In October 1906 Keynes began his
Civil Service career as a clerk in the
India Office. He enjoyed his work at first, but by 1908 had become bored and resigned his position to return to Cambridge and work on
probability theory, through a lectureship in economics at first funded personally by economists
Alfred Marshall and
Arthur Pigou. He became a fellow of
King's College in 1909. By 1909 Keynes had also published his first professional economics article in
The Economic Journal, about the effect of a recent global economic downturn on India. He founded the
Political Economy Club, a weekly discussion group. Keynes's earnings rose further as he began to take on pupils for private tuition. In 1911 Keynes was made the editor of
The Economic Journal. By 1913 he had published his first book,
Indian Currency and Finance. In that book, Keynes analysed in great detail the monetary arrangements of India, from the late 19th century onwards. The Indian
Rupee notes were convertible into silver coin which in turn had growing convertibility into gold coin, pound sterling, at a ratio of 15:1. Keynes recommended policies to speed up the conversion of Rupee into gold – effectively recommending a gold exchange standard.the same topic as his bookwhere Keynes applied economic theory to practical problems. His written work was published under the name "J M Keynes", though to his family and friends he was known as Maynard. (His father, John Neville Keynes, was also always known by his middle name). On the introduction of
military conscription in 1916, he applied for exemption as a
conscientious objector, which was effectively granted conditional upon continuing his government work. In the 1917 King's
Birthday Honours, Keynes was appointed Companion of the
Order of the Bath for his wartime work, and his success led to the appointment that had a huge effect on Keynes's life and career; Keynes was appointed financial representative for the Treasury to the 1919
Versailles peace conference. He was also appointed Officer of the Belgian
Order of Leopold.
Versailles peace conference . Keynes was initially wary of the "Welsh Wizard," preferring his rival
Asquith, but was impressed with Lloyd George at Versailles; this did not deter Keynes from painting a scathing picture of the then-prime minister in
The Economic Consequences of the Peace. Keynes's experience at
Versailles was influential in shaping his future outlook, yet it was not a successful one. Keynes's main interest had been in trying to prevent
Germany's compensation payments being set so high it would traumatise innocent German people, damage the nation's ability to pay and sharply limit its ability to buy exports from other countriesthus hurting not just Germany's economy but that of the wider world. Unfortunately for Keynes, conservative powers in the coalition that emerged from the
1918 coupon election were able to ensure that both Keynes himself and the Treasury were largely excluded from formal high-level talks concerning reparations. Their place was taken by the
Heavenly Twinsthe judge
Lord Sumner and the banker
Lord Cunliffe, whose nickname derived from the "astronomically" high war compensation they wanted to demand from Germany. Keynes was forced to try to exert influence mostly from behind the scenes. The three principal players at the Paris conferences were Britain's Lloyd George, France's
Georges Clemenceau and America's President
Woodrow Wilson. It was only Lloyd George to whom Keynes had much direct access; until the 1918 election he had some sympathy with Keynes's view but while campaigning had found his speeches were well received by the public only if he promised to harshly punish Germany, and had therefore committed his delegation to extracting high payments. Lloyd George did, however, win some loyalty from Keynes with his actions at the Paris conference by intervening against the French to ensure the dispatch of much-needed food supplies to German civilians. Clemenceau also pushed for substantial reparations, though not as high as those proposed by the British, while on security grounds, France argued for an even more severe settlement than Britain. Wilson initially favoured relatively lenient treatment of Germanyhe feared too harsh conditions could foment the rise of extremism and wanted Germany to be left sufficient capital to pay for imports. To Keynes's dismay, Lloyd George and Clemenceau were able to pressure Wilson to agree to include pensions in the reparations bill. Towards the end of the conference, Keynes came up with a plan that he argued would not only help Germany and other impoverished central European powers but also be good for the world economy as a whole. It involved the radical writing down of war debts, which would have had the possible effect of increasing international trade all round, but at the same time thrown over two-thirds of the cost of European reconstruction on the United States. Lloyd George agreed it might be acceptable to the British electorate. However, America was against the plan; the US was then the largest creditor, and by this time Wilson had started to believe in the merits of a harsh peace and thought that his country had already made excessive sacrifices. Hence despite his best efforts, the result of the conference was a treaty which disgusted Keynes both on moral and economic grounds and led to his resignation from the Treasury. In June 1919 he turned down an offer to become chairman of the
