John Maynard Keynes

John Maynard Keynes was the English economist who taught governments that they could fight a slump. In The General Theory of Employment, Interest and Money (1936), written while the Great Depression kept millions out of work, he attacked the old belief that markets left alone always find their way back to full employment. Total spending in an economy, which he called effective demand, can stay too low for years: when business people lose their 'animal spirits' they stop investing, and cutting wages only cuts spending further. The cure was for the state to fill the gap, with cheap money and above all with public works, even if it had to borrow to pay for them. After the Second World War this 'Keynesian' economics guided the budgets of most Western governments until the 1970s, and it returned when governments spent their way through the crisis of 2007 to 2009. Keynes was never only a thinker: he ran Britain's foreign finances in one world war and advised its Treasury in the next, wrote a bestselling attack on the peace of 1919, made a fortune as an investor, and helped design the post-war money system at Bretton Woods.

He was born on 5 June 1883 at 6 Harvey Road, Cambridge, the eldest of the three children of John Neville Keynes, a lecturer in logic and political economy who later became the University's chief administrator, the Registrary, and Florence Ada Keynes, one of the early students of Newnham College and in 1932 mayor of Cambridge. He won a scholarship to Eton in 1897 and another to King's College, Cambridge, where he arrived in October 1902 to read mathematics. In February 1903 Lytton Strachey and Leonard Woolf brought him into the Apostles, an exclusive discussion society whose members and friends became the Bloomsbury group of writers and painters around Virginia Woolf, Vanessa Bell and the painter Duncan Grant, for several years the man he loved. Alfred Marshall's lectures turned him from mathematics to economics. Placed second in the Civil Service examination of 1906, he spent two years at the India Office in London, came back to Cambridge in 1908, became a Fellow of King's in 1909 with a dissertation on probability, and lectured in economics. His first book, Indian Currency and Finance (1913), brought him a seat on a Royal Commission, and he edited the Economic Journal, the leading journal of his subject, for thirty-three years.

The First World War made him a public man. He joined the Treasury in January 1915, and by 1917 he was handling Britain's external finance: its scarce dollars and its money dealings with the Allies. In January 1919 he went to the peace conference in Paris as the Treasury's chief representative, arguing that Europe could only recover if Germany was asked for no more than it could pay. When it became clear that the terms would not change, he resigned and on 7 June left what he called 'this scene of nightmare'. That summer, at Charleston, his friends' farmhouse in Sussex, he wrote The Economic Consequences of the Peace. Published in December 1919, it called the treaty a 'Carthaginian peace', put Germany's real capacity to pay at no more than 2,000 million pounds, and drew cruel portraits of Wilson, Clemenceau and Lloyd George. More than a hundred thousand copies were sold by August 1920; the book shaped how Britain and America judged Versailles for decades, and made Keynes a man some in Whitehall would never fully trust again.

Between the wars he divided his weeks between King's, where as First Bursar from 1924 he moved the college's free money into shares, and London, where 46 Gordon Square in Bloomsbury was his home from 1916 until his death. He invested boldly on his own account too, and his fortune grew from about 58,000 pounds at the end of 1924 to about 506,000 at the start of 1937. In A Tract on Monetary Reform (1923) he called the gold standard 'a barbarous relic' and wrote that 'in the long run we are all dead'. When Winston Churchill took Britain back to gold at the pre-war rate of 4.86 dollars to the pound in 1925, Keynes warned in The Economic Consequences of Mr. Churchill that wages would have to be forced down, beginning with the coal miners'. That August he married Lydia Lopokova, a star of Diaghilev's Russian ballet, and took the lease of Tilton, a farmhouse near Charleston. As the world slid into depression he sat on the government's Macmillan Committee on finance and industry and published A Treatise on Money (1930) and then The General Theory; on 3 February 1936 the Arts Theatre that he had planned and paid for opened in Cambridge.

In 1937 a heart attack nearly killed him, and he was never fully fit again, but war brought him back to the Treasury. How to Pay for the War (1940) proposed 'deferred pay', a compulsory saving out of wages, so that the war would not be paid for by inflation, and from July 1940 he worked in the Treasury unpaid, with a room of his own, as an adviser to the Chancellor. In 1942 he became Baron Keynes of Tilton and chairman of the wartime arts council that became the Arts Council of Great Britain. His last years went on negotiations with the United States. His plan for an international clearing union gave way to the American Harry Dexter White's, but at Bretton Woods in July 1944 he chaired the commission that drew up the World Bank, and in Washington in December 1945 he secured a loan of 3.75 billion dollars for an exhausted Britain, far less than the six-billion gift he had first asked for. After a bruising first meeting of the new IMF and World Bank at Savannah in March 1946 he went home to Tilton, where he died after another heart attack on Easter Sunday, 21 April 1946, aged 62. His ideas ruled economic policy for a generation, lost ground in the inflation of the 1970s, and still frame every argument about what governments should do in a crisis.