Background+and+early+career+

! ! ! John!Maynard!Keynes!was!born!on!5!June!1883!in!Cambridge,!England.!His!family!was! an!upper@middle@class!one,!since!his!father,!John!Neville!Keynes,!was!an!economist!and! a! lecturer! in! moral! sciences! at! the! University! of! Cambridge! and! his! mother,! Florence! Ada!Keynes,!a!local!social!reformer.! ! Keynes!early!education!was!both!at!home!and!in!a!kindergarten.!He!attended!the!Perse! School! as! a! day! pupil! from! 18921897,! where! his! teachers! described! him! as! being! brilliant,!however!sometimes!careless!and!lacking!some!determination.!In!1897,!he!won! a!scholarship!to!Eton,!a!school!where!he!showed!his!talent!in!various!subjects,!ranging! from! mathematics,! to! history! and! the! classics.! Keynes! went! to! Kings! College! in! Cambridge! in! 1902,! after! receiving! a! scholarship! to! study! mathematics.! While! in! Cambridge,!he!met!several!important!people!such!as!writers!and!artists.! !! After!finishing!his!Bachelors!Degree!in!1905!and!his!Masters!in!1909,!Keynes!became!a! civil!servant,!taking!a!job!with!the!India!Office!in!Whitehall.!It!was!due!to!his!experience! there!that!he!was!able!to!collect!the!information!for!his!first!major!work,!called!Indian! Currency!and!Finance!(1913),!an!examination!of!the!Indian!finance!and!currency!during! the! period! pre@World! War! I.! He! then! returned! to! Cambridge,! where! he! taught! economics!until!1915!at!Kings!College.! ! ! !

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Key+contributions+
World+War+I+ As! the! WWI! started,! Keynes! had! gone! back! to! being! a! Government! employee,! but! this! time!in!the!Treasury!office.!There,!he!studied!Britains!relationships!with!its!allies!and! made!some!recommendations!of!means!of!conserving!Britains!scant!supply!of!foreign! currencies.!This!was!a!period!when!England!was!once!again!an!experimental!laboratory! for! economic! theory,! and! the! public! debate! on! economic! policy! comprised! two! main! issues:! first,! the! discussion! on! whether! or! not! to! return! to! the! Gold! Standard;! and! second,!the!problem!of!the!high!unemployment!at!the!time.! The!British!Government!was!being!pushed!by!private!bankers!in!order!to!suspend!the! payments! in! specie! @! the! convertibility! of! banknotes! into! gold.! Keynes! was! called! into! this!subject!due!to!his!expertise!and!argued!that,!since!London!was!the!prime!financial! market!of!gold,!huge!losses!should!be!expected!if!the!payment!of!gold!was!suspended!at! the! first! signs! of! a! crisis.! As! an! alternative,! he! proposed! that! the! transactions! only! for! internal! trading! should! be! suspended,! while! increasing! regulations! in! the! foreign! trading!of!gold.!Through!this!method,!the!gold!reserves!at!the!Bank!of!England!would!be! protected.! ! The+Versailles+Treaty+ While! working! in! the! British! Treasury! in! 1919,! Keynes! was! entrusted! with! the! negotiations! of! the! compensation! to! be! paid! by! Germany! due! to! the! damages! caused! during!WWI.!During!these!negotiations,!Keynes!tried!to!ensure!that!the!compensation! payments!Germany!was!to!incur!in!were!not!set!too!high,!so!that!they!would!not!harm! the! economic! development! of! the! following! generations,! if! they! were! left! with! a! significant!debt!to!be!paid.!High!compensation!payments!for!Germany!would!also!have! another! effect:! they! would! damage! the! nations! ability! to! pay! and! hence! greatly! limit! their!ability!to!import!goods!from!other!countries.!This!would!be!harmful!not!only!for! the!German!economy,!but!would!also!have!worldwide!impacts.! Although!Keynes!did!his!best!to!avoid!it,!the!conference!resulted!in!the!Versailles!treaty,! which!was!an!outcome!he!was!not!pleased!with!on!both!moral!and!economic!grounds! and!subsequently!led!to!his!resignation!from!the!Treasury!office.!

