Welcome to the deep dive, the show where we take
a massive stack of sources and turn it all into
the essential knowledge you need to be brilliantly
informed. Today, we are undertaking a deep dive
into John Maynard Keynes. And I mean, this is
a figure whose shadow just stretches across every
single major economic debate of the last century.
Absolutely. He's the single person most responsible
for transforming economics from this, you know,
niche academic field into a central tool of government
policy. We're talking about the father of macroeconomics,
right? The man who's... Radical ideas basically
saved capitalism during its worst crisis, the
Great Depression. Exactly. But he was also this
massive contradiction, a hugely successful investor
who literally wrote the book on why markets fail.
And a free trade advocate who then did a complete
180 and pivoted hard to protectionism. So our
mission in this deep dive is really to unpack
that paradox. We're going to examine how one
man who is primarily trained in mathematics and
philosophy of all things, completely revolutionized
economic theory. And not just theory. He challenged
core tenets like the invisible hand. And then
he went on to design the entire global financial
order after World War II. We really have to get
into the mechanics of it all. Aggregate demand,
price stickiness, the multiplier, and also explore
the... surprising personal life that I think
really fueled his extraordinary confidence. It's
such an important mission because, well, as we
saw after the 2008 crisis, his ideas just never
truly go away. They're cyclical. They are. Time
magazine said it decades ago that Keene's radical
idea that government should spend money they
don't have may have saved capitalism. He just
he keeps coming back every time the free market
system looks like it's about to collapse. So
to understand the revolutionary, you really have
to start with the man. John Maynard Keynes was
born in Cambridge, England in 1883, and he was
born into this intellectual but also very grounded
upper middle class family. It really sounds like
the perfect Petri dish for producing someone
who was just utterly convinced they could solve
the world's problems. Absolutely. I mean, think
about it. His father, John Neville Keynes, was
a prominent economist and logician. His mother,
Florence Ada Keynes, became the first female
mayor of Cambridge. Wow. So he was supported.
He was loved. And that translated into this lifelong,
almost unshakable confidence in his own intellectual
ability to find solutions. And just as importantly,
a real faith in the ability of educated government
officials to do good. The fascinating part to
me, though, is that his actual academic foundation
wasn't in economics at all. Not really, no. It
was math first. Right. He was a brilliant student,
earned a first class B .A. in mathematics from
King's College, Cambridge in 1904. But his real
passion at the time, his deepest intellectual
leaning, was toward philosophy. And his formal
economic training was... What? Almost nothing.
Almost nothing. He attended just one term of
lectures, and that was informally as a graduate
student. That is just astonishing. He becomes
the single most influential economist of the
20th century, basically invents an entire subfield,
and he's almost entirely self -taught in the
subject. Well, it speaks volumes, doesn't it?
Biographers often point to his optimistic background,
that stable, educated, socially unified class,
as being crucial. He just lacked the ideological
rigidity of people who spent decades learning
and internalizing classical orthodoxy. So he
wasn't tied down by tradition? Not at all. It
allowed him to challenge the entire structure
of economic thought when the real world, you
know, the Great Depression, showed that the old
structure was fundamentally broken. Okay, so
let's unpack this journey. Let's jump into section
one, the making of a revolutionary WWI and the
trauma of Versailles. Before the war, he was...
Laying the groundwork, right? He went back to
Cambridge in 1908 after getting bored with the
civil service. Yeah, he was just not cut out
for that kind of bureaucracy. He was initially
funded by people like Alfred Marshall to lecture
in economics. And he worked extensively on probability
theory, which later became his really important
book, A Treatise on Probability, in 1921. But
his first real dive into practical economics
was Indian currency and finance in 1913. Yes,
and this was a very detailed analysis of the
Indian monetary system. And what was the situation
there? Well, the Indian rupee was tied to silver,
but it was becoming more and more convertible
to gold or the pound sterling. Keynes, showing
this early grasp of monetary policy, basically
recommended formalizing that process, speeding
it up. I was essentially arguing for a gold exchange
standard. So right away you see him moving from
abstract theory to, well. Practical policy design.
