CAREER
Keynes accepted a lectureship at Cambridge in economics funded personally by Alfred Marshall, from which position he began to build his reputation. Soon he was appointed to the Royal Commission on Indian Currency and Finance, where he showed his considerable talent at applying economic theory to practical problems.
His expertise was in demand during the First World War. He worked for the Adviser to the Chancellor of the Exchequer and to the Treasury on Financial and Economic Questions. Among his responsibilities were the design of terms of credit between Britain and its continental allies during the war, and the acquisition of scarce currencies.
At this latter endeavor Keynes' “nerve and mastery became legendary,” in the words of Robert Lekachman, as in the case where he managed to put together—with difficulty—a small supply of Spanish pesetas and sold them all to break the market: it worked, and pesetas became much less scarce and expensive. These accomplishments led eventually to the appointment that would have a huge effect on Keynes' life and career: financial representative for the Treasury to the 1919 Paris Peace Conference.
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Keynes' career lifted off as an adviser to the British finance department from 1915 - 1919 during World War I, and their representative at the Versailles peace conference in 1919. His brilliant observations appeared in the highly influential book "The Economic Consequences of the Peace" in 1919, followed by "A Revision of the Treaty in 1922". He argued that the reparations which Germany was forced to pay to the victors in the war were too large, would lead to the ruin of the German economy and result in further conflict in Europe. These predictions were borne out when the German economy suffered in the hyperinflation of 1923. Only a fraction of reparations ever were paid.
Keynes published his "Treatise on Probality" in 1920, a notable contribution to the philosophical and mathematical underpinnings of probability theory. He attacked the deflation policies of the 1920s with " A tract on Monetary Reform" in 1923, a trenchant argument that countries should target stability of domestic prices and proposing flexible exchange rates. The "Treatise on Money 1930" (2 volumes) effectively set out his Wicksellian theory of the credit cycle.
His magnum opus, the "General Theory of Employment, Interest and Money" challenged the economic paradigm when published in 1936. In this book Keynes put forward a theory based upon the notion of aggregate demand to explain variations in the overall level of economic activity, such as were observed in the Great Depression. The total income in a society is defined by the sum of consumption and investment; and in a state of unemployment and unused production capacity, one can only enhance employment and total income by first increasing expenditures for either consumption or investment.
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The total amount of saving in a society is determined by the total income and thus, the economy could achieve an increase of total saving, even if the interest rates were lowered to increase the expenditures for investment. The book advocated activist economic policy by government to stimulate demand in times of high unemployment, for example by spending on public works. The book is often viewed as the foundation of modern macroeconomics. Historians debate whether or not it had an impact on U.S. president Roosevelt's New Deal. Deficit spending of the sort the New Deal began in 1938 had previously been called "pump priming" and had been endorsed by President Herbert Hoover. Roosevelt said he never understood Keynes, and no major politicians said they were influenced by the book. Indeed very few senior economists in the U.S. agreed with Keynes in the 1930s; it took until the 1950s before his ideas were widely accepted by academic economists in the U.S.
In 1942 Keynes was a very recognised economist and was raised to the peerage as Baron Keynes of Tilton . During World War II, Keynes argued in "How to pay for the war" that the war effort should be largely financed by higher taxation, rather than deficit spending deficit spending, in order to avoid inflation. As 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 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, involving a world central bank, the Bancor, responsible for a common world unit of currency. The USA's greater negotiating strength, however, meant that the final outcomes accorded more closely to the less radical plans of Harry Dexter White.
Keynes wrote "Essays in Biography" and "Essays in Persuasion", the former giving portraits of economists and notables, whilst the latter presents some of Keynes' attempts to influence decision-makers during the Great Depression . Keynes was editor in chief for the Economical Journal from 1912 .