John Maynard Keynes
John Maynard Keynes, 1st Baron Keynes ( KAYNZ; 5 June 1883 – 21 April 1946), was an English economist and philosopher whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. Originally trained in mathematics, he built on and greatly refined earlier work on the causes of business cycles. One of the most influential economists of the 20th century, he produced writings that are the basis for the school of thought known as Keynesian economics, and its various offshoots. His ideas, reformulated as New Keynesianism, are fundamental to mainstream macroeconomics. He is known as the “father of macroeconomics”.
During the Great Depression of the 1930s, Keynes spearheaded a revolution in economic thinking, challenging the ideas of neoclassical economics that held that free markets would, in the short to medium term, automatically provide full employment, as long as workers were flexible in their wage demands. He argued that aggregate demand (total spending in the economy) determined the overall level of economic activity, and that inadequate aggregate demand could lead to prolonged periods of high unemployment, and since wages and labour costs are rigid downwards the economy will not automatically rebound to full employment. Keynes advocated the use of fiscal and monetary policies to mitigate the adverse effects of economic recessions and depressions. After the 1929 crisis, Keynes also turned away from a fundamental pillar of neoclassical economics: free trade. He criticized Ricardian comparative advantage theory (the foundation of free trade), considering the theory’s initial assumptions unrealistic, and became definitively protectionist. He detailed these ideas in his magnum opus, The General Theory of Employment, Interest and Money, published in early 1936. By the late 1930s, leading Western economies had begun adopting Keynes’s policy recommendations. Almost all capitalist governments had done so by the end of the two decades following Keynes’s death in 1946. As a leader of the British delegation, Keynes participated in the design of the international economic institutions established after the end of World War II but was overruled by the American delegation on several aspects.
Keynes’s influence started to wane in the 1970s, partly as a result of the stagflation that plagued the British and American economies during that decade, and partly because of criticism of Keynesian policies by Milton Friedman and other monetarists, who disputed the ability of government to favourably regulate the business cycle with fiscal policy. The 2007–2008 financial crisis sparked the 2008–2009 Keynesian resurgence. Keynesian economics provided the theoretical underpinning for economic policies undertaken in response to the 2007–2008 financial crisis by President Barack Obama of the United States, Prime Minister Gordon Brown of the United Kingdom, and other heads of governments.
When Time magazine included Keynes among its Most Important People of the Century in 1999, it reported that “his radical idea that governments should spend money they don’t have may have saved capitalism”. The Economist has described Keynes as “Britain’s most famous 20th-century economist”. In addition to being an economist, Keynes was also a civil servant, a director of the Bank of England, and a part of the Bloomsbury Group of intellectuals.
Keynesian pragmatism is a way of thinking that incorporates Keynes's economic theories with the pragmatic philosophy that practical matters are important. Keynesian economics emphasizes the role of government intervention to stabilize the economy.
Keynesian economics
- Keynes believed that low demand could lead to high unemployment.
- He argued that the government could increase demand by spending money or cutting taxes.
- Keynes believed that government intervention could help stabilize the economy.
Pragmatism
- Pragmatism is a philosophy that emphasizes practical matters and research with practical benefits.
- It involves making operational decisions based on what will work best to solve problems.
- In economics, pragmatism involves considering a variety of human behaviors and motivations, including values and beliefs.
Keynesian pragmatism
- Keynesian pragmatism combines Keynes’s economic theories with the pragmatic philosophy.
- It emphasizes the importance of practical matters and research with practical benefits.
- It also considers a variety of human behaviors and motivations.
Keynesian pragmatism (“In the long run, we are all dead.”)
Islam rejects short-term materialism in favor of long-term accountability:
“The life of this world is only the enjoyment of deception.”
— Qur’an 3:185