John Maynard Keynes, 1920s

John Maynard Keynes

John Maynard Keynes is unquestionably the major figure in 20th century economics. His reputation does not rest solely on the General Theory of Employment, Interest and Money (1936), which initiated the so-called Keynesian Revolution, but also on his other writings, most notably A Treatise on Probability (1921) and A Treatise on Money (1930).

He lived life to the fullest, not only as an economist and statesman, but also as a journalist, art collector, bibliophile, and patron of the arts.

His criticism of the peace treaty of Versailles (1919) with Germany in The Economic Consequences of the Peace (1919) made him famous overnight and effectively undermined public support for the treaty.

During the crises of the 1920s he came increasingly to identify conservative economic policies as the cause of Britain’s economic problems. From this beginning, he developed a new theory of income determination, grounded in the concept of the ‘consumption function,’ the ‘liquidity preference theory of interest,’ and the inflexibility of money wages.

The unemployment crises inspired his two great works, A Treatise on Money and the revolutionary General Theory of Employment, Interest and Money. He argued that full employment was not an automatic condition, expounded a new theory of the rate of interest, and set out the principles underlying the flows on income and expenditure, and fought the Treasury view that unemployment was incurable.

John Maynard Keynes development the field of macroeconomics. He also argued that market economies do not correct the economy very quickly because prices and the market take time to adjust. He thought that government intervention could help the economy. This was a radical idea, and while his point was not promoting communism, it did challenge traditional Adam Smith economics.

Ludwig von Mises and Friedrich von Hayek are the founders of the Austrian School of Economics. They argued that government regulation never produce the results it promised. Milton Friedman brought this tradition into western economic thought. Friedman thought that the great depression was actually a cause of incorrect government oversight. His thinking led to the Chicago School of Economics.

Keynesian vs. Supply Side Economics

Unemployment, Keynes showed, was due to a deficiency in the demand for goods and services. Governments could, by adjusting their own spending, overcome that deficiency. Control of the money supply and interest rates could also influence investment.

Economic cycles could be ameliorated by macro-economic fine-tuning. The scourge of unemployment could be eliminated through enlightened monetary and fiscal policies.

In addition to giving influential advice to the British Treasury, Keynes’s views on a planned economy influenced Roosevelt’s “New Deal” administration.

He also played a central role in the Bretton Woods Conference of 1944 which created the International Monetary Fund and the International Bank for Reconstruction and Development.

His influence on economics was such that the thirty-year boom in Western industrial countries (1945-75) has been called the Age of Keynes.

https://youtu.be/hPkh8kOldU4

This is a Khan Academy video about Keynesian economics.

7 Things You May Not Know about John Maynard Keynes

Ludwig von Mises

 Ludwig von Mises was one the last members of the original Austrian school of economics. He earned his doctorate in law and economics from the University of Vienna in 1906.

One of his best works, The Theory of Money and Credit, was published in 1912. In that book, which was used as a money and banking textbook for the next two decades, Mises extended Austrian marginal utility theory to money. Money, noted Mises, is demanded for its usefulness in purchasing other goods, rather than for its own sake.

In that same book Mises also argued that business cycles were caused by the uncontrolled expansion of bank credit. In 1926 Mises founded the Austrian Institute for Business Cycle Research. His most influential student, who later developed Mises' business cycle theories, was Friedrich Hayek. Another notable contribution by Mises was his claim that socialism must fail economically. In a 1920 article Mises argued that a socialist government could not make the economic calculations required to organize a complex economy efficiently. Although socialist economists Oskar Lang and Abba Lerner disagreed with Mises, modern economists agree that Mises' argument, combined with Hayek's elaboration of it, is correct.

Mises believed that economic truths are derived from self-evident axioms and cannot be empirically tested. In his magnum opus, Human Action, and in other publications, Mises laid out these views. His view failed to persuade many economists outside the Austrian school. Mises was also a strong proponent of laissez-faire; he advocated that the government not intervene anywhere in the economy. Interestingly, though, even Mises made some striking exceptions to this view. For example, he believed that military conscription could be justified in wartime.