Immediately. And that practical genius was, as
you said, put to the ultimate test during World
War I. He joined the Treasury in 1915. And this
is where his reputation for, what was it, nerve
and mastery was really forged. It was. His role
was crucial. He was managing the terms of credit
with his allies and, most importantly, acquiring
the scarce foreign currencies they needed to
fund the war. And the story about the Spanish
pesetas really shows his strategic brilliance.
It's more than just supply chain management.
Oh, it truly is. So in 1917, the British government
desperately needed Spanish pesetas to finance
its huge purchases in neutral Spain. And Keynes
managed to secretly buy up enough to cover the
government's immediate needs. So the normal thing
to do would be to just hand it over, solve the
problem. Right. The traditional approach would
be to solve the immediate shortage and move on.
But he didn't do that. No. He refused. Instead,
he chose to sell the entire massive block of
Pasetas back onto the market. He intentionally
flooded it. Wow. It was an incredibly aggressive,
high -risk move. It wasn't designed just to meet
the demand, but to fundamentally crash the price
of the Posada. To make it cheaper for the government
to buy more in the future. Exactly. Yeah. He
was prioritizing long -term structural advantage
and market control over just, you know, immediate
tactical relief. That must have been a very contentious
choice inside the conservative treasury. Highly
contentious, but it worked. It was like economic
judo. He received the Companion of the Order
of the Bath for his service. But this triumph
was, well, it was quickly overshadowed by the
trauma of the Versailles Peace Conference in
1919. This event really changed him, didn't it?
It didn't just change his career. It changed
his whole economic philosophy. It was a defining
break. He served as the Treasury's financial
representative, focusing on German reparations.
And his objective was clear from the start. Keep
the compensation payments low enough that the
German economy wouldn't be irreparably damaged.
He had this incredibly prescient vision, didn't
he? He really did. Keynes understood that setting
reparations too high wouldn't just hurt Germany.
It would destabilize the entire European financial
network, creating these massive crippling trade
and debt imbalances that would inevitably lead
to future conflict. He wanted reconstruction,
not punishment. Exactly. But he was overruled
by hardliners who were demanding just ruinous
sums of money. Right. He was up against these
conservative powers, the ones he famously called
the Heavenly Twins, Lord Sumner and Lord Cunliffe.
And they were demanding astronomically high reparations.
Keynes just realized the mood was vengeful and
punitive. It wasn't economically rational at
all. And his own counterplan to resolve the war
debt issue was just as radical. But it got shot
down by the U .S. It did. He proposed this major
international scheme to write down almost all
the inter -allied war debts. You know, the UK
owed the US, France owed the UK, and so on. And
then he wanted to shift two -thirds of the cost
of European reconstruction onto America's deep
pockets. But America was the largest creditor.
They weren't going to go for that. Not a chance.
They saw it as, you know, they'd already sacrificed
enough, so they flatly rejected it. And this
rejection... Combined with a harsh treaty, it
just disgusted him on both a moral and an economic
level. And that led to his dramatic resignation.
His resignation was immediately followed by his
devastating polemic, The Economic Consequences
of the Peace. And the book was a global sensation.
It was this mix of... blistering character assassination,
his descriptions of Woodrow Wilson are legendary,
with sharp, accessible economic analysis, he
argued the treaty was a recipe for catastrophe.
The language in that book is still shocking today.
He paints it not as a peace deal, but as an act
of calculated cruelty. He wrote of the policy
of reducing Germany to servitude for a generation.
And his ultimate warning, which is just tragic
in hindsight, was his prediction that impoverishing
Central Europe would lead to that final war before
which the horrors of the late german war will
fade into nothing a devastating chilling prediction
that well the rise of the nazis in the start
of world war ii seemed to prove completely correct.
It did. But here is where we have to introduce
a necessary historical counterpoint, you know,
something that really speaks to the complexity
of this whole debate. Well, Keynes's book was
profoundly influential and it shaped the popular
view that the treaty was ruinous. Later, historians
have presented a more nuanced picture. What's
the counter argument then? Well, historians like
Nell Ferguson and others have argued that the
treaty wasn't necessarily unduly harsh in economic
terms because of what happened next. point out
that in the decade that followed, Germany received
a massive net capital inflow from American loans.
So American money was basically recycling through
the system, funding the payments and preventing
the collapse Keynes feared. Precisely. That capital
inflow was estimated to be roughly four times
the eventual size of the Marshall Plan after
World War II. Wow, that's a huge number. It is.
So while Kean's critique was a brilliant polemic,
some modern scholars see it as ultimately flawed
in its economic prognosis. They'd say the treaty's
real failure was political, not purely financial.
But regardless of the debate, The book made Keynes
an international celebrity. It cemented his status
as the anti -establishment intellectual. So if
Versailles showed Keynes the political failure
of the establishment, the economic turmoil that
followed really provided the catastrophe he needed
to unleash his intellectual revolution. Let's
move into section two. The Keynesian Revolution
challenging neoclassical orthodoxy. Yeah, the
1920s in Britain were just characterized by high
unemployment. And it was compounded by this disastrous
decision by Winston Churchill in 1925 to put
Britain back on the gold standard at a cripplingly
high pre -war parity. And Keynes was completely
against this. Relentlessly. He argued the gold
standard was forcing Britain into unnecessary
deflation and austerity, just strangling the
domestic economy. He responded immediately with
the economic consequences. as a Mr. Churchill,
arguing austerity was actively making things
worse. But the real trigger for the revolution
was the Great Depression, starting in 1929. The
collapse of global demand, mass unemployment.
It just validated all his worst fears about market
instability. And he was a trenchant critic of
the orthodox response, which was, you know, balance
the budget and let wages fall. Which to Keynes
was just suicidal. Completely. He argued that
in a severe slump, budget deficits weren't a
symptom of failure. They were, in his words,
nature's remedy that cushioned the economy from
total collapse. He was arguing for counter -cyclical
public spending right away. If the private sector
won't spend, the government has to. But he needed
more than just a policy prescription. He needed
a proper theoretical argument to back it up.
And that arrived in 1936 with his magnum opus,
The General Theory of Employment, Interest and
Money. This book is really the foundation of
modern macroeconomics, isn't it? It just shattered
the existing framework utterly. It provided the
theoretical justification for activist interventionist
government policy. It challenged that core classical
belief that free markets would automatically
just sort themselves out and return to full employment.
So what exactly was the established orthodoxy
he was fighting against? He was fighting against
Say's Law, which is often summarized as supply
creates its own demand. The classical economists
believe that every act of production generates
income that must eventually be spent. So unemployment,
in their view, was just temporary or voluntary.
And the catastrophe of the 1930s with idle factories
and millions of people desperate for work showed
that theory was just deeply flawed in practice.
It showed it only applied in a special case,
the case of an economy already at full employment.
Keynes said his theory was the general theory
because it applied to all situations. And he
countered Say's law with a couple of interconnected
concepts. The first one being price stickiness.
Yes. Classical theory required perfect flexibility.
If there is a slump, wages should fall, making
labor cheaper so firms hire more and you get
back to full employment. But that doesn't happen
in the real world. Not really. Keynes pointed
to what he called nominal wage rigidity. Workers
just refuse to accept lower money wages. And
why is that? Why are workers so resistant to
wage cuts, even if economists say it's rational?
It's a mix of things. You have institutional
factors like union contracts and minimum wage
laws, but there are also psychological factors.
