ECON 361 2015-2016 - WEEK 12 - KEYNES

7/23/2019 ECON 361 2015-2016 - WEEK 12 - KEYNES

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John Maynard Keynes(1883-1946)

7/23/2019 ECON 361 2015-2016 - WEEK 12 - KEYNES


7/23/2019 ECON 361 2015-2016 - WEEK 12 - KEYNES


1) Keynes was the most famous andperpahes the most infuencaleconomic theorist o thetwentieth century. His impactinside and outsid the profession has

been as great as icardo, Mill oreven Marshall.

7/23/2019 ECON 361 2015-2016 - WEEK 12 - KEYNES


So what is his main contribution tothe history of ecnomic thought?

7/23/2019 ECON 361 2015-2016 - WEEK 12 - KEYNES


7/23/2019 ECON 361 2015-2016 - WEEK 12 - KEYNES


Moden !scal "olicy #i.e. the use of government taxationand expenditure policy to aectprices, employment, and income

7/23/2019 ECON 361 2015-2016 - WEEK 12 - KEYNES


!) "e should #rst tal$ about Keynes%magnum opus & The GeneralTheory of Employment, Interestand Money .

• 'ncome(expenditure modal

7/23/2019 ECON 361 2015-2016 - WEEK 12 - KEYNES


7/23/2019 ECON 361 2015-2016 - WEEK 12 - KEYNES


7/23/2019 ECON 361 2015-2016 - WEEK 12 - KEYNES


*) Keynes was the #rst, after the$reat de"ression o 193%, toadvise governments to en$a$e in

discretionary s"endin$ andta&taion +budget de#cits) to curede"ression and unem"loyment.

7/23/2019 ECON 361 2015-2016 - WEEK 12 - KEYNES


Keynes%s ife and "or$s• -orn in 1*

• His father /ohn 0eville Keynes was logician and writer on economicmethodology. ost important wor$ was 2he Scope and ethod of 3olitical4conomy, published in 156. He inherited to little /ohn a great intellectualcuriosity and a lifelong love for arts, especially theather.

• His mother 7lorence 8da, was scienti#c. So they were both intellectuals.

• Keynes was educated in 4ton.

•

8lternatively immersed in classical literature, in logic, in mathematics,dramatics etc.

• He studied in King%s 9ollege in 9ambridge.

7/23/2019 ECON 361 2015-2016 - WEEK 12 - KEYNES


•

:o you wanna go to 'amrid$e,Kin$s 'olle$e with me ?

7/23/2019 ECON 361 2015-2016 - WEEK 12 - KEYNES


7/23/2019 ECON 361 2015-2016 - WEEK 12 - KEYNES


• 156; Marshall wrote to his father that he is good at economics.

• Keynes was trying to do a lot of things at the same time. 2heseactivities made his career brillant.

• 'n 1511 Keynes became coeditor +with an other economist 7. <.4dgeworth) of the conomic /ournal, the o=cial organ of the>oyal 4conomic Society +that still exists, they do conferences).He hold this position until 15;.

• 'n 151* he published a wor$ on international #nance rlated tothe gold exchange standard, 'ndian 9urrency and 7inance. 8nd@uic$ly becoming famous as a monetary expert and entered thetreasury department in 151;. He stayed there until the war.

7/23/2019 ECON 361 2015-2016 - WEEK 12 - KEYNES


• He was assigned as a -ritish treasury representative to theconference of Aersailles.

• 1515 Keynes attac$ed the conditions of the treaty in a boo$

that he wrote & The Economic Consequences of the Peace. 2he boo$ was an immense critical success, urging as it didmoderation in the demands upon defeated Bermany.

• :uring the 15!6%s, Keynes taught at Kin$s 'olle$e. He wasan enthusiastic *ecturer but he reduced his teaching load inorder the engage in a multitude of other activities. 7or exemplehaving a fortune CCC +about half a million pounds in 15*D) bys"eculatin$ in the orei$n e&chan$es.