British Bank of Northern Commerce, a job that promised a salary of £2,000 in return for a morning per week of work. Keynes's analysis on the predicted damaging effects of the treaty appeared in the highly influential book,
The Economic Consequences of the Peace, published in 1919. This work has been described as Keynes's best book, where he was able to bring all his gifts to bearhis passion as well as his skill as an economist. In addition to economic analysis, the book contained appeals to the reader's sense of
compassion: {{blockquote|I cannot leave this subject as though its just treatment wholly depended either on our pledges or on economic facts. The policy of reducing Germany to servitude for a generation, of degrading the lives of millions of human beings, and of depriving a whole nation of happiness should be abhorrent and detestable, – abhorrent and detestable, even if it was possible, even if it enriched ourselves, even if it did not sow the decay of the whole civilized life of Europe.|author=Keynes Also present was striking imagery such as "year by year Germany must be kept impoverished and her children starved and crippled" along with bold predictions which were later justified by events: {{blockquote|text=If we aim deliberately at the impoverishment of Central Europe, vengeance, I dare predict, will not limp. Nothing can then delay for very long that final war between the forces of Reaction and the despairing convulsions of Revolution, before which the horrors of the late German war will fade into nothing. |author=Keynes |title="Remedies" p. 251 Keynes's followers assert that his predictions of disaster were borne out when the German economy suffered the
hyperinflation of 1923, and again by the collapse of the
Weimar Republic and the outbreak of the
Second World War. However, historian
Ruth Henig claims that "most historians of the Paris peace conference now take the view that, in economic terms, the treaty was not unduly harsh on Germany and that, while obligations and damages were inevitably much stressed in the debates at Paris to satisfy electors reading the daily newspapers, the intention was quietly to give Germany substantial help towards paying her bills, and to meet many of the German objections by amendments to the way the reparations schedule was in practice carried out". Only a small fraction of reparations was ever paid. In fact, historian
Stephen A. Schuker demonstrates in ''American 'Reparations' to Germany, 1919–33'', that the capital inflow from American loans substantially exceeded German out payments so that, on a net basis, Germany received support equal to four times the amount of the post-Second World War
Marshall Plan. Schuker also shows that, in the years after Versailles, Keynes became an informal reparations adviser to the German government, wrote one of the major German reparation notes, and supported
hyperinflation on political grounds. Nevertheless,
The Economic Consequences of the Peace gained Keynes international fame, even though it also caused him to be regarded as anti-establishmentit was not until after the outbreak of the Second World War that Keynes was offered a directorship of a major British Bank, or an acceptable offer to return to government with a formal job. However, Keynes was still able to influence government policy-making through his network of contacts, his published works and by serving on government committees; this included attending high-level policy meetings as a consultant.
In the 1920s Keynes had completed his
A Treatise on Probability before the war but published it in 1921. The work was a notable contribution to the philosophical and mathematical underpinnings of
probability theory, championing the important view that
probabilities were no more or less than
truth values intermediate between simple truth and falsity. Keynes developed the first upper-lower probabilistic
interval approach to probability in chapters 15 and 17 of this book, as well as having developed the first decision weight approach with his conventional coefficient of risk and weight,
c, in chapter 26. In addition to his academic work, the 1920s saw Keynes active as a journalist selling his work internationally and working in London as a financial consultant. In 1924, Keynes wrote an obituary for his former tutor
Alfred Marshall which
Joseph Schumpeter called "the most brilliant life of a man of science I have ever read".
