POLITICAL THEORY – John Maynard Keynes

POLITICAL THEORY – John Maynard Keynes

John Maynard Keynes was a political economist of extraordinary optimism and vision who believed that governments have it in their power to solve some of the greatest ills of capitalism. Keynes refused either to believe in communism, or in the utter wisdom of the unfettered free market. Instead, he occupied a middle course, believing that governments could, with a judicious injection of money here and a rise regulation there, smooth out the peaks and troughs to which all economies seem fatefully prone. Keynes believed that what chiefly holds back countries is corruption, knee-jerk policies, and shortsightedness, but that if these three ills are corrected, then humanity can look forward to an age of incredible and lasting wealth. In a charming essay titled, “Economic Possibilities for Our Grandchildren,” written in 1930, at the height of the world economic crisis, Keynes outlined his belief that most severe economic problems could be overcome, and give way to an age where the chief challenge for human beings would be how to occupy their leisure time in conditions of mass prosperity. For Keynes, economics was not a dull science. It was the tool with which to bring about economic security for all. Keynes’ background was well-to-do, and throughout his life, he remained firmly a part of the British establishment. Educated at Eton and at Cambridge University, Keynes was unusual for the breadth of his artistic and literary interests. Throughout his life, he maintained friendships with some of the most brilliant artists and scholars of the twentieth century, and was an integral part of the Bloomsbury Group of writers and intellectuals. Virginia Woolf, for example, was one of his best friends. As the Bloomsbury Group recognized, good economics is as fundamental to wellbeing as good painting or literature, and at a deep sense, not fundamentally different in its search for the wellsprings of fulfilment, and its attention to human error and blindness. Keynes’ masterpiece was written in 1936. The General Theory of Employment, Interest, and Money. In this work, Keynes set out to rethink the causes of unemployment, in the hope of reducing new solutions to this intractable problem of the 1930s, and of capitalism more generally. Classical economics give us three reasons why unemployment exists. Firstly, and most obviously, workers are temporarily unemployed when they move jobs. Secondly, individuals might simply elect not to work, particularly if they can support themselves through some form of welfare payment. But thirdly, and most interestingly, unemployment arises when wages are higher than what employers can afford. In the classical model, it’s assumed that a free market will correct this last course automatically, and that the supply of labor and the demand for labor will spontaneously come into equilibrium. ensuring something approaching full employment. Only, if some outside force were to exert itself on the market–for example, if governments set a minimum wage that artificially inflates wages, or if trade unions organized workers so that they refused to take lower wages in a declining market, only under these conditions would equilibrium not be found. But Keynes took issue with this classical theory. In the 1930s, there were huge numbers of people out of work, as many as 3 million in Britain and 15 million in the United States of America. These numbers were just too great to shrug off as the result of people being between jobs or simply idle. And to Keynes’ way of thinking, this level of unemployment was also too great to be explained by the interference of trade unions, given that, during the years of the Great Depression, high unemployment had severely curbed union power. For Keynes, the real problem of unemployment lay in a lack of demand. This was not something that economists had ever properly focused on, but it became the linchpin of Keynes’ theories. Classical economic theory had simply assumed that demand for goods would return by itself once wages and labor requirements had equalized. But Keynes now famously declared, “In the long run, we are all dead.” In other words, this process might simply take too long. Keynes argued that it was insufficient for economists and policymakers simply to advise people to accept suffering in the short and medium term, secure in the knowledge that at the end of the storm, the sea would return to calm. What was needed was intervention in the economy, by government, in order to break the cycle of economic depression, and thereby restore prosperity. Traditionally, in an economic downturn, governments would turn to matters of supply to provide an economic boost, encourage growth, and create employment. For example, if interest rates were reduced, that this should encourage savers to invest their money, providing cash either for existing businesses to expand, or else for entrepreneurs to establish new ventures. However, Keynes now declared there might exist a persistent belief that demand was so low that there was little point in supplying goods. In this case, traditional tools of promoting economic recovery would be useless, and something else would be required. If market mechanisms were unable to stimulate economic recovery, then, Keynes now argued, it was the job of the state to step in to create demand, by running, if necessary, a very large budget deficit in order to create jobs. Practically, this could be done by raising loans and using the money to finance vast public works