John Maynard Keynes
John Maynard Keynes (June 5, 1883 in Cambridge - April 21, 1946 in Sussex) was an English economist, whose radical ideas had a major impact on modern economic and political thought. He is particularly remembered for advocating interventionist government policy, by which the government would use fiscal and monetary measures to aim to mitigate the adverse effects of economic recessions, depressionss, and boomss. His ideas have been further developed by the school of Keynesian economics.
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2 Private life 3 Keynes the Investment Wizard 4 Recommended reading |
John Maynard Keynes was the son of John Neville Keynes (pronounced "Canes"), an economics lecturer at Cambridge University and Florence Ada Brown, a successful author and a social reformist.
Keynes graduated in mathematics from King's College, Cambridge University, and afterwards increasingly turned his attention to economics. An advisor to the British government during World War I, he first came to public prominence with the publication of The Economic Consequences of the Peace, published after the end of the war in 1919. This argued that the reparations which Germany was forced to pay to the victors in the war were too large and would lead to the ruin of the German economy. These predictions were arguably borne out when the German economy collapsed in the Hyperinflation of 1923, with only a small amount of reparations ever being paid.
Keynes also published his Treatise on Probability in 1920, a notable contribution to the philosophical and mathematical underpinnings of probability theory.
His seminal book, The General Theory of Employment, Interest and Money was first published in 1936. In this book Keynes put forward a theory based upon the notion of aggregate demand to explain variations in the overall level of economic activity, such as were observed in the Great Depression. The book advocated activist economic policy by government to stimulate demand in times of unemployment, for example by spending on public works. The book is often viewed as the foundation of modern macroeconomics.
Keynes' theories were so influential (even when disputed), that a topic of economics called Keynesian economics discussing his theories and their applications was named after him.
During World War II, Keynes argued in How to pay for the war that the war effort should be largely financed by higher taxation, rather than deficit spending, in order to avoid Inflation.
Keynes wrote "Essays in Biography" and "Essays in Persuasion", the former giving portraits of economists and notables, whilst the latter presents some of Keynes' attempts to influence decision-makers during the Great Depression.
Following the war, Keynes argued in favour of a radical system for the management of currencies, involving a central bank for the world and a common unit of currency, the "Bancor".
Arguably homosexual in earlier life, in mid-life Keynes enjoyed a happy marriage with the famous ballerina Lydia Lopokova. Keynes was a prominent member of the Bloomsbury group. He was ultimately a successful investor building up a substantial private fortune. He enjoyed collecting books and for example collected and protected during his lifetime many of Isaac Newton's papers. Keynes died of cardiac infarction, his heart problems being aggravated by the strain of working on post-war international financial problems.
His brother Sir Geoffrey Keynes (1887-1982) was a distinguished surgeon, scholar and bibliophile, and his nephews Richard Keynes (born 1919) physiologist, Quentin Keynes (1921-2003) an adventurer and bibliophile.
Keynes' brilliant record as an investor is demonstrated by the publicly available data of a fund he managed on behalf of King's College, Cambridge.
From 1928 to 1945, despite taking a massive hit during the Crash of 1929, Keynes' fund produced a very strong average increase of 13.2% compared with the general market in the United Kingdom declining by an average 0.5% per annum.
The approach generally adopted by Keynes with his investments he summarised accordingly:
Keynes' advice on speculation some might say is timeless and ought to have been heeded by day-traders trying to prove themselves smarter than everyone else:
Buffett seized upon this analysis in his own investment thinking. It is the reason, he argued, why equities in the long run out-perform bonds because some of the "interest" is retained by the company and that produces more "interest." It therefore compounds. These simple philosophies helped build a fortune for Keynes and a vast investment empire for Buffett.
Life and works
Private life
Keynes the Investment Wizard
In an approach reminiscent of one of his followers billionaire investor Warren Buffett today, Keynes argued that "It is a mistake to think one limits one's risks by spreading too much between enterprises about which one knows little and has no reason for special confidence ... One's knowledge and experience are definitely limited and there are seldom more than two or three enterprises at any given time in which I personally feel myself to put full confidence."
Keynes when reviewing an important early work on equities investments argued that "Well-managed industrial companies do not, as a rule, distribute to the shareholders the whole of their earned profits. In good years, if not in all years, they retain a part of their profits and put them back in the business. Thus there is an element of compound interest operating in favor of a sound industrial investment." Recommended reading
See also: Simon Kuznets