However,!he!took!an!activists!role,!by!transforming!his!personal!distress!regarding!this! treaty!into!a!public!protest.!In!the!summer!of!1919!he!composed!the!indictment!of!the! Versailles!settlement,!the!book!The$Economic$Consequences$of$the$Peace,!which!reached! the!bookstores!at!Christmas!that!same!year.!This!polemic!essays!importance!lies!mainly! in! its! economic! analysis! of! the! consequences! of! the! stringent! reparations! placed! upon! Germany! and! the! lack! of! probability! that! the! country! would! ever! be! able! to! pay! these! debts.!Unfortunately,!Keynes!predictions!of!disaster!came!true!by!1923,!when!Germany! suffered!a!hyperinflation!period,!followed!by!the!collapse!of!the!Weimar!Republic,!the! rise!to!power!of!the!National!Socialist!Party!and!the!outbreak!of!World!War!II.!Also,!as! Keynes!predicted,!only!a!fraction!of!the!reparations!owed!by!Germany!were!ever!paid.! ! Great+Depression+ At! the! height! of! the! Great! Depression,! in! 1933,! Keynes! begun! a! theoretical! work! to! examine!the!relationship!between!unemployment,!money!and!prices!back!in!the!1920s.! One!of!the!main!ideas!of!his!work!was!that!if!the!amount!of!money!saved!is!higher!than! that!of!the!money!invested!@!which!is!likely!to!happen!if!the!interest!rates!are!too!high!! it! will! lead! to! a! rise! in! unemployment,! which! in! turn! will! happen! due! to! the! fact! that! people!would!not!want!to!spend!a!high!proportion!of!what!employers!pay!them,!making! it!difficult!for!employers!to!make!a!profit!and!more!unemployment.!! Also! during! this! time,! Keynes! wrote! The$Means$to$Prosperity:! a! book! which! contained! several! policy! recommendations! for! tackling! unemployment! in! a! global! recession,! mainly! counter@cyclical! public! spending.! In! this! book,! Keynes! mentions! the! multiplier! effect!for!one!of!the!first!times.! The$ General$ Theory$ of$ Employment,$ Interest$ and$ Money! @! Keynes! main! work! @! was! published! in! 1936.! This! work! was! used! as! a! theoretical! justification! for! the! interventionist! policies! favoured! by! Keynes! in! order! to! tackle! a! recession.! This! book! challenged!the!existing!neo@classical!economic!paradigm,!which!stated!that!the!market! would! naturally! establish! full! employment! equilibrium! if! it! was! not! subject! to! Government! interference.! Keynes! General$ Theory! argued! that! the! key! variable! when! governing!the!overall!level!of!economic!activity!is!the!demand!and!not!the!supply.!The! aggregate!demand!@!equal!to!the!total!un@hoarded!income!in!a!society!@!is!defined!by!the! sum!of!consumption!and!investment.!Keynes!advocated!that!in!a!state!of!unemployment! and!unused!production!capacity,!the!only!way!to!enhance!employment!and!total!income!