that could be brought on line relatively quickly. These might include building roads or railways, or else investment in other infrastructure that would not only create work for people, but which would leave a useful legacy for private enterprise. Governments should, for Keynes, act as the primary shopper in the land, creating demand until more widespread sources off-demand can return. Keynes criticized governments for the way they typically respond to downturns. Their immediate (and understandable) impulse is just to rein in spending. After all, this is what a household would do when money is no longer coming in. But what is wise at the level of the household is often catastrophic when applied at the level of the nation. Nations are not households in all kinds of ways, and Keynes needed to persuade his audiences to act contrary to their simpler, more basic instincts. Reining in spending when an economy is in decline always worsens the very problem it’s meant to solve. One obvious objection to Keynes’ focus on government spending was the question as to who should pay for the loans. By creating the debt, would not the problem be simply postponed to another day, rather than solved? Here, Keynes applied his theory of what became known as the “Multiplier Effect.” In the first instance, by creating jobs through public works, governments would save some of the money they would’ve otherwise spent on unemployment benefits. Secondly, the increase in the number of people in employment would create additional spending power, and therefore boost the economy and tax receipts. There would be an indirect effect on businesses as opportunities to service public works programs became available. The result would be increased tax revenue from businesses, as they began to once again prosper. In turn, these receipts would then pay off the debt created by the initial expenditure. That was the Multiplier Effect. Keynes’ ability to conceive of grand macroeconomic architecture put him in a high demand during the Second World War. When he went to the Treasury to work as an advisor, raised the peerage in 1942 as Baron Keynes of Tilton in the County of Sussex, Lord Keynes led the British delegation to the Bretton Woods Conference in the United States, at which the Allied nations hammered out post-war economic policy. Not only did Keynes believe that national governments could successfully manage economies, but Keynes also believed that a global system of economic organization was possible. He argued that, for the purpose of global trade, countries should subscribe to the creation of a new international standardized unit of account: the Bancor. Through a complex system of accounting, the adoption of the pseudo-currency would allow an internationally-recognized organization to impose fines on countries in order to discourage them from running large trade deficits or surpluses. Such a system would help to smooth out peaks and troughs in international trade and, not coincidentally, it would also benefit countries like Britain who had, because of the cost of the War, had low reserves of gold. It was both a brilliant and self-interested idea in equal measure. But, ultimately, the Bancor did not come about. The United States, which was effectively bankrolling global post-war economic reconstruction, ran large trade surpluses and had no intention of accepting limitations on these. But several of Keynes’ other proposals, such as the establishment of the World Bank, and the International Monetary Fund to oversee and encourage world trade, were accepted, and have dramatically changed the world. Testimony to Keynes’ belief that national and super-national economic planning is both necessary and possible. The strain of the Bretton Woods negotiations were immense upon Keynes. In 1946, aged only 62, Keynes died of complications from a series of heart attacks. Yet his legacy lived on. In the thirty years or so after the Second World War, Keynesian policies were adopted across the capitalist world. Economies saw record lows of unemployment, and record high levels of economic growth. Keynes’ ideas became the new orthodoxy, and were particularly attractive to the political left. By the 1970s, however, critics of Keynes’ ideas, notably, Friedrich Hayek and Milton Friedman were gaining ground with politicians in countries like the United States and Britain. They argued for small estate, free markets, and a reduction in regulation of capitalist enterprise. At the same time, Britain and the United States began to experience high inflation alongside high unemployment, known as “stagflation.” This phenomenon could not be explained by Keynesian economics, and Keynes’ ideas came to be discredited, giving way to those of the neoliberals. Nevertheless, the financial crisis of 2008 jolted policymakers into considering alternatives to neoliberal thinking. When the global economy spiralled into decline, rather than wait for the market to correct itself, the G20 nations announced an economic stimulus package of around 2% of gross domestic product to stimulate growth. As one critic of Keynes wryly conceded, “I guess everyone is a Keynesian in a foxhole.” To be sure, Keynes’ ideas need to be modified to suit the conditions of the contemporary world, but Keynes would approve. His was not a static or dogmatic understanding of economics. After all, when asked why, in the 1930s, he had altered some of the positions on economic policy he had previously held, Keynes famously answered, “When the facts change, I alter my conclusions. What do you do, sir?”