I mean, no one wants to be the first to take
a pay cut, right? Of course not. It's terrible
for morale. Exactly. It damages morale, often
reducing productivity more than the money saved.
So this stickiness meant the price mechanism
was too slow and it allowed the economy to settle
into a stable but very damaging low employment
equilibrium. So the economy gets stuck in a trap.
And the government's role is to be the external
force that breaks that trap. Precisely. Which
leads to his second critical concept. Aggregate
demand, or AD canes, argued that AD, the total
planned spending in the economy, is the variable
that matters most. To get people back to work,
you have to increase total expenditure first.
So it wasn't a shortage of goods. It was a shortage
of willing buyers, a failure of demand. A failure
of effective demand. If confidence is low, businesses
won't invest and consumers will hoard their money,
even if interest rates are zero. This is what
we now call a liquidity trap, and it means traditional
monetary policy becomes useless. So the government
has to step in and spend directly. It has to.
It must directly increase expenditure, either
through public works or transfers, just to jumpstart
the cycle. And this is where we get to the most
famous and, I guess, most contentious part of
Keynesian policy, the multiplier effect. The
multiplier is the engine of the stimulus. It
basically says that an initial injection of government
spending will lead to a total increase in national
income that is way bigger than that initial amount.
OK, so walk me through the mechanics of that.
How does it actually work? Let's use an example.
Say the government spends 100 million pounds
building new road. That money immediately becomes
income for construction workers, suppliers, engineers.
OK. Now, Keynes focused on what he called the
marginal propensity to consume or MPC. It's just
the fraction of any new income that people choose
to spend rather than save. Right. So the MPC
is, say, 80 percent. That means people spend
80 pence of every new pound they get. Correct.
So the construction workers spent 80 percent
of their new hundred million. That's 80 million
pounds on groceries, cars, rent. And that 80
million pounds becomes new income for grocers
and car dealers and landlords. And then they
spend 80 percent of that. And the cycle continues.
It continues. The spending flows through the
economy, getting smaller each time, but adding
up very quickly. So an initial 100 million pound
expenditure doesn't just generate 100 million
pounds of activity, but potentially three, four
or 500 million. It's like throwing a pebble in
a pond. It's an engine starter for an economy
stuck in neutral. He had that great line with
men and plants unemployed. It is ridiculous to
say that we cannot afford these new developments.
Yes. It is precisely with these plants and these
men that we shall afford them. The spending pays
for itself many times over. But this sounds a
little bit like a perpetual motion machine. What
was the strongest argument against this idea
back in 1936? The main argument was something
called crowding out. The idea was that if the
government borrows money, it drives up interest
rates, which makes it more expensive for private
businesses to borrow. So you just cancel out
the stimulus effect. The famous crowding out
argument. Still hear that today? We do. But Keynes
countered that in a depression. When confidence
is low and nobody wants to borrow anyway, crowding
out is impossible. If the government is borrowing
idle savings, it's just putting money to use
that would otherwise be stuffed under a mattress.
And while the orthodox economists were hostile
at first, his ideas started to gain support,
especially in the U .S., laying the groundwork
for the New Deal and, crucially, for the massive
government spending of World War II. Let's move
to Section 3, the global architect trade, imbalances,
and Bretton Woods. This is where Keynes shows
a really surprising intellectual shift, pivoting
away from a pillar of classical thought he once
believed in. free trade. This turning point was
definitive and it happened between 1929 and 1931.
I mean, Keynes was a student of Alfred Marshall,
who was an absolute free trader. But the inflexibility
of the British economy convinced him that protectionist
measures were necessary, especially during a
severe downturn. So for him, domestic full employment
was more important than the ideal of free trade.
