later became known as the Bloomsbury group. He entered the India Office but in 1908 became a Fellow of King’s with the responsibility of teaching economics (established as a subject there in 1905). He worked on Indian finance and probability, where his writings are still highly regarded. He joined the Treasury in January 1915 and advised Lloyd George on war finance and at the Versailles peace settlement negotiations until his dramatic resignation over the terms of the settlement in 1919. Later that year he published The Economic Consequences of the Peace. This became a bestseller, and largely contributed to the belief that Germany had been harshly treated at Versailles.
Most of Keynes’s formal involvement with the Liberal Party came during this period. He was a pioneer of the Summer School movement and owner, eminence grise and much else of The Nation, which was central to Liberal thinking until its absorption into the New Statesman in 1931. He was part author of the 1929 Liberal manifesto and of the accompanying Can Lloyd George Do It? (which explained the Liberal Party’s plans to cure unemployment). He soon after became an official adviser to the Labour government. As the consummate insider he had used his status (unsuccessfully) to try to persuade Churchill not to return to the gold standard.
During this period, he became an aggressive speculator. Initially, only a loan of 10,000 from his father saved him from bankruptcy. Thereafter, his success was legendary; on his own behalf and for King’s and various insurance companies. He edited the Economic Journal and published a Tract on Monetary Reform (1923) and the two-volume treatise On Money (1930), which are still regarded as his major works by many monetary economists. Thereafter he worked on what became The General Theory of Employment, Interest and Money (1936). This is frequently cited as having demonstrated that governments could and should manage the economy to eliminate unemployment, especially by running budget deficits. Others credit him with having invented macroeconomics. The book reads like a summary of all economics written subsequently. However, its very richness and fecundity has led to literally thousands of articles and books disputing its meaning. Once more, both its totemic significance to liberals and its impact on politicians and academics are undoubted, regardless of what Keynes may have meant or said. Like Marx and the Bible, different interpretations and exegesis are tributes, not criticisms.
Keynes advised various Chancellors from 1940 until his death in 1946. He was largely responsible for both the creation of the International Monetary Fund and the World Bank in the aftermath of the Second World War, and also the decision to accept the American loan in 1946. This decision determined many aspects of policy for thirty years, in that it committed the UK to the American view of liberal international finance rather than policies which sustained autarky, socialism, imperialism or Japanese-style dirigisme.
He was created a peer in 1942, taking the title Baron Keynes of Tilton, and devoted his final speech to a denunciation of arrangements such as European monetary union. He died on 21 April 1946 at his home in Tilton, Sussex.
David Gowland was a Professor of Economics at the University of Derby, at the time of writing this piece. His previous jobs include working at the Bank of England in the 1980s, where he advised the government on monetary policy.