  1. How can anyone objectively look at the last 80 years of American Keynesianism and conclude it is anything other than a debunk theory at this point?

  2. economies fail because of poor governments…when a government doesn't have a plan for an economy then the general welfare fails. We are seeing the implosion of many governments and economies right now. When leadership is poorly implemented because of the people we also see implosion. Venezuela is headed this way. Good thing you elected Alexandra Ocasio Kotex

  3. His ideas were use full at the time but I think his ideas have gone too far I'm on welfare and because of monetary inflation my money buys less and less food as the time goes by

  4. As much as I like these videos, I love the comments section more!!. Many have commented that economics is not an exact science like science/engineering. I'm an engineer myself with R&D experience. I say even science/engineering is not so exact. Most of our models don't fit the experimental data which we overcome by 'calibration' that requires feedback from experiments. There are many problems that are inherently unstable and chaotic. It is impossible to develop an accurate model for them. Fluid dynamics is one such example. Any predictive model needs correction inputs from the system. There is no model that is absolutely predictive simply because you don't know all the actors and their behavior a priori or even posterior. So is economics especially when it involves as fickle as human actors involved in it. As Albert Einstein once famously said, "All models are wrong; Some are useful". When the greatest scientist waves his hand at modeling, it deserves some credit.

  5. Continuing from my previous comment, When Einstein said, "God does not like to play dice" in response to quantum physics modeling; Neil's Bohr said, "Stop telling God what to do". I would extend this statement to those who think they can model economy behavior from axioms or whatever assumptions/ projections of their own, " Stop telling economy what to do". It has no binding , neither a mandate to follow your model.

  6. "Keynes believed that what chiefly holds back countries is corruption, knee-jerk policies, and shortsightedness"
    So Keynes believed the solution to corrupt, incompetent government intervention was… more government intervention? lol ok

  7. Does the shopkeeper hire another cashier when he sees long lines of customers or when he gets a tax cut, but has an empty store?

  8. I'm a big fan of The School Of Life and a big admirer of JMK but I don't think this is one of the better videos. Let me start with the category Political Theory. Is this really where Keynes belongs? He was an economist or economic philosopher. It's true that he wasn't just concerned about 'stuff or worse money' but wanted economies to work in ways that gave people the chance to enjoy the good life. He was more social rather than political. And if one wants to label it political what about the Economic Consequences Of The Peace and his criticism of the anti-capitalists in the 1930s? What is Keynes's core message? A counter cyclical fiscal policy? What does that mean philosophically? At root I think it means the socialisation of risk. In difficult times individuals won't take risks and it's pointless to expect otherwise. The government can more easily do so and the wider feeling of pessimism means it can borrow at low interest rates. To me true Keynesian thinking is about pooling risk, global interdependence, trade balances and the need for enlightened government as the best means to ensure social liberal ends. And it's odd for a philosophy channel to ignore his major philosophical work – A Treatise On Probability

  9. debt funded growth works until you press up against water limitations, no fresh water to support housing expansion voids most of that doctrine.

    there were no water shortages in the 1930s. the land was mostly unscalped at that time. bob moses blew out the american economy in the automobile age and industrial civilization came to be understood as a dead end about the time the later people (greenspan, reagan, bush) mentioned above enacted their supply side policies.

