DLT: John Maynard Keynes 1883-1946

Duncan Brack and Ed Randall, authors of the Dictionary of Liberal Thought, have kindly agreed to let us publish extracts on Lib Dem Voice. Last month’s instalment was Mary Wollstonecraft

This month’s entry on Keynes has been selected as it is particularly topical in the current financial climate – and the next two entries to appear, Keynesianism in Februrary, and the Keynes Forum in March, complete the series.  If you can’t wait until March, the entire Dictionary of Liberal Thought is available on Amazon here and can also be bought at the Westminster Bookshop.

John Maynard Keynes 1883–1946

The most influential and important economic thinker of the twentieth century, Keynes’s most important academic works were concerned not only with challenging accepted economic theory but also with finding solutions to real economic problems; his ideas came to underpin the post-war economic strategy of Western governments. He was an active Liberal and contributed to Lloyd George’s reshaping of Liberal Party policy in the 1920s; he also helped to found the Liberal Summer School.

Key ideas

• Human decision-making under uncertainty is necessarily based on subjective expectations of utility (this reflects the fact that human beings lack a sound basis for calculating probabilities).

• Economic recovery from war requires great magnanimity in order to fashion a programme of economic assistance and cooperation that serves the best interests of victors and vanquished alike.

• A stable world requires the strong to help the weak, and intelligent international cooperation is essential in order to build the foundations for general prosperity and diminish the risks of future conflict.

• It is possible that where an economy’s aggregate output is below its potential, it will suffer an extended period of high unemployment and depressed output; public policy should therefore be designed so that government is equipped to raise effective demand in such circumstances.

• The need for an international reserve currency, managed by an international clearing union.


John Maynard Keynes was born in Cambridge on 5 June 1883. His father, John Neville Keynes, was a Cambridge don who taught logic and economics; his mother, Florence, was an author and social reformer and the first woman to be elected to Cambridge Borough Council; she became mayor of Cambridge in 1932. While John Maynard, the eldest of the Keynes children, had no children of his own, his brother, Geoffrey, and sister, Margaret, continued a family line that includes many distinguished academics and researchers.

Educated initially at Eton, Keynes graduated from King’s College, Cambridge in 1906. He was a physically striking man, standing over 6´ 5˝ tall. He had limited regard for social convention, and became one of the best-known members of the Bloomsbury group, which included Virginia Woolf, Clive Bell, E. M. Forster and Duncan Grant, the painter, with whom Keynes had an intimate personal relationship in his twenties. He later married the Russian ballerina Lydia Lopokova, with whom he appears to have had a happy marriage.

Keynes was first employed at the India Office, but in 1908 became a fellow of King’s College with responsibility for teaching economics (established as a subject there in 1905). He joined the Treasury in January 1915 and advised Lloyd George (q.v.) on war finance and at the Versailles peace settlement negotiations until his dramatic resignation over the terms of the settlement in 1919.

His academic work as a Cambridge economist did not prevent him from pursuing a wide range of other interests. He was an avid collector of books and an exceptionally generous supporter of the arts, most notably as a patron of the Cambridge Arts Theatre, which, with his support, became one of the most successful provincial theatres in Britain. It was his success as an investor that enabled him to fund such artistic endeavours, a success he shared with his Cambridge college, King’s, as the manager of its investment portfolio. He left King’s one of the best-endowed university institutions in Britain.

Keynes was noted as a keen controversialist and rarely passed up opportunities to engage in public debate. His reputation is said to have dissuaded Friedrich von Hayek (q.v.) from meeting him to debate economic theory and policy. Bertrand Russell, no mean debater, regarded Keynes as the most intelligent person he had known, observing: ‘Every time I argued with Keynes, I felt I was taking my life in my hands.’ Keynes’s broad range of interests and willingness to become directly involved in the formulation of public policy reflected a highly instrumental view of economics, which he regarded, for all its intellectual fascination, as subordinate to the pursuit of the good life. The role of economics was to help create and maintain the conditions in which human beings could live truly civilised, creative and passionate lives.