It trumped it. He stated flatly that economic
recovery is only fully effective if a country
eliminates its trade deficit. Otherwise, stimulus
spending is just leaking out of the country,
you're paying for foreign goods and creating
foreign jobs. Which led him to actually advocate
for tariffs. In detail. In late 1930, he proposed
a uniform tariff of 10 % on all imports, later
suggesting 15 % on manufactured goods. He was
fundamentally criticizing the whole theoretical
basis for global specialization, Ricardian comparative
advantage. Okay, let's just clarify what he was
rejecting there. What is recording comparative
advantage in simple terms? In simple terms, it's
the idea that every country should specialize
in producing whatever it's relatively best at,
even if it's not the absolute best at anything.
The theory is that this maximizes global efficiency
and wealth. But it relies on some pretty big
assumptions, right? Like frictionless markets
and mobile labor. Huge assumptions. And he argued
those conditions just don't exist in reality,
especially during a depression. If a domestic
industry shuts down because of foreign competition,
the unemployed workers don't just magically migrate
to a new, more efficient job. No, they face real
costs. Retraining, moving, searching. Unemployment
becomes chronic. Exactly. So this supposed gain
from specialization often disappears when you
factor in the very real social costs of long
-term unemployment. He actually started defending
the idea of having a national diversity of production.
He did. It's captured perfectly in his 1933 article,
National Self -Sufficiency. And this essay reads
almost like an anti -globalization manifesto,
especially coming from him. He said, I sympathize
with those who would minimize economic entanglement
among nations, but let goods be homespun whenever
it is reasonably and conveniently possible. And
above all, let finance be primarily. national.
He also believed that trade wasn't necessarily
a force for peace, that it could lead to conflict.
He fundamentally disagreed with that idea. He
concluded that with modern technology, most mass
production could be done efficiently in most
countries. So the economic loss from favoring
domestic production was minimal, and it was easily
outweighed by the political and social advantages
of self -sufficiency and full employment. And
this whole mindset, this protectionist anti -imbalance
mindset, was the foundation for his vision for
the post -war world. which he took to Bretton
Woods in 1944. He led the British delegation
and he was advocating for his comprehensive Keynes
plan for an international clearing union or ICU.
His goal wasn't just reconstruction. It was to
create a system that would prevent the massive
destabilizing trade imbalances that had caused
so many problems before the war. And the famous
banker currency was central to this plan. The
banker was the unit of account for this ICU,
a common world currency to manage trade. The
ICU would essentially be. a global central bank
and all international transactions would be cleared
through this system. But the truly radical part
was the idea of equitable adjustment, forcing
the creditor nations to share the burden of fixing
imbalances. This is so critical. In the existing
system, only debtor nations, the ones running
deficits like Britain, were forced to adjust
through painful austerity. Keynes argued that
the creditor nations, the ones with huge surpluses
like the U .S., were just as responsible for
global instability because their surpluses were
destroying aggregate demand worldwide. So he
wanted to penalize saving on a global scale.
How would that have worked? Well, the ICU would
apply an interest charge, a penalty on persistently
large surplus accounts. If a country ran a massive
surplus and just sat on its banker reserves,
they would start losing capital. This would force
them to either buy more imports or invest their
capital internationally. It's a brilliant, elegant
solution. It automatically generates demand and
keeps the global economy in balance. It was.
But the political reality was that the U .S.,
as the world's dominant creditor nation, was
never going to agree to being penalized for its
success. And that's the tragedy. The American
delegation, led by Harry Dexter White, pretty
much overruled the Keynes plan. Keynes was forced
into a compromise that established the IMF and
the World Bank. But critically, the adjustment
burden fell almost entirely on the deficit countries.
The U .S. dollar became dominant. And yet economists
still revisit that negotiation all the time.
All the time. Jay Bradford DeLong is just one
of many who've argued that on almost every major
point where Keynes was overruled by the Americans,
especially on penalizing creditors and the need
for capital controls, he was later proven correct.
The instability caused by massive, unregulated
global capital flows, which Keynes wanted to
restrict, contributed directly to the breakdown
of the system in the 70s and the later crises.