  10. School of Life I LOVE your videos, but am disturbed about the lack of people of color. How is that? Please make an effort: James Baldwin, Ralph Ellison, Elijah Anderson to name a few. And how about issues of race. Thank you!

  11. All the faults of modern day capitalism (lobbying, bailouts, corporate welfare, insane amount of debt etc) can be attributed to Keynes.

  12. Keynes gets such a bad rap, when actually is the creator of the greatest economic policy of history. Thanks to his thought, capitalistic world (both developed and developing) grew fast and kept stable for 30 years. Severe recessions reappeared when his model was scrapped in the 1970s.

  13. Governments LOVES Keynes because he allows them to print more money! If you want to know Keynes works Just take a look at Argentina… 70 years of Keynes ideas and theories.
    Results: fallen from world #5 GPD in the 20th Century to #65, The only country in the World that went from a developed country to a Frontier Country. Changed 5 times monetary assignations, deleted 13 zeros and went through 2 hyperinflation without a war. BTW President Mauricio Macri was hailed as a right Hayek neo libertarian but end up just like the rest, a democratic socialist using the same Keynes practices as all his predecessors. Now another hyperinflation is approaching.

  14. Kanes was just a man and he's a fucking idiot it all these people follow kaynes you he's like l Ron Hubbard. Kaynes also seems like a pedophile homosexual

  15. Keynes ideas worked really well in Brazil*ironic, Everytime governament plays with numbers it decrease the value of our money and our power of buy. It's never good idea put more power in governament hands they will just help the friends of the king and let people drawing on muddy. Lass state more freedom aways

  16. 😷 blunder keynesian math: constant of consumption curve is negative, because the value of elasticity curve less than one

  17. Disgusting piece. Your segment on Hayek was heavy on criticism and low on praise. Here you have the opposite. You might've pointed out how massive trade deficits can practically erase the positive effects of the dollar multiplier theory. Or the fact that Keynes never addressed the effects of accumulating national debt from stimulus spending leading to hyperinflation.

  18. The US federal reserve buys into this Keynesian bullshit, it’s a big reason for wealth gaps and asset bubbles.
    Really well made video !!!!!!

  19. Why are all these political theorists explored, white men? Can we have a video on Rosa Luxemburg please

  20. And as always when the gastroenterologists and the proctologists argue about dick measuring the patient dies . Any "scientist" who cannot accept the possibility of being wrong is nothing more than a religious zealot . Assholes like these commentators are why AOC is considered an economics genius .

  21. Don’t the US already use Kayne’s theory? Demand is exactly what controls the economy today. Although public works aren’t always controlled by the capitol

  22. Argentina had lived 70 years of expandatory fiscal and monetary policies. We suffered two hyperinflations without any wars, we took out 13 ceros from our monetary notes. We defaulted public debt 5 times. Out of 65 years in only 5 we didn't have fiacal deficit. Since '83 the size of the state tripled, poverty multiplied 6 times.

    Today keynes wouldn't be keynesian. He'd be a libertarian.

  23. In other words, the guy who provided the rationale for politicians to spend our money for us… Dangerous. Not good and not correct. Friedman and Hayek speak the truth.

  24. No! Don't plan anything! That'll screw it all up. What are we mere mortals before the divine mystery of economics?

  25. Well done Alain, you only allowed your bias towards collectivist ideologies like Keynesianism, to show through 99.9999999% of the time.

  26. I liked it, but this whole idea should be updated as the society has grown immensely in the last 2 decades. We have robots now, for instance. There's no need for manual work. Not yet, but it's coming. I would love to ask him what he thinks about when all the manual labours get replaced by robots. What do you do then to make people have normal lives?

  27. Any system which relies on people behaving in a fair and rational manner is doomed to fail utterly, and anyone who thinks otherwise is a naive idiot, and that includes J.M. Keynes.

