Tuesday, June 9, 2009

Backgrounder on John Maynard Keynes

The General Theory and the Current Crisis: A Primer on Keynes’ Economics
The “Revolutionary” Who Wasn’t
By Alejandro Reuss
Dollars and Sense

Keynes is often described as a “revolutionary” thinker. In one sense, this is correct. Keynes was one of the most important economic thinkers of modern times, and his ideas were at the center of a major “paradigm shift” in economic theory and policy. He issued his masterwork, The General Theory of Employment, Interest, and Money (1936), at a critical juncture, in the middle of the Great Depression, when the orthodox views from which he had broken seemed at a loss to explain the crisis or a way out of it.

Keynes was not the first major economic theorist to understand that capitalist economies were prone to depressions (Marx had written on the subject nearly a century before), nor was he the only major economist of his generation to arrive at the basic insight that total demand could fall short of the level required to ensure full employment. (Some others, most notably the Polish economist Michal Kalecki, came to the same conclusions separately from, and even slightly earlier than, Keynes.) Keynes, however, was already a major figure in British economics and politics at a time when Britain was a much more important world power than today, so his ideas had a bigger impact in ruling circles than they would have coming from elsewhere, or from economists with a more radical views about the changes necessary to cure the problem.

As “revolutionary” a figure as Keynes was in the history of economic thought, he was, in another sense, a profoundly anti-revolutionary thinker. This is not to say that the changes he proposed, particularly in the role of government in capitalist economies, were trivial. He believed the problems of capitalism—especially the “arbitrary and inequitable” distribution of income and wealth and the “failure to provide full employment”—were very serious, and he did not think that these “outstanding faults” of capitalist economies would fix themselves. He thought that the state would have to play a major role in fixing them. However, as much as it was his goal to get rid of what he considered bad about capitalist societies, he also aimed to preserve what he considered good about them, which was a great deal.