The Influence of Keynes

Keynes begins by stating that inflation and deflation redistribute wealth amongst the social classes. He distinguishes between the investing class, the business class, and the wage earner. Inflation and deflation are both bad and to be avoided. Deflation forces businesses to produce less and ultimately lay off workers, increasing unemployment. Inflation leads to the over stimulation of business and hurts the consumer.

Regardless of whether one is pro-market or anti-market in his/her view of the economy, it must be admitted that John Maynard Keynes was a tremendously influential economist. Staunch pro-market advocates may be extremely critical in evaluating Keynes’ fundamental beliefs. Similarly, radical anti-market believers disagree with Keynes in principle. However, most moderates in between these two extremes probably have a fairly positive view of Keynes’ impact on the 20th Century and beyond.

As a supporter of government regulation of the economy, I side with the Keynes admirers. Clearly his most famous and radical idea was that governments should spend money they don’t have during times of depression. Keynes’ proposal probably saved capitalism from itself. The 1930s was a time of uncertainty and fear. The Great Depression led some to believe that problems inherent in capitalism made Marxism more attractive. Keynes saw the rampant unemployment and sought to curtail it by instructing government to spend money which the private sector could not. Most will argue that the United States was only able to come out of the Great Depression and commence economic prosperity because of the massive World War II military buildup. Although this is true, students of history will give Keynes more credit because FDR never fully instituted Keynes’ economic philosophies until American involvement in World War II began.

I wonder what Keynes would say of America's deficit spending nowadays. Clearly the $8.6 trillion hole that has been dug is too deep and very unhealthy for the economy. A large deficit encourages inflation because an inflated currency makes the debtors payments much easier. Interestingly enough, the US national debt did not begin to skyrocket until the 1980s, when Ronald Reagan introduced supply-side economics. Although Reaganomics is complicated, it essentially advocates deregulation of markets and lower taxes.

One aspect of the current economy he would not agree with would be the Bush administration tax cuts, which have almost completely favored the very wealthy. As his writings indicate, Keynes believed Britain could pay for World War II by raising taxes on the most affluent Britons.

Overall, Keynes’ piece was boring at times, but still fairly interesting to me. Being a finance major, I have been exposed to Keynes in the past, and his concepts were easier understood the second time around. Clearly Keynes has withstood the test of time. American economists and politicians still frequently debate deficit spending, inflation policies, taxation, and government’s role in the economy. Of course, many of these topics were more or less introduced by Keynes himself, as economists before his time were typically fervent believers of laissez-faire capitalism. This new perception of the economy and how to run it, is undoubtedly Keynes’ greatest accomplishment.