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Keynes, John Maynard

A leading twentieth-century British economist, who dealt with issues such as deficit spending and balance of payments between nations.

John Maynard Keynes’s views on trade and the importance of the balance of trade and payments changed over the course of his career, as manifested in his academic and polemical tracts and policy pronouncements. The two major influences on his views were the Ricardian-Marshallian approach, advocating free trade and comparative advantage, and the Malthusian approach, advocating expansion of “effective demand,” which in his view would, in turn, bring about an expansion of world trade. The former approach is reflected in Keynes’s Economic Consequences of the Peace (1919), in which he advocated free trade as a panacea for the economic ills of Europe following World War I, as he believed that only free trade would lead to economic growth.

Indeed, at the time Keynes pressed for what he called a “free-trade union,” within the context of the Treaty of Versailles, that, however, did not materialize. Keynes advocated this as he realized that for Germany to be able to meet reparations payments, it would be necessary to allow German access to European resources so as to enable it to increase productive capacity; and that this could only come about if the treaty allowed the creation of free trade between Germany and the Allies in coal and iron ore. It was only after the consequences of the lack of such an arrangement, and World War II, that a European Coal and Steel Community, which became the cornerstone of the Common Market and European Union, emerged.

At times, however, Keynes was ambivalent regarding the efficacy of free trade, especially when he considered the British situation. Indeed, in a series of polemic articles on “national self sufficiency” in the 1920s, he advocated import tariffs and export subsidies to improve the United Kingdom’s balance of trade and payments.

Over the course of the late 1920s and 1930s, his views changed. He adopted the notion of “effective demand,” which he attributed to Thomas Robert Malthus, and asserted that international coordination and stimulation of effective demand in the industrial countries would revive their foreign trade and ensure growth of world trade as a whole. He made forceful statements on the issue not only in his major theoretical contribution, The General Theory of Employment, Interest, and Money (1936), but also in his policy advice to the British and American governments. For example, in a May 1936 statement, communicated by Henry Wallace, then the secretary of agriculture, to Franklin D. Roosevelt, Keynes said that “if the industrial nations all set to work to increase their domestic demand, they would soon have a revival in their foreign trade without having to worry about it.”

Keynes’s penultimate approach to the issues appeared in his 1946 Economic Journal paper on the problem of the U.S. balance of payments, published posthumously, in which he synthesized the Ricardian-Marshallian and Malthusian-Keynesian approaches. He advocated a policy mix of “classical” and “modern medicine,” so as to bring about, in the “long run,” a tendency “toward equilibrium,” as he put it, and ultimately deal with problems in the balance of trade and balance of payments of the United States and other countries.

Warren Young

See also: World War II.

Bibliography

Colander, David C., and Harry Landreth, eds. The Coming of Keynesianism to America: Conversations with the Founders of Keynesian Economics. Cheltenham, UK: Edward Elgar, 1996.

De Angelis, Massimo. Keynesianism, Social Conflict and Political Economy. London: Macmillan, 2000.

Keyes, John Maynard. The Economic Consequences of the Peace. London: Macmillan, 1919.

———. The General Theory of Employment, Interest, and Money. London: Macmillan, 1936.

———. “The Balance of Payments of the United States.” Economic Journal 41, no. 222 (June 1946): 172–87.

Skidelsky, Robert. John Maynard Keynes. 3 vols. London: Macmillan, 1983–2000.