John Maynard Keynes
Born in the period 1883, John Maynard Keynes was nurtured up in Cambridge by his parents John and Florence Keynes (Moggridge 1). John Keynes was a professor within the same university while Florence was a social reformist schooling within the same institution. His early years were spent on home schooling and it was at the age of nine that Keynes enrolled in a preparatory school from the years 1892 to 1897. Upon the clearance of his basal education, Keynes enrolled in Eton College on a scholarship program that he had attained in his preparatory schooling (Moggridge 31). Keynes excelled in multiple subjects including arithmetic, classics and history; his mathematical prowess earned him another scholarship to King’s College in the period 1902. Two years later, Keynes acquired his undergraduate degree in mathematics and joined Cambridge University as the leader of the debate club.
It was during his involvement with the Cambridge University that Keynes studied economics and philosophy up to 1906. His first break in economics was realized three years later in the publication of an analysis he had conducted on an economic depression plaguing India. The editorial was published in the 1909 Economic Journal to which he became an editor in 1911. Keynes performed further study of the situation and in a period of two years, his book Indian Currency and Finance was in print. Keynes was noted for his ideas and in the advent of World War I, the British authorities offered him a position in the treasury (Moggridge 237). Keynes analyzed the consequences of war on economies in the publication The Economic Consequences of the Peace. The book acclaimed global recognition on Keynes after the theories were proved right in the hyperinflation that encompassed Germany.
During the Great Depression (1929), Keynes proposed a solution in the Treatise on Money with his ideas largely instituted in Britain, Germany and Sweden in 1933. The book General Theory of Employment, Interest and Money was printed in 1936 and this is termed as Keynes most significant work in the economic discipline (Moggridge 517). Four years later, Keynes proposed the fiscal measures as a solution to the adverse effects of World War II in the publication How to pay for the War. Additionally, Keynes proposed for the establishment of institutions that would manage global trade to avoid a repetition of the Great Depression and war effects and these were fulfilled in the current World Bank and International Monetary Fund. Keynes demised in the year after a fatal heart attack.
School of Thought
Keynes founded the Keynesian Economics within the 1930s following the Great Depression. The main ideas in this school relate to macroeconomic principles of rigidity emanating from cost inflexibilities (Agarwal 3). The Keynesian school of thought was established after the collapse of the Classical School and after Keynes demise, the doctrine was refined by economists such as Joan Robinson and Michal Kalecki in Post-Keynesian Economics. Currently, the Keynesian ideas are held in the New Keynesian Economics whose forerunners were Gregory Mankiw and David Romer.
In his 1936 publication, Keynes discussed the general theory that discussed the macroeconomic principles of GDP, employment and prices (Keynes 3). Keynes asserted that the gap created between real and nominal GDP would always exist in an economic setting because of price stickiness unless the forces of supply and demand are induced to a certain level for the desired results to be realized. This theory rejected the self-determining mechanism of a market as postulated by Say’s Law. Aggregate demand as discussed in micro-economic terms was viewed as the lumped effect of individual expenditure and speculation decisions within a given economy. To explain this, Keynes used the IS-LM representation to discuss economic demand and employment and their relation to money supply, state budgets, and consumer expectations. The IS curve represents the expenditure and saving patterns of the consumers while the LM is the money market (Agarwal 205-208).
In periods of economic depression, the money supply is limited and thereby necessitating an increase in the supply of money needed to boost the economy to recovery and later boom. Keynes proposed taxation as the best option for enhancing the money supply and ultimately aggregate demand. The link between unemployment and inflation within an economy were explained by the Philip’s curve. High employment levels would lead to a subsequent rise in inflation as effected by the rise in consumer income and low products (Agarwal 285). Keynes theories were useful in the prediction of the money market and its impact on production and employment levels as well as the impact that employment would have on inflationary forces.
Major Contributions to Economics
Keynes confronted the idea of an invisible market hand and the laissez faire guiding principle that argued for the uninterrupted interaction of supply and demand in the fixation of market prices, quantities and the regulation of the same when issues arise. He attacked the application of the gold standard in financial institutions and he addressed the unemployment issue prior to the depression. The IS-LM presentation was later advanced by John Hicks led to the subject of general equilibrium, which was more useful to economic policy makers as the idea of induced demand was adopted by various governments for the recovery period from the war periods.