Economics and Business

Adam Smith

What is Keynesian economics?

Keynesian economics are the collected theories of British economist and monetary expert John Maynard Keynes (1883–1946), who in 1935 published his landmark work, The General Theory of Employment, Interest and Money. A macroeconomist (he studied a nation’s economy as a whole), Keynes departed from many of the concepts of a free-market economy. In order to ensure growth and stability, he argued that government needs to be involved in certain aspects of the nation’s economic life. He believed in state intervention in fiscal policies, and during recessionary times he favored deficit spending, the loosening of monetary policies, and government public works programs (such as those of President Franklin D. Roosevelt’s New Deal) to promote employment. Keynes’s theories are considered the most influential economic formulation of the twentieth century.

Having played a central role in British war financing during World War II (1939–45), Keynes participated in the Bretton Woods Conference of 1944, where he helped win support for the creation of the World Bank, which was established in 1945 as a specialized agency of the United Nations. The body aims to further economic development by guaranteeing loans to nations, extending easy credit terms to developing nations, and providing risk capital to promote private enterprise in less-developed nations. It’s interesting to note that Keynes was a key representative at the Paris Peace Conference of 1919, where the Treaty of Versailles was drawn up, officially ending World War I (1914–18). He quit the proceedings in Paris, returned to private life in London, and in 1919 published The Economic Consequences of Peace, in which he argued against the excessive war reparations that the treaty required of Germany. Keynes foresaw that the extreme punishment of Germany at the end of World War I would pave the way for future conflict in Europe.


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