Mary Paley Marshall was "entranced" by the memorial, while
Lytton Strachey rated it as one of Keynes's "best works". In 1922 Keynes continued to advocate reduction of German reparations with
A Revision of the Treaty. He attacked the post-World War I deflation policies with
A Tract on Monetary Reform in 1923a trenchant argument that countries should target stability of domestic prices, avoiding deflation even at the cost of allowing their currency to depreciate. Britain suffered from high unemployment through most of the 1920s, leading Keynes to recommend the depreciation of
sterling to boost jobs by making British exports more affordable. From 1924 he was also advocating a fiscal response, where the government could create jobs by spending on public works. During the 1920s Keynes's pro-stimulus views had only limited effect on policymakers and mainstream academic opinionaccording to
Hyman Minsky one reason was that at this time his theoretical justification was "muddled". At the height of the Great Depression, in 1933, Keynes published
The Means to Prosperity, which contained specific policy recommendations for tackling unemployment in a global recession, chiefly counter-cyclical public spending.
The Means to Prosperity contains one of the first mentions of the
multiplier effect. While it was addressed chiefly to the British Government, it also contained advice for other nations affected by the global recession. A copy was sent to the newly elected President
Franklin D. Roosevelt and other world leaders. The work was taken seriously by both the American and British governments, and according to
Robert Skidelsky, helped pave the way for the later acceptance of Keynesian ideas, though it had little immediate practical influence. In the 1933
London Economic Conference opinions remained too diverse for a unified course of action to be agreed upon. Keynesian-like policies were adopted by Sweden and Germany, but Sweden was seen as too small to command much attention, and Keynes was deliberately silent about the
successful efforts of Germany as he was dismayed by its imperialist ambitions and its treatment of Jews. Apart from Great Britain, Keynes's attention was primarily focused on the United States. In 1931, he received considerable support for his views on counter-cyclical public spending in Chicago, then America's foremost center for economic views alternative to the mainstream. The work served as a theoretical justification for the
interventionist policies Keynes favoured for tackling a recession. Although Keynes stated in his preface that his General Theory was only secondarily concerned with the "applications of this theory to practice", the circumstances of its publication were such that his suggestions shaped the course of the 1930s. In addition, Keynes introduced the world to a new interpretation of taxation: since the legal tender is now defined by the state, inflation becomes "taxation by currency depreciation". This hidden tax meant a) that the standard of value should be governed by deliberate decision; and (b) that it was possible to maintain a middle course between deflation and inflation. This novel interpretation was inspired by the desperate search for control over the economy which permeated the academic world after the Depression. The
General Theory challenged the earlier
neoclassical economic paradigm, which had held that provided it was unfettered by government interference, the market would naturally establish
full employment equilibrium. In doing so Keynes was partly setting himself against his former teachers Marshall and Pigou. Keynes believed the classical theory was a "special case" that applied only to the particular conditions present in the 19th century, his theory being the general one. Classical economists had believed in
Say's law, which, simply put, states that "
supply creates its demand", and that in a free-market workers would always be willing to lower their wages to a level where employers could profitably offer them jobs. An innovation from Keynes was the concept of
price stickinessthe recognition that in reality workers often refuse to lower their wage demands even in cases where a classical economist might argue that it is rational for them to do so. Due in part to price stickiness, it was established that the interaction of "
aggregate demand" and "
aggregate supply" may lead to stable unemployment equilibriaand in those cases, it is on the state, not the market, that economies must depend for their salvation. In contrast, Keynes argued that demand is what creates supply and not the other way around. He questioned Say's Law by asking what would happen if the money that is being given to individuals is not finding its way back into the economy and is saved instead. He suggested the result would be a recession. To tackle the fear of a recession Say's Law suggests government intervention. This government intervention can be used to prevent any further increase in savings in the form of a decreased interest rate. Decreasing the interest rate will encourage people to start spending and investing again, or so it is stated by Say's Law. The reason behind this is that when there is little investing, savings start to accumulate and reach a stopping point in the flow of money. During the normal economic activity, it would be justified to have savings because they can be given out as loans but in this case, there is little demand for them, so they are doing no good for the economy. The supply of savings then exceeds the demand for loans and the result is lower prices or lower interest rates. Thus, the idea is that the money that was once saved is now re-invested or spent, assuming lower interest rates appeal to consumers. To Keynes, however, this was not always the case, and it couldn't be assumed that lower interest rates would automatically encourage investment and spending again since there is no proven link between the two. Yet his ideas were soon to achieve widespread acceptance, with eminent American professors such as
Alvin Hansen agreeing with the
General Theory before the outbreak of World War II. Although Keynes has been widely criticisedespecially by members of the
Chicago school of economicsfor advocating in their view irresponsible government spending financed by borrowing, in fact he was a firm believer in balanced budgets and regarded the proposals for programmes of public works during the Great Depression as an exceptional measure to meet the needs of exceptional circumstances.
