Chapter 1: Keynes, You Should be Alive Today!
1. Keynes, you should be alive today! Keynes’s fundamental insight was that we do not know – cannot calculate – what the future will bring. In such a world, money oﬀers psychological security against uncertainty. When savers become pessimistic about future prospects, they can decide to hoard their savings [in liquid assets] rather than invest them in business. Thus there is no guarantee that all income earned will be spent. This amounts to saying that there is no natural tendency for all available resources to be employed (Lord Skidelsky1) The Englishman, John Maynard Keynes, was unquestionably the most important economist of the twentieth century. The policies he proposed to ﬁght the Great Depression as well as those he worked on to develop a new postwar international monetary system helped save the entrepreneurial directed, market-oriented economies of the world from collapse. Keynes’s biographer, Lord Skidelsky suggests that the task Keynes ‘set for himself was to reconstruct the capitalist social order on the basis of improved technical management’.2 As a strong proponent of an improved capitalist system, Keynes did not criticize the existing system ‘on the grounds that it unfairly or unjustly distributed life-chances; rather, that the laissez-faire system did not protect economic and social “norms”. Injustice became a matter of uncertainty, justice a matter of contractual predictability’. (We shall see that the concepts of uncertainty, contracts and money were at the heart of Keynes’s revolutionary vision of the economy in which we live.) 1.1 POSTWAR ECONOMIC PERFORMANCE For almost a quarter of...
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