In the final years of his life Keynes became a prominent public figure. He was the leading economic adviser to the British Treasury in 1940–46, and Britain’s most important international representative in economic matters; this was despite a marked decline in his health in 1938. He was made a peer in 1942, taking the title Baron Keynes of Tilton.

Keynes headed the British delegation to the Bretton Woods talks in 1944, where he presented his own proposals for an international reserve currency. Although his ideas for an international clearing union were not accepted, Bretton Woods led to the establishment of the World Bank, the International Monetary Fund and the General Agreement on Tariffs and Trade (GATT), laying the foundations for an international financial and trading system that contributed strongly to post-war prosperity. Keynes’s enormous personal effort in helping to shape the post-war international economic architecture almost certainly contributed to his death, on 21 April 1946.


Any assessment of Keynes’s contribution to the development of economic thought is certain to be contested. He has been described as the founder of macroeconomics, and a revolutionary thinker who saved capitalism from itself. His critics, amongst them some of the world’s best-known liberal economists, most especially Hayek and Milton Friedman (q.v.), have argued that Keynes founded a school of economic thought that encouraged extravagant government intervention in economic life and promoted an approach to economics that was not only fundamentally illiberal but ultimately self-defeating. Keynes’s many admirers strongly disagree, arguing that he upheld the finest of liberal traditions: a willingness to learn when things go wrong and change and adapt economic theory and policy in the light of changing circumstances.

Keynes’s mathematical abilities were recognised early in his school career. He was encouraged by his teachers to specialise exclusively in mathematics, but rejected this advice and pursued interests in monetary reform as well as probability theory. The former led to his first book, published in 1913, on Indian Currency, and the latter, many years after his student work on the subject had been completed, to the Treatise on Probability (1921). This work not only issued a remarkable challenge to classical probability theory but also provided the foundations for much of his later economic theorising in which uncertainty plays a central role. What has been described by Will Hutton as Keynes’s shocking finding that ‘capitalist economic systems are inherently unstable’ is a notion strongly linked to and dependent on his earlier work on probability theory; it is one the most poorly appreciated aspects of his economic thought.

Keynes’s determination to undertake work that not only interested him but was strongly linked to practical questions of policy won him a substantial and appreciative public audience. In 1919 he published The Economic Consequences of the Peace, a fiery denunciation of what he regarded as the folly of the Allies’ approach to the Versailles Treaty. He argued that their insistence on punitive levels of war reparations would ruin the German economy and contribute to future international instability.

Keynes’s place as a leading British economist had been assured some years earlier by his appointment as the editor of the Economic Journal in 1912. He followed the noted economic theorist F. Y. Edgeworth in holding the post, and retained it until March 1945. It was a position that gave him immense influence, reinforced when, in 1913, the role of editor was combined with that of secretary to the Royal Economic Society. Nevertheless, in the inter-war years, Keynes found himself increasingly at odds with many members of Britain’s political, financial and economic establishments.

Keynes’s academic reputation was secured by his Tract on Monetary Reform (1923), in which he declared his support for flexible exchange rates. Soon afterwards he publicly nailed his colours to the mast as a forthright critic of laissez-faire (q.v.) and an opponent of Britain’s return to the gold standard. His growing belief in the need for more government intervention in the economy was reflected in his membership of Lloyd George’s Liberal Industrial Inquiry (1926–28), and his considerable contribution to its outcome: Britain’s Industrial Future, the famous Liberal ‘Yellow Book’ (1928). It advocated a substantial increase in public spending to stimulate economic activity and reduce unemployment. Keynes also contributed to the 1929 Liberal manifesto, and published the pamphlet Can Lloyd George Do It?, which appeared just before the 1929 election to explain the party’s approach to reducing unemployment. He was one of the most important moving spirits in establishing and supporting the Liberal Summer School (q.v.), and Chairman of the (Liberal) Nation and Athenaeum until he arranged its merger with the New Statesman in 1931.

