One of the 20th century’s most significant economists was John Maynard Keynes. He was born in England in 1883, the same year Karl Marx passed away. His mother held a position in the public sector, and his father was a Cambridge economist. He attended the renowned prep school Eton in England before attending Cambridge University to further his education.
Socialism & Capitalism
Socialism is a populist form of government and economics that is based on the following ideas:
- The production means should be owned collectively, jointly, or publicly.
- These manufacturing methods encompass the equipment, tools, and facilities used to create products that are intended to meet human requirements directly.
- In a completely socialist economy, all decisions about production and distribution are decided collectively under the guidance of a central planner or government authority.
On the other hand, the main ideas of capitalism are as follows:
- The ideas of private property, the desire for profit, and market competition form the foundation of capitalism.
- The production means are privately owned in a capitalist economy.
- The production and pricing of things, as well as the income of people, are typically determined by market forces as a result of interactions between private enterprises and individuals.
Economic Paradigm Before Keynes
The prevalent economic paradigm before Keynes was capitalistic free markets and laissez-faire economics. Markets would eventually resolve all issues. According to the theory, thus they should be left alone.
The time following World War I, sometimes known as the Roaring Twenties, was one in which this looked to have worked. It was a time of prosperity, stability, and peace.
Most individuals did not think the government’s market meddling would boost the economy. However, this economic philosophy was altered by the Great Depression. The 1929 stock market bubble burst was a painful event that set off a protracted and severe recession.
In the United States, the Great Depression saw an industrial output decline of 30%, a sharp increase in unemployment to 25%, and a 90% decline in stock prices. As a result, many people were actively looking for a job and were prepared to put in a lot of effort, but they were unsuccessful.
Keynesian Economic Theory
The Great Depression was when John Keynes first created the theoretical foundation for his theory. The governing elite resorted to Keynesianism out of practicality because the then-dominant conventional economic theories could not explain the crisis or provide any form of policy response.
The Keynesian Economic Theory focuses on the argument that rather than only allowing the free market to operate, governments should actively participate in their nations’ economies. Keynes specifically favored more federal expenditure to counteract business cycle downturns.
The fundamental tenet of Keynesian economics is that demand, not supply, propels an economy forward. The prevailing economic theory at the time was the opposite, arguing that supply drives demand. The expansionary fiscal strategy, which primarily employs government spending on infrastructure, unemployment assistance, and education, is supported by Keynesian economic theory.
The General Theory of Employment, Interest, and Money, released in February 1936, outlines the essence of Keynes’s premise. The book, which featured the following two primary points, was seen as revolutionary at the time.
- The first was that a key element in determining aggregate demand was government spending.
- The second point made by Keynes was that government spending was required to keep full employment in place.
Was Keynes a Socialist?
Keynes is regarded as one of the greatest and most influential economists ever. It is commonly assumed that Keynes created his most famous work, The General Theory of Employment, Interest, and Money, to defend capitalism from the socialist, communist, and fascist movements that were gaining ground during the Great Depression.
There is much support for the above-mentioned assumption, but it can be argued that this point of view is wrong. Instead of attempting to revive capitalism, Keynes laid the groundwork for a democratic socialist system in which most large-scale capital expenditures would be carried out by the government or by quasi-public organizations.
In his description of the idealized system of economic organization, Keynes used the term “liberal socialism,” which he defined as “a system where we can behave as an organized community for common ends and to promote social and economic justice while honoring and protecting the individual — his choice and freedom, his faith, his mind, and its expression, his enterprise, and his property.”
Keynesianism virtually eliminated socialism by providing the government with a set of techniques that could be used to make economic crises shorter, less intense, and less frequent.
The state would only carry out the following small number of economic tasks:
- Both monetary and fiscal policy to maintain a reasonable level of employment.
- Supplying a sufficient safety net for people who discovered themselves in desperate circumstances due to events beyond their control.
- Businesses must be regulated to ensure that tactics used to pursue profits do not pose an unreasonable risk to consumers, employees, or the environment.
- Delivering public services, including law enforcement, education, and national security.
Keynes shared the view that capitalism is a system that goes through many historical stages. He felt that the early twentieth century marked the beginning of a period in which full employment, growing living standards, and socially beneficial investment could no longer be dependent on the private sector.
According to Keynes, profit-seeking is not the only motivation for human behavior, and many of the dysfunctions of the modern era are the result of a framework for a policy that not only assumes this to be the case but also that profit-seeking behavior can consistently result in outcomes that are good for society.
In the end, Keynes’ main political goal was not to save capitalism but to supplant it with liberal socialism. However, it is challenging to categorize Keynes as purely socialist.
This is because, on one hand, he expressed interest in socialist governments and supported the government’s involvement in economic concerns. On the other hand, Keynes refrained from supporting the government’s real takeover and management of enterprises. He wanted the government to encourage, but not necessarily regulate, industrial processes.
Is Keynesian theory socialism?
Keynesian theory is not completely socialism because, on one hand, he expressed interest in socialist governments and supported the government’s involvement in economic concerns. But on the other hand, Keynes refrained from supporting the government’s complete takeover and management of enterprises.
Was John Maynard Keynes a capitalist?
John Maynard Keynes was not a capitalist as he did not believe capitalism to be the solution to modern economic problems.
Did Keynes support capitalism?
Keynes did not support capitalism as his main political goal was not to save capitalism but to supplant it with liberal socialism.
Was Keynes a democratic socialist?
Keynes was not a democratic socialist because he wanted the government to encourage industrial processes rather than regulate them. This is despite the fact that his economics have significant implications for socialists and Keynesian economic policies are among the characteristics that distinguish social democracy as a political system.
What is the difference between Marx and Keynes?
While both may criticize the crisis in capitalism, their understanding of its underlying principles diverges, with Marx emphasizing production failure and Keynes focusing on investment.
What did Keynes think of Marx?
Given that he associated Marx’s beliefs with the classicists, Keynes did not study Marx and did not feel the need to do so. Keynes believed that by rejecting the classical theory, he was also rejecting Marx. He did, however, concur with Marx on one crucial point the invalidity of “Say’s Law.”