Mises was rare, for someone of his stature within the economics profession, in not having a paying academic job for much of his professional life. From 1913 to 1934 Mises was an unpaid professor at the University of Vienna. His salaried job from 1909 to 1934 was as an economist for the Vienna Chamber of Commerce, in which capacity he served as the principal economic adviser to the Austrian government. To avoid the Nazi influence in his Austrian homeland, in 1934 Mises left for Geneva, where he was a professor at the Graduate Institute of International Studies until 1940. In 1940 he emigrated to New York City. He was a visiting professor at New York University from 1948 until he retired in 1969. During those years his salary was paid by a private foundation.

Not only did Mises not have a regular tenure-track academic job, but his ideas—on economic reasoning and on economic policy—were out of fashion during the Keynesian revolution that took over American economic thinking from the mid-thirties to the sixties. Possibly both factors made Mises bitter from the late forties on, something that was not true early in his professional life. The contrast between his early view of himself as a mainstream member of his profession and his later view of himself as an outcast shows up starkly in The Theory of Money and Credit. The first section, written in 1912, is calmly argued; the last section, added in the forties, is strident.

Mises had a strong influence on young people. A resurgent Austrian school in the United States owes itself to Mises' persistence.

Friedrich von Hayek

Friedrich von Hayek (1899-1992) was an Austrian-born economist and Nobel laureate. Born in Vienna, von Hayek earned a doctorate at Vienna University in 1927 and spent some years in public service. 

He began a long academic career by holding the post of professor of economics and statistics at the University of London (1931-50). Subsequently he was professor of moral and economic science at the University of Chicago (1950-62).

An economic traditionalist, von Hayek won a wide reputation with The Road to Serfdom (1944), in which he argued that governments should not intervene in the control of inflation or other economic matters. He retired in 1962 but was later appointed professor of economics at the University of Freiburg, in West Germany (now part of Germany). 

Returning to Austria in 1969, he became visiting professor at the University of Salzburg. In 1974 he and the Swedish economist Gunnar Myrdal received the Nobel Prize in economic science for their “pioneering work in the theory of money and economic fluctuations and for their pioneering analysis of the interdependence of economic, social, and institutional phenomena.”

Milton Friedman

Milton Friedman (1912-2006) was an American economist and Nobel Prize laureate who influenced the economic policies of several U.S. presidents including Nixon, Ford, and Reagan.

Click here for a brief autobiography by Milton Friedman.

Milton Friedman was born in New York City. He obtained a bachelor’s degree from Rutgers University and a master’s degree from the University of Chicago. He worked as an economist with various federal agencies in Washington, D.C., from 1935 to 1940 and from 1941 to 1943. In 1946 he joined the economics department at the University of Chicago after obtaining his Ph.D. in economics from Columbia University in New York City. Friedman became a leading figure in what was known as the Chicago School, a group of economists who adhered to neoclassical economics. In 1977 he became a senior fellow at the Hoover Institution based at Stanford University in California.

Friedman strongly advanced the economic theory that free-market forces, rather than increased government intervention, can most effectively produce a balanced and noninflationary rate of economic growth. He was a leading figure for the argument that the Federal Reserve System can best promote economic stability by increasing the supply of money at a fairly fixed rate instead of sharply expanding or contracting it. This branch of economics is known as money supply theory or monetarism.

Friedman’s theory of monetarism influenced several Republican administrations and countered the theories of British economist John Maynard Keynes, whose economic policies had guided U.S. administrations since the New Deal. Keynes argued that government intervention was often necessary to stimulate the economy and bring the business cycle under control. Friedman’s influence probably reached its peak during the Reagan administration when he served on the Economic Policy Advisory Board

What this video to see what Friedman thought about giving to charity. Friedman's view has lead to a view of economics that does not allow companies to have any other goals besides making money. It actively does an allow for institutions and businesses to promote social change.

What this for a brief timeline of economic thought: