Economics A-Z terms beginning with K

A much quoted, great British economist, not famous for holding the same opinion for long. Born in 1883, he studied at Cambridge but came to reject much of the CLASSICAL ECONOMICS and NEO-CLASSICAL ECONOMICS associated with that university. Keynes helped set up the BRETTON WOODS framework, but he is best known for his General Theory of Employment, Interest and Money, published in 1936 in the depths of the Great Depression. This invented modern MACROECONOMICS. It argued that economies could sometimes be stable (in EQUILIBRIUM) even when they did not have FULL EMPLOYMENT, but that a GOVERNMENT could remedy this under-employment problem by increasing PUBLIC SPENDING and/or reducing TAXATION, thereby increasing the level of aggregate DEMAND in the economy. Many politicians picked up on these ideas. As President Richard Nixon observed in 1971, 'We are all Keynesians now.' However, it is much debated whether Keynes would have supported the way many of them put his thoughts into practice.

Keynes identified the economic importance of ANIMAL SPIRITS. Making and losing fortunes in the ­FINANCIAL MARKETS led him to refer to the 'casino CAPITALISM' of the stockmarket. He also noted that 'there is nothing so dangerous as the pursuit of a rational INVESTMENT policy in an irrational world'. He had an amusingly accurate view of the impact and transmission of economic ideas: 'Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.' As for the frequency with which his opinions would evolve: 'When the facts change, I change my mind - what do you do, sir?' 'In the long run we are all dead,' he said. For him, the long run was 1946.