There is little doubt that John Maynard Keynes was the best-known economist of the first half of the 20th century; and, surely, one of the most influential – for better or for worse – throughout the entire history of economic thought. Born in Cambridge in 1883, Keynes was a senior British administration official, professor of economics, businessman, journalist, writer, art collector, and patron. A man of extraordinary intelligence, he excelled in almost all of these activities. But his fundamental contribution to the contemporary world was, undoubtedly, his book The General Theory of Employment, Interest and Money –published in 1936– which marked a fundamental change in the way of understanding macroeconomics and dominated world economic policy western throughout several decades.
In this work the finance and economy ministers found a theoretical justification for doing what they had been denied for many decades: a discretionary policy, in which a monetary standard that automatically controlled the issuance of money by the The central bank was considered a “barbarous relic” and in which the principle of budgetary balance was nothing but an absurd restriction on the management of public finances for stabilizing purposes.
Keynes had not always thought so, however. In reality, his changes of opinion were frequent and his ideas often contradictory. The anecdote is well known, according to which Winston Churchill would one day have regretted that when he asked five economists for an opinion on a certain subject, he usually received five different answers … except if one of the economists was Keynes, because then the number of different responses were six.
His great personality meant that he always had at his side a group of faithful disciples who, as usual in these cases, sometimes took the ideas of the teacher much further than he would have liked. And the economic policy recommendations that can be drawn from the General Theory lend themselves especially to this type of unconditional fidelity. In fact, today is still the day when, when speaking of “Keynesian economics,” we are not very clear about what Keynes himself said and what some of his disciples and followers later claimed he had said.
Keynes had written his best-known book in the years of the Great Depression; and his work, although basically theoretical in nature, cannot be well understood without bearing in mind the framework in which it was thought. The recommendations that can be obtained from it focus on the relaunch of the economies affected by the recession and are measures always inspired by urgency and the short term. “In the long term we will all be dead” is one of the most famous phrases of our character, who always liked the bright and provocative expressions. But some economists soon realized the dangers of converting these measures originally intended for quite exceptional circumstances into permanent criteria of economic policy. One of these economists was Friedrich von Hayek.
Hayek had often debated with Keynes and his disciples over questions of economic theory. But a great personal friendship united both men beyond their scientific disagreements. Hayek says that, in 1946, he was really worried about the effects that the interpretation that some of Keynes’ disciples were making of his theories would have on the economy. And he did not hesitate to ask his friend these questions. To his surprise, Keynes agreed with him. And, furthermore, after making a few laudatory comments from those people, he proceeded to reassure Hayek, telling him not to be alarmed; that those ideas had been very necessary at the time he had formulated them. But that, if at any time they became dangerous, he himself would be responsible for quickly turning public opinion in the opposite direction. And –Hayek added– “he indicated with a quick wave of his hand how quickly this could be achieved”. But things did not go well this time. Three months after this surprising manifestation of confidence in his own powers had taken place, Keynes had died.