February 1, 1936: "We Are All Keynesians Now"

February 1, 1936: John Maynard Keynes, already the world's leading economist, publishes his magnum opus, The General Theory of Employment, Interest and Money. It became the defining economic publication of the 20th Century, and led to the expression, "We are all Keynesians now."

Keynes (pronounced "keenz") was born on June 5, 1883 in Cambridge, Cambridgeshire, England, where his father, John Neville Keynes, taught "moral science" (an umbrella term that covered what a 21st Century American might call "the humanities") at Cambridge University. The son graduated from the school, having distinguished himself in many ways, but especially as a mathematical genius.

Harry Gordon, a Canadian economist who also graduated from Cambridge, wrote that Keynes was always confident he could find a solution to whatever problem he turned his attention to, and retained a lasting faith in the ability of government officials to do good. He began work in Britain's Civil Service in 1906, and by 1909 was already having articles published in The Economic Journal. That publication made him its editor just 2 years later.

His work with the Treasury kept him from having to serve in World War I. He traveled to the postwar Conference of Versailles in 1919, and his observations of the way the defeated Germany was treated by the victorious powers, including his own country, worried him. His book The Economic Consequences of the Peace predicted that the harsh penalties would cause Germany to rise up again, and start a new war in 20 years. He was almost exactly right on the timing. (He wasn't the only one: Premier Georges Clemenceau of France also said it would last 20 years.)

He continued to serve on government committees. He was deeply critical of the British government's austerity measures during the Great Depression. He believed that budget deficits during economic downturns were a good thing, and a natural product of an economic slump. He wrote, "For Government borrowing of one kind or another is nature's remedy, so to speak, for preventing business losses from being, in so severe a slump as the present one, so great as to bring production altogether to a standstill."

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. Copies were 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 helped pave the way for the later acceptance of Keynesian ideas, though it had little immediate practical influence.

In 1936, he published his magnum opus, The General Theory of Employment, Interest and Money. It challenged the ideas of neoclassical economics that held that free markets would, in the short to medium term, automatically provide full employment, as long as workers were flexible in their wage demands. He argued that aggregate demand (total spending in the economy) determined the overall level of economic activity, and that inadequate aggregate demand could lead to prolonged periods of high unemployment, and since wages and labor costs are rigid downwards, the economy will not automatically rebound to full employment.

In other words, Keynes understood that there was no free market, and there never had been, and there never would be, until all people were free to go to market.

In spite of being left of center in economic thought, he opposed Communism. He supported women's rights and the decriminalization of homosexuality. However, he also supported eugenics. In 1942, he was created 1st Baron Keynes.

Someone once asked Keynes if his theories would be harmful in the long run. His answer was, "In the long run, we are all dead." He died on April 21, 1946, at the age of 62, at his farmhouse near Firle, East Sussex, England. Both of his parents outlived him. He had married, but had no children, so, with his death, his bloodline and his brief baronetcy became extinct.

By the late 1930s, leading Western economies had begun adopting Keynes's policy recommendations. Almost all capitalist governments had done so in the years following World War II. In a 1965 interview for Time magazine, the conservative economist Milton Friedman reluctantly admitted, "We are all Keynesians now."

That would change in the 1970s, as conservative economists like Friedman and Friedrich Hayek began an ascendancy. Conservative governments took hold all over the world: Menachem Begin in Israel in 1977; Deng Xiaoping coming to power in China in 1978, and leading it away from strict Communism and toward free-market ideas; Margaret Thatcher in Britain, Joe Clark in Canada (but only for a few months, as it turned out), and the Islamic revolution in Iran, all in 1979; Ronald Reagan in America, in 1980; and Helmut Kohl in West Germany, in 1982.

Keynes' reputation seemed to be restored in the 1990s, as all of those countries, except for China and Iran, became more liberal again. In 1999, Time named him the greatest economist of the 20th Century.

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February 1, 1936 was a Saturday. Baseball and football were out of season. The NBA hadn't been founded yet. There were 2 games played in the NHL. The Detroit Red Wings beat the Montreal Canadiens, 3-1 at the Montreal Forum. And the Toronto Maple Leafs beat the Chicago Black Hawks, 3-2 at Maple Leaf Gardens in Toronto. Nick Metz scored the winning goal, 8:29 into overtime.

And in English soccer, Arsenal beat Staffordshire team Stoke City, 1-0 at the Arsenal Stadium, a.k.a. Highbury, in North London.