Second World War at the inaugural meeting of the
International Monetary Fund's Board of Governors in
Savannah, Georgia in 1946 During the
Second World War, Keynes argued in
How to Pay for the War, published in 1940, that the war effort should be largely financed by higher taxation and especially by compulsory saving (essentially workers lending money to the government), rather than
deficit spending, to avoid inflation. Compulsory saving would act to dampen domestic demand, assist in channelling additional output towards the war efforts, would be fairer than punitive taxation and would have the advantage of helping to avoid a post-war slump by boosting demand once workers were allowed to withdraw their savings. In September 1941 he was proposed to fill a vacancy in the Court of Directors of the
Bank of England, and subsequently carried out a full term from the following April. In June 1942, Keynes was rewarded for his service with a
hereditary peerage in the King's Birthday Honours. On 7 July his title was
gazetted as "
Baron Keynes, of Tilton, in the County of
Sussex" and he took his seat in the
House of Lords on the
Liberal Party benches. As the
Allied victory began to look certain, Keynes was heavily involved, as leader of the British delegation and chairman of the
World Bank commission, in the mid-1944 negotiations that established the
Bretton Woods system. The Keynes plan, concerning an international clearing-union, argued for a radical system for the management of currencies. He proposed the creation of a common world unit of currency, the
bancor and new global institutionsa world
central bank and the
International Clearing Union. Keynes envisaged these institutions as managing an international trade and payments system with strong incentives for countries to avoid substantial trade deficits or surpluses. The US's greater negotiating strength, however, meant that the outcomes accorded more closely to the more conservative plans of
Harry Dexter White. According to US economist
J. Bradford DeLong, on almost every point where he was overruled by the Americans, Keynes was later proven correct by events. The two new institutions, later known as the World Bank and the
International Monetary Fund (IMF), were founded as a compromise that primarily reflected the American vision. There would be no incentives for states to avoid a large
trade surplus; instead, the burden for correcting a trade imbalance would continue to fall only on the
deficit countries, which Keynes had argued were least able to address the problem without inflicting economic hardship on their populations. Yet, Keynes was still pleased when accepting the final agreement, saying that if the institutions stayed true to their founding principles, "the brotherhood of man will have become more than a phrase."
Postwar After the war, Keynes continued to represent the United Kingdom in international negotiations despite his deteriorating health. He succeeded in obtaining preferential terms from the United States
for new and outstanding debts to facilitate the rebuilding of the British economy. Just before his death in 1946, Keynes told Henry Clay, a professor of social economics and advisor to the
Bank of England, of his hopes that
Adam Smith's "
invisible hand" could help Britain out of the economic hole it was in: "I find myself more and more relying for a solution of our problems on the invisible hand which I tried to eject from economic thinking twenty years ago." ==Economic viewpoint==