KEYNES, JOHN MAYNARD. - English economist, b. in Cambridge on 5 June 1883, d. in London on 21 Apr. 1946. He became well known in 1912 as editor of the *Economic Journal*, then became professor of economics at the University of Cambridge and was appointed to an economic commission on Indian finances (1913); during the First World War, he held important ministerial posts, which he retained at the subsequent Peace Conference.
In his works: *The Economic Consequences of the Peace* (London 1919; Ital. trans., Milan 1920); *A Revision of the Treaty* (London 1922; Ital. trans., Milan 1922), he criticized the foreseeable tragic economic consequences of the Treaty of Versailles; followed by: *A Tract on Monetary Reform* (London 1923; Ital. trans., Milan 1925); *A Short View of Russia* (London 1925), and, most importantly, *The General Theory of Employment, Interest and Money* (ibid. 1936). In this last work, difficult because of its new terminology and disjointed arguments, the primacy hitherto accorded to problems of distribution was transferred to those of income and employment. Scholars and polemicists, developing Keynes’s views on “cycles of depression” regarding unemployment and, more broadly, on the relations between interest, savings, and investment, created the economic theory of Keynesianism.
The revolutionary character of the theory is in truth much less than Keynesians and Keynes himself initially led people to believe; what is most noteworthy, instead, is the progress in methods of inquiry and representation of phenomena. The work, written during the English crisis of 1932–35, reflects its vicissitudes, recognizing the maneuvers of economic policy as having a prevailing importance over the positive achievements of applied economic science.
Unlike the opinion of the classical economists, the formation of savings is not seen in correlation with the interest rate: low cost of money facilitates new investment, increases labor and incomes, and thus savings, and vice versa (this was already in Turgot’s *Réflexions sur la formation et la distribution des richesses* [Limoges 1766], where the interest rate is compared to a sea level that, rising or falling, submerges large stretches of land or returns them to cultivation). The major problem of economics would therefore be to fix the most suitable interest rate: this equilibrium rate, since it is linked to the corresponding discount rate, determines the general equilibrium of prices.
This rate will evidently be set by the major banks, as the Swedish economist K. Wicksell had already expressed, whose ideas on monetary interest Keynes had adopted in his *Treatise on Money* (London 1930). Modifying, however, this view in part, taking into account many criticisms (notably those of Hawtrey) and drawing inspiration from a school of thought that arose in Italy (v. HALLESISMO), Keynes delved into the real aspects of dynamic equilibrium, concluding that the interest rate, although it does not determine savings, does influence their allocation between liquid forms and productive investments. The equilibrium rate, tending toward zero, would thus allow maximum employment through maximum investment, especially in capital goods rather than consumer goods.
Keynes, however, believed that the transition from one equilibrium position to another, filling the gap in capitalization, cannot be achieved by the spontaneous reaction of savers, i.e., automatically in a liberal sense; the formation of savings and the transformation of liquid forms into new productive investments must therefore be stimulated and guided by the state through a general policy of low interest, supplemented by public works, direct industrial participation, nationalizations, and control of monetary circulation (Keynesians are fond of mentioning wise and timely inflationary measures) whenever a gap between savings and investment foreshadows a new depressive cycle.
Although Keynes inspired the Report of the British Experts at Bretton Woods, drawn up in 1943 under his direction, he drew largely from the formal approach of the aforementioned Italian school of thought, which instead aims to solve the same problems purely through technical means, removing obstacles to intense capitalization of savings. These obstacles are chiefly the risks of loss, immobilization, and devaluation, against which insurance contracts and technical-legal improvements in capitalization contracts are effective, conferring maximum marketability and value stability on investment securities (v. also SOCIAL SECURITY).
The controversy over Keynesianism is therefore between advocates of economic policy at all costs and defenders of traditional economics: both far removed from any truly new economic technique.