  28. People find it hip these days to shit all over Keynes, I think his model is not that bad, yeah few things could be changed but in general it is not nearly as bad as people like to shit all over him

  29. Keynesian or liberal economics are designed to reach a point when you can lean back in your arm chair and do nothing. Both the systems lead to inflation/depression etc.
    The key to prosperity is planned productivity (that is not wasteful), decided by system capacity. But in the age of automation, that also questions the balance between wages and distribution of wealth. In USA the middle class got killed because the state permits the 1% to hold on to 60-80 % wealth. A better system of distribution of wealth in China , results in bigger growth and development and is more likely to arrive at a sustainable system, unlike US, EU or Japan where stagnation is the norm and leads to printing money like mad.

  30. Keynes was a pragmatist… but what if there is an optimal form of governance like something nature herself designed and we don't need to test endless hypothesis ? Read Rudolf Steiner for that answer.

  31. Keynesian theory for american and UN still the russia against these corruption of economic?
    And theb finally forget about this cold war 1

  32. Vaulable not a labour and also working duty of vaious whether they good at.. But engineering disappear what i can do?

  33. he had it right with that organization to keep countries from running too big debt guess that's the important part everyone missed.

  34. These School of Life presentations are generally pretty good. But not this one. Keynes World Bank and IMF have stolen more money from developing nations than any other mechanism. In addition, they give much more control and power to the world's bangsters. Governments are so imperfect today, they can do very little that is useful and absolutely nothing beneficial that outweighs the massive theft from humanity.

  35. When the workforce needed doubling women went to work. Now we are basically at full employment. Divide the existing work into two jobs. 40 hours becomes 20 hours at the same pay. twice the number of jobs. It doesn't matter you know. You'll produce twice as much and it will pay for itself. People take the unit of work and make it fit 40 hours now. It's like goldfish.

  36. It's a shame the neoliberals were able to strangle Keynesianism. Now we have enormous inequality and massive debt. And it seems as though another big economic bust is right around the corner.

  37. Imf was corrupted unfortunately to force countries into giving up their resources contrary to keynes ideals. Also Samuel Samuelson solved the problem of stagflation within Keynesian doctrine.

  38. I believe Keynes was right, I would rather focus on reducing the severity of recessions rather than chasing the mythical "GDP" dragon

  39. A load of rubbish. The problem is the buying & selling of the Earth ; price of labor and fake money that lasts indefinitely. These three unacknowleged problems is the reason for financial collapse.

  40. i have a question; was the 2008 financial crisis an inevitable product of deregulation and free markets or was it in fact because of interventionism from the state itself?

  41. 2008 was a result of Keynesian economics.
    The stock market crashed.
    Lowered interest rates to 1% and increased the money supply, the government was keen on pushing people into houses even when they couldn't afford it (Subprime mortgages) and it created a housing bubble that many Free market economists understood would burst.
    We have yet to really reverse all the policies inspired by Keynes and if anything we are currently overloaded with them.

  42. Thr biggest problem for Keynesian economics is globalization. Multinational corporations don't care how much the citizens of one country consume but how cheaply they can produce their stuff their. Maybe we need a Bancor (the poor countries should be excluded and also be allowed protectionism).

  43. JM Keynes was more than an economist, that is why he could diagnose the problem of secular underemployment equilibrium and prescribe a remedy for depression. He was a liberal humanist who thought of the whole world, so that he argued and worked for a global system of multilateral economic relationship. His ideas were killed by the arrogant Americans. His ideas were applied out of context by overenthusiastic Keynesians which brought discredit to his work. But Keynes was really looking for a day when the basic economic problems would be solved and people would be free to devote time to higher pursuits, rather than to making money which according to him was a type of mental illness. Unfortunately, the world is far worse economically today, and the basic economic questions are no where near finding a solution. Robert Skidelsky has written well on Keynes -his life and work.

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