John Maynard Keynes

By Friedman, Milton | Economic Quarterly - Federal Reserve Bank of Richmond, Spring 1997 | Go to article overview

John Maynard Keynes


Friedman, Milton, Economic Quarterly - Federal Reserve Bank of Richmond


John Maynard Keynes (1883-1946) is the latest in a line of great British economists who had a profound influence on the discipline of economics. By common consent, the line starts with Adam Smith (1723-1790), whose Wealth of Nations (1776) is generally regarded as the founding document of modern economics. It continues with David Ricardo (1772-1823), whose Principles of Political Economy (1817) dominated classical economics for much of the nineteenth century, and, incidentally, provided Karl Marx with one of his central concepts: the labor theory of value. John Stuart Mill's (18091873) Principles of Political Economy, published in the same year, 1848, as the Communist Manifesto by Marx and Engels, became the standard textbook in the English-speaking world-and beyond-for decades. William Stanley Jevons's (1835-1882) Theory of Political Economy (1871) inaugurated the "marginal revolution," which replaced, or supplemented, emphasis on cost of production (supply) as determining value with emphasis on utility (demand). He resolved the classic diamond-water paradox-diamonds are a luxury, water a necessity, yet diamonds command a higher price than water-by showing that "marginal utility"-the utility gained from having one more unit of something-not "total utility" plays the key role in determining price. Alfred Marshall (1842-1924), Keynes's own teacher, guide, and patron, dominated economics in the Englishspeaking world from the publication of the first edition of his classic, Principles of Economics (1890), to the 1930s.

Keynes clearly belongs in this line. In listing "the" classic of each of these great economists, historians will cite the General Theory as Keynes's pathbreaking contribution. Yet, in my opinion, Keynes would belong in this line even if the General Theory had never been published. Indeed, I am one of a small minority of professional economists who regard his Tract on Monetary Reform (1923), not the General Theory, as his best book in economics. Even after sixty-five years, it is not only well worth reading but continues to have a major influence on economic policy.

1. KEYNES'S LIFE

From 1908 to his death in 1946, Keynes was an active Fellow of King's College, Cambridge, influencing successive generations of students. For many years, he was also Bursar of King's College, and is credited with making it one of the wealthiest of the Cambridge colleges. From 1911 to 1944, he was the editor or joint-editor of the Economic Journal, at the time the leading professional economic periodical in the English-speaking world. Simultaneously, he was also Secretary of the Royal Economic Society.

Despite his lifelong commitment to economics, the earliest work he completed-though not the earliest to be published-was in mathematics not economics-A Treatise on Probability-essentially completed by 1911, but first published in 1921. It is a mark of Keynes's range, creative originality, and insight that much recent work in statistics has returned to the themes of the Treatise on Probability. In economics, his first major publication was Indian Currency and Finance (1913), a product of his service in the India Office of the British government from 1906 to 1908.

Monetary Reform (1923) was followed in 1930 by the two-volume Treatise on Money, much of which remains of value, though Keynes himself came to regard its theoretical analysis as simply a step on the road to the General Theory, the last of his major works. These major works were supplemented by numerous articles, reviews, and biographical essays on some of his predecessors.1

Keynes's interest and influence were by no means limited to the confines of the academy. For decades he exerted a major influence on public affairs and played an active role in the world of business. His Economic Consequences of the Peace (1919), based on his activities as an adviser to the British Treasury during the negotiation of the Versailles Peace Treaty, had a major impact on public opinion and public policy, not only in Britain but throughout the world, and not only immediately. …

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