KEYNES, JOHN MAYNARD. – English economist, b. in Cambridge on 5 June 1883, d. in London on
21 April 1946. He became known as early as 1912 by directing the Economic Journal; he subsequently became professor of economics at the University of Cambridge and was called to serve on an economic commission for the finances of India (1913). During the First World War, he held important ministerial posts, which he retained at the subsequent Peace Conference.
Among his works: The economic consequence of the peace (London 1919; Italian trans., Milan 1920); A revision of the Treaty (London 1922; Italian trans., Milan 1922), which criticizes the foreseeable tragic economic consequences of the Treaty of Versailles; followed by: A tract on monetary reform (London 1923; Italian trans., Milan 1925); A short view of Russia (London 1925); and, of the greatest importance, The general theory of employment interest and money (ibid. 1936). In this last work, difficult because of its new terminology and the disjointedness of its arguments, the pre-eminence previously accorded to problems of distribution is transferred to those of income and employment. Scholars and polemicists, developing K.’s views on “cycles of depression” concerning unemployment and, more broadly, on the relations between interest, savings, and investments, created the economic theory called Keynesianism.
The revolutionary character of the theory is, in truth, much less than the Keynesians claim and than K. himself initially wished to make people believe; what is especially noteworthy, however, is the progress in methods of investigating and representing phenomena. The work, written during the English crisis of 1932–35, reflects its course, assigning to the manoeuvres of economic policy a predominant importance over the positive achievements of applied economic science.
Unlike the opinion of the classical economists, the formation of savings is not viewed as correlated with the interest rate: the low cost of money facilitates new investments, increases employment and incomes, and therefore savings, and vice versa (this was already found in Turgot’s Réflexions sur la formation et la distribution des richesses [Limoges 1766], where the interest rate is compared to a sea level which, rising and falling, either submerges great expanses of territory or restores them to cultivation). The principal problem of economics would therefore be to determine the most advantageous interest rate: the equilibrium rate, since general price equilibrium is linked to it and to the corresponding discount rate.
This rate would evidently be fixed by the great banks, as the Swedish economist K. Wicksell had already maintained; K. had adopted Wicksell’s ideas on monetary interest in his Treatise on Money (London 1930). Modifying this view in part, however, taking account of the many criticisms (especially Hawtrey’s) and drawing inspiration from a line of study that arose in Italy (v. HALLESISMO), K. examined more deeply the real aspects of dynamic equilibrium, concluding that the interest rate, although it does not determine savings, nevertheless influences their distribution between liquid forms and productive investments. The equilibrium rate, tending toward zero, would therefore permit maximum employment through a maximum of investment, especially in capital goods rather than consumer goods.
K. nevertheless holds that the passage from one position of equilibrium to another, by making up the shortfall in capitalization, cannot be brought about by the spontaneous reaction of savers, that is, through automatism in the 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 the management of monetary circulation (the Keynesians readily refer to wise and timely inflationary measures) whenever a disequilibrium between savings and investments heralds a new depressive cycle.
Although K. inspired by such views the Rapporto degli esperti britannici or Bretton Woods, drafted in 1943 under his direction, he allowed extensive use to be made of the formal part of the aforementioned Italian line of study, which instead intends to resolve the same problems by purely technical means, eliminating the obstacles that impede intensive capitalization of savings. These obstacles are above all the risks of loss, immobilization, and devaluation; against them, the insurance contract and technical-legal improvements in capitalization contracts are effective, conferring on investment securities maximum marketability and stability of value (v. SICUREZZA SOCIALE).
The controversy over Keynesianism is thus between the advocates of economic policy pursued to the extreme and the defenders of the traditional economy: both groups are far removed from any truly new economic technique.