John Maynard Keynes (1883-1946)

The theory of economics throughout the ages

The most prominent twentieth century economist, Keynes (pronounced like "Canes," not "Keens," as in "The Keynes Mutiny" below) was also a financial genius. Like David Ricardo, he could predict the stock market with great accuracy. Before Keynes, most economists still followed Adam Smith's idea of laissez-faire: leave the market alone and it (or rather the invisible hand) will run itself. No need for government intervention. If the government would only stay out of the economy, it would run great. Right? Sure, at least until the Great Depression came along. The Great Depression showed that, in times of severe economic crisis, it may become necessary for the government to give the economy a boost, in order to get it back on its feet.
In 1936 Keynes published one of the most influential economics texts ever written: The General Theory of Employment, Interest, and Money, usually called simply The General Theory. Until this time the area of microeconomics was basically all there was to economics: economists delt with the market, supply vs. demand, and generally small-scale issues. Keynes emphasized a broader view, macroeconomics, which views the relationships between markets, foreign trade, private and public (i.e. government) spending - in short, the combined effect of every aspect of the economy.

Keynes claimed that the government needed to stimulate the economy in times of recession. In modern times, Keynes's ideas, as amazing and relevant as they were in the time of the Depression, have fallen into doubt. The "Keynes Mutiny" is the term given to Reagan's supply-side economic policies which proved that Keynes's ideas simply don't always work.
A large part of the debate over Keynes is that many people simply don't trust the government, and don't like the idea of it messing around in our economy. Still, the Great Depression showed that some government help is vital on rare occassions. Reagan, on the other hand, showed that some government "help" can be very bad at times. From roughly 1870 to 1980, when adjusted for inflation, the gross national product (the total amount of goods produced in the U.S.) grew continuously with about the same annual percentage of increase. In the 1980s,  the GNP grew at only about half the rate it had grown before, but also, more income was redistributed to the very wealthy. The people in the lower 80% income range suffered a depression in the 1980s. Does this reflect badly on Keynes? In a way, but at his time his ideas were necessary and important to our economy.
Before Keynes it was believed that the economy would keep improving; even to Marx, a failure would be only temporary and would eventually fix itself. A crisis would generate new opportunities for profit. Keynes believed that the economy could stagnate, and remain in that state, even if there were unused resources. In other words, capitalism has no intrinsic ability to keep growing no matter what. This idea was truly revolutionary, and showed that the government can be the only way an economy in deep depression can find its way out.

Smith, Ricardo, Malthus, Marx, Keynes - though their ideas may be dated, they still helped shape our modern picture of capitalism. An awareness of their ideas helps us to view our economy from a new perspective. We do not know what the future of economic theory will bring, but it will surely be built on the firm foundation that these few great visionaries established.