7/23/2019 ECON 361 2015-2016 - WEEK 12 - KEYNES


• He passed the civil servantexamination and was signed to aproposition in te 'ndian o=ce. 8fter a

while, he devoted a large part of histime to a study of probability tehory.He wrote Treatise on Probability

+15!1).• He became the board of the famous

liberal wee$ly 0ation.

7/23/2019 ECON 361 2015-2016 - WEEK 12 - KEYNES


• He has the duties of bursar +#nancial analystand manager) of King%s 9ollege, for which hereceived, in the beginning, 166 pounds per year.

• • 15!*, Keynes published his Tract on Monetary

Reform. 2his boo$ became polemic , it wasaganist the gold standard.

• En 15!; Keynes married ydia opo$ova, a primaballerinas.

7/23/2019 ECON 361 2015-2016 - WEEK 12 - KEYNES


7/23/2019 ECON 361 2015-2016 - WEEK 12 - KEYNES


7/23/2019 ECON 361 2015-2016 - WEEK 12 - KEYNES


• 2he two(volume Treatise on Money appeared in late15*6. 'n this boo$, saving and investement were in the#rst roles inFuenceing the level of incomes.

•

En 15*1 he wrote Essays in Persuasions. 8nd 4ssays iniography +15**). He defends his thesis in General Theory.

• 'n 15*6%s Keynes get too involved with the #nancialburdends imposed by the impending was with Bermany.

2he problems of reordering wartime resource prioritiesand the excess demand thereby created are dealth with inHow to Pay for the War , published in 156.

7/23/2019 ECON 361 2015-2016 - WEEK 12 - KEYNES


• -etween 151 and 15G, Keynesnegotiated wartime lend(lease #nancing,and in 15G, he was instrumental in

arranging the arshall loan to -ritain.• 2hat same year Keynes was made a vice

president of the +orld ,an , and planto restore the international monetarysystem +which were made in ,retton+oods, 0ew Hampshire).

7/23/2019 ECON 361 2015-2016 - WEEK 12 - KEYNES


• 'n the summer of 15G, at the age of sixty(three, Keynesdied of heart attac$.

• $. "hat about his theory?

• 7or this we have to go bac$ to General Theory .• ' would li$e to remind you that this boo$ too$ place in a

milieu of depression. 7rom the beginning of 15*6, Keyneshas been much concerned with the employment crisis that

aected IS8 and 4nglad very badly.• He voiced this concern in several communi@uJs to

3resident >oosevelt, including a famous open letter to himin the New York Times.

7/23/2019 ECON 361 2015-2016 - WEEK 12 - KEYNES


• "hat has Keynes adviced to >oosevelt?

• a$ing vigorous use of #scal policy +government tax andexpenditure policy) to supplement the mar$et mechanism of theprivate sector, which, in Keynes%s view, was failing to get at theemployment problem.

• :id >oosevelt listened him? 3artially.

• Keynes himself has raised @uestions concerning the ade@uacy ofneoclassical monetary theory in his Treatise on Money . Hiscolleagues were focusing upon the importance of expendituresin aggregate output determination.

•

7/23/2019 ECON 361 2015-2016 - WEEK 12 - KEYNES


• Here we should tal$ about a concept & in.estmentmulti"lier developped by >ichard Kahn. Have discussed alot in 9ambridge. Keynes mentions it in the preface ofBeneral 2heory. '%ll explain this concept afterward.

• 2here was a pressure on Keynes and he wanted to proposean alternative to neoclassical economics. He started, in histheory, with reacting to the 9lassics. "ha are classics? 0ow

you should tell me the list, ' have mentionned their namesseveral times.

• Keynes%s >eaction to the 9lassics

7/23/2019 ECON 361 2015-2016 - WEEK 12 - KEYNES


Keynes%s >eaction to the 9lassics

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ECON 361 2015-2016 - WEEK 12 - KEYNES