The consequences of John Maynard Keynes.He conceived the economic machinery that runs our lives. His brilliant engine, despite overhauls and tune-ups continues to run erratically. Is it the driver or the roads?…
Keynes identified the economic importance of animal spirits. Making and losing fortunes in the financial markets led him to refer to the “casino capitalism” of the stockmarket. He also noted that “there is nothing so dangerous as the pursuit of a rational investment policy in an irrational world”. He had an amusingly accurate view of the impact and transmission of economic ideas: “Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.” As for the frequency with which his opinions would evolve: “When the facts change, I change my mind – what do you do, sir?” “In the long run we are all dead,” he said. For him, the long run was 1946.
“So the Fed is again in the position of “pushing on a string” and finding that nothing happens. Some economists describe this as a “liquidity trap.” Money creation loses its stimulative power — vastly overrated even in ordinary times — because public demand for loans is weak. Americans are too strapped financially, too short on investment opportunities, or too concerned about the future to borrow. They prefer to save instead.
Some economists argue that “trap” is an inappropriate description. The new money the Fed has pumped into the economy to replace the financial-sector liquidity wiped out by the collapse of the bubble has to go somewhere, they point out. It has to end up in someone’s bank account and banks have to quickly convert deposits (liabilities) into investments or go broke even faster than some have by loading up on polluted, mortgage-backed securities. Maybe “liquidity malfunction” is a better term than “trap.” ( George Melloan WSJ)
Almost everyone who knew Maynard Keynes remembered him as just about the smartest man in England. Lytton Strachey once remarked that ” his common sense was enough to freeze a volcano” Leonard Woolf, Bloomsbury’s judicious liberal conscience , said that Keynes had “absolutely the quickest brain of any man I’ve ever met, except perhaps Bertrand Russel’s.” But Russell himself admitted that he seldom emerged from an argument with Keynes without feeling something of a fool. Keynes loyal biographer, Sir Roy Harrod said, ” No one in our age was cleverer than Keynes, nor made any less attempt to conceal it.”
Inside this intellectual dandy was a genius crying to get out. When it finally did, in the depths of the depression, Keynes brilliant intelligence devised a technique for steering capitalism off the rocks on which it was then stuck fast. He demonstrated beyond a doubt that the forces of the free market would not automatically bring prosperity if allowed to work themselves into balance in the long run. ” Adam Smith’s “invisible hand” was simply not there to moderate mankind’s self-interest.
Keyne’s classifications of aggregate income and expenditure, savings and investment, are as basic to modern thought as Freud’s discovery of the emotional forces by which we are individually driven. In both cases, the problem is not in the discovery, or an articulation of the awareness, but rather the interpretations thereof, that has proven to be the sticky wicket. The discovery of what was essentially a neutral fact: that there was no God in the economic machine; had an impact as forceful as the awesome discoveries of the atomic scientists.
Michael Arditti:With the exception of Arthur Miller and Marilyn Monroe, there can have been no odder celebrity couple than Lydia Lopokova and John Maynard Keynes. She was a prima ballerina who delighted audiences with her delicacy, exuberance and charm. He was a renowned economist whose intellect made even Bertrand Russell feel inadequate, and a committed homosexual along with his friend Lytton Strachey.