is!through!the!increasing!of!expenditures!for!either!consumption!or!investment.!If!there! is!no!governmental!intervention!to!increase!expenditure,!an!economy!can!stay!trapped! in!a!low!employment!equilibrium,!hence!the!book!favoured!activist!economic!policy!by! the! governments! to! stimulate! demand! when! facing! times! of! high! unemployment.! One! way!of!doing!so!may!be!spending!on!public!works,!for!instance.! According! to! Keynes,! the! solution! to! the! Great! Depression! would! be! to! stimulate! the! economy! through! a! combination! of! two! different! approaches:! first,! a! reduction! in! interest!rates!and!second,!government!investment!in!infrastructure.!The!combination!of! the!two!would!lead!to!an!income!injection,!resulting!in!more!spending!in!the!economy! and! in! turn! stimulating! more! production! and! investment,! resulting! in! a! cascade! of! events.! Keynes! idea! was! to! have! Governments! run! deficits! when! the! economy! is! slowing!in!order!to!keep!people!fully!employed,!because!the!private!sector!is!not!able!to! invest!enough!to!keep!production!at!the!normal!level!and!pull!the!economy!out!of!the! recession.! One!of!the!main!conclusions!of!the!Keynesian!economics!is!that!in!some!situations,!there! is!no!strong!automatic!mechanism!that!can!move!output!and!employment!towards!full! employment!levels;!which!conflicts!with!the!economic!approaches!that!assume!a!strong! general!tendency!towards!equilibrium.! ! World+War+II+and+the+Post=War+Period+ In!How$To$Pay$For$The$War,!published!in!1940,!Keynes!argued!that!the!war!effort!should! be!largely!financed!by!higher!taxes!and!by!compulsory!savings!(workers!lending!money! to! the! government),! rather! than! deficit! spending! in! order! to! avoid! inflation.! Domestic! demand! would! be! dampened! through! compulsory! savings,! by! assisting! in! channeling! additional! output! towards! the! war! efforts.! Also,! it! would! be! fairer! for! citizens! than! punitive! taxation! and! would! have! the! additional! advantage! of! helping! to! avoid! a! post@ war!slump!@!when!workers!were!allowed!to!withdraw!their!savings,!demand!would!be! boosted.! ! As! the! leader! of! the! British! delegation! and! chairman! of! the! World! Bank! Commission,! Keynes! was! highly! involved! in! the! negotiations! that! established! the! Bretton! Woods! system! by! mid@1944.! His! proposal! was! to! create! new! global! institutions! in! order! to! manage! an! international! trade! and! payments! system! with! strong! incentives! for!

countries! to! avoid! having! substantial! trade! deficits! or! surpluses.! The! two! institutions! created!were!founded!as!a!compromise,!primarily!reflecting!the!American!vision!@!the! World! Bank! and! the! International! Monetary! Fund! (IMF).! The! states! would! not! be! encouraged! to! avoid! having! a! large! trade! surplus,! however,! the! burden! for! correcting! trade!imbalances!would!continue!to!fall!solely!on!the!deficit!countries!@!those!argued!by! Keynes! to! be! less! able! to! address! that! problem! without! a! severe! economic! hardship! inflicted!on!their!populations.!However,!Keynes!was!pleased!when!he!accepted!the!final! agreement,! and! stated! that! if! the! institutions! managed! to! stay! true! to! their! founding! principles,!"the!brotherhood!of!man!will!have!become!more!than!a!phrase."! ! Keynes+Legacy+ Keynes! ideas! profoundly! affected! both! the! theory! and! practice! of! modern! macroeconomics!and,!consequently,!the!governments!economic!policies.!He!refined!the! causes! of! business! cycles,! and! furthermore! advocated! the! use! of! fiscal! and! monetary! measures! in! order! to! mitigate! the! adverse! effects! of! economic! recessions! and! depressions,! ideas! that! became! the! basis! for! the! school! of! thought! known! as! the! Keynesian! Economics! and! its! various! offshoots.! He! has! also! been! an! inspiration! for! economic!policy!makers!not!only!in!Europe,!but!also!in!America!and!much!of!the!rest!of! the!world.! ! In!the!mid!and!late!1930s!economists!and!policy!makers!had!increasingly!surrendered! to! Keynes! way! of! thinking,! but! it! was! only! after! the! outbreak! of! WWII! that! the! Governments! started! borrowing! money! to! spend! in! a! sufficient! scale! as! to! eliminate! unemployment.! ! His!ideas!became!so!popular!and!spread!through!the!Keynesian!Economists!that!some! scholars! refer! to! Keynes! as! the! representative! of! the! ideals! of! modern! liberalism,! as! Adam!Smith!represented!the!ideals!of!classical!liberalism.! ! ! Vasco!Pena!Monteiro! #!54386! !