Keynes’s academic renown and involvement in public controversy seem to have been mutually reinforcing; his publication of a two-volume Treatise on Money in 1930, for example, which set out his theory of the credit cycle, attracted a good deal of criticism from eminent members of the economics profession, among them Hayek. However, Keynes enjoyed the enthusiastic support of a rising generation of economists, a group known as ‘the circus’, mostly made up of young Cambridge economists, including Richard Kahn, James Meade, Austin Robinson, Joan Robinson and Piero Sraffa. They worked to help him revise and strengthen his new economic theories. Kahn has been credited with providing Keynes with several of the critical insights that enabled him to write his most famous work of economic theory, The General Theory of Employment, Interest and Money (1936). Kahn proposed an income–expenditure multiplier that appeared to offer Keynes a way of overcoming many of the objections raised to his notion of failures in aggregate demand. It was one of a number of theoretical developments that helped Keynes to explain weak demand and account for its damaging consequences for the economy as a whole.

The General Theory was truly revolutionary. Controversial at the time, Keynes described the economic system as a whole in a way that clearly implied that governments could and should intervene to mitigate the consequences of low levels of economic activity, most especially unemployment. He showed that the price system could not necessarily be relied upon to achieve an equilibrium that made full use of the human resources available to an economy; aggregate demand reflected such things as uncertainty and shifting human expectations. Economic unpredictability and human responses to it were fundamental to an understanding of capitalist economies. Human behaviour, Keynes asserted, did not always accord with the market-clearing assumptions of classical or neo-classical economics. He also argued that a realistic model of the economy needed to take account of the ‘stickiness’ of prices in the labour market and fluctuating preferences for holding money. The notion of ‘liquidity preference’, and its importance in accounting for changes in effective demand, provided him with yet another way of taking issue with the assumptions that underpinned the work of his neo-classical opponents. Although many of his ideas have been greatly modified and absorbed into a modern neo-classical synthesis, Keynes was recognised as the creator of a new branch of economics: macroeconomics. His ideas – labelled ‘Keynesianism’ (q.v.) – came to underpin the post-war economic strategy of Western governments for three decades.

Keynes was also the author of proposals for the bancor, an international reserve currency, together with an international clearing union to manage it. His proposals were designed to facilitate international trade by entrenching a system of stable exchange rates and balanced trade. His attempts at Bretton Woods, in 1944, to persuade his American counterparts of the need for such a system met with only partial success; a fervent internationalist, he had to settle for what he regarded as very much second best. Nevertheless, he helped lay the foundations for the international economic system that made it possible to consolidate the peace and build post-war prosperity through rapid growth in international trade.

John Maynard Keynes was, in the words of one biographer, ‘born into a traditional haute bourgeois Cambridge academic family’. The economist, Harry Johnson, in his assessment of Keynes’s economic thought, concluded that his social origins and path in life helped instil an extraordinary self-confidence and optimism in him that were strongly reflected in his work as an economist: Keynes was born to believe that government – in the hands of the right men and women – could lead the rest of humanity to a much better place. Johnson compared Keynes with Milton Friedman, the ‘scion of penniless emigrants from the Hapsburg Empire’, who was, understandably, a sceptic and pessimist when it came to judging what governments, as opposed to individuals, could be expected to achieve. Personal outlook and style are undoubtedly important factors in shaping the ways in which different individuals espouse and express their political beliefs. Keynes’s liberalism was much more than an expression of his party allegiance or even his economic views; his social position, enormous appetite for friendship, conversation and the arts, not just his prodigious talent, were all reflected in the way he lived his life and gave expression to his political beliefs.

Key works




Indian Currency (1913)

The Economic Consequences of the Peace (1919) (text available for free on Project Gutenberg)

Treatise on Probability (1921)

Tract on Monetary Reform (1923)

Am I a Liberal? (1925)

Treatise on Money (1930)

The General Theory of Employment, Interest and Money (1936)

How to Pay for the War (1940)

Essays in Persuasion (Royal Economic Society and Macmillan Press, 1972)

Further reading

• Roy Harrod, The Life of John Maynard Keynes (Norton, 1982)

• Robert Skidelsky, John Maynard Keynes 1883–1946: Economist, Philosopher, Statesman (compiled and abridged single-volume edition, Macmillan, 2003)

Ed Randall

The Dictionary of Liberal Thought is one of the many titles available from the Liberal Democrat History Group. Find out more about them on their website.

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