Despite the compromises, though, Keynes still
felt that getting the IMF and World Bank established
was a massive step forward. He said that if the
institutions remain true to their founding principles,
the brotherhood of man will have become more
than a phrase. And now we can chart the impact
of his life's work in Section 4. The cycles of
influence, ascendancy, stagflation, and resurgence.
Because the moment World War II began, Keynesian
ideas moved from being this controversial theory
to just established practice. World War II was,
in the words of John Kenneth Galbraith, the perfect
demonstration of Keynesian ideas. The massive
government borrowing and spending needed for
the war effort instantly wiped out unemployment.
You couldn't have had a better real -world lab
to prove his point. And after the war? Keynesianism
became the consensus across the developed world.
For about two decades, from 1950 to 1970, Keynesian
policies were standard. Governments actively
managed the business cycle. This period is often
called the golden age of capitalism. High growth,
low unemployment, or rising middle class. The
consensus was so strong that Time magazine declared
in 1965, we're all Keynesians now. Exactly. And
this consensus was built in part on a simplified
understanding of the tradeoff between inflation
and unemployment, often visualized through the
Phillips curve. The idea that there's a reliable
inverse relationship. To get lower unemployment,
you have to accept a little more inflation and
vice versa. Right. Governments thought they could
just pick their spot on the curve. They could
fine tune the economy. But that simplification
was the very thing that made the whole consensus
vulnerable when the 1970s hit. The arrival of
stagflation, the simultaneous presence of high
inflation and high unemployment, just shattered
that confidence. The simple Phillips curve suggested
this shouldn't happen. But it did, especially
after the oil price shocks of 1973. And stagflation
provided the opening for the intellectual counterrevolution
led by the monetarists. Milton Friedman was their
most formidable voice, and he had predicted stagflation
as early as 1968. He argued that sustained Keynesian
expansionary policies could only temporarily
boost employment. In the long run, he said, they
only lead to higher inflation without affecting
real output. So the government could influence
the dollar price of things, but not the actual
number of jobs or cars. has produced. Precisely.
Friedman argued that workers would eventually
catch on to the inflation, demand higher wages,
and push the economy back to its natural rate
of unemployment, but now at a much higher inflation
rate. This critique, combined with the chaos
of the 70s, successfully undermined a Keynesian
consensus. And the international structure he'd
helped build also began to fray. favoring the
deregulated, globalized model he had warned against.
That's a key point. The Bretton Woods system
of fixed exchange rates began breaking down.
In 1971, the US suspended the convertibility
of the dollar to gold, allowing capital to flow
freely across borders. By the late 70s and 80s,
the UK and US had officially moved away from
Keynesianism. So his principles entered this
period of relative dormancy in the mainstream
until the next major systemic crisis. Which was
the 2008 global financial crisis. The sheer magnitude
of that demand shock sparked an immediate and
massive Keynesian resurgence. The policy change
was stunningly fast. It was. Governments worldwide,
led by the US and UK, embraced fiscal stimulus
and massive bailout. to prevent demand from collapsing
entirely. The Financial Times called it a stunning
reversal of the orthodoxy of the past several
decades. And even his radical Bretton Woods ideas
were given a second look. They were. In 2009,
the governor of the People's Bank of China, Zhu
Xiaochuan, publicly argued for adopting Kean's
original vision, a centrally managed global reserve
currency, the Bancor idea, implemented via IMF
special drawing rights. So his ideas were back
on the table. but they had evolved into something
more intellectually robust than the simple models
of the 1960s. They had evolved into New Keynesian
economics. This school of thought retained the
core policy implication that government stabilization
is necessary, but it rebuilt the foundation to
address the monetarist critiques. What was the
key difference between the New Keynesians and
the old model? Well, New Keynesianism accepted
some tenets of the New Classical School, especially
the idea that people operate with rational expectations.
But they combine this rationality with an acknowledgement
of market failures, specifically the existence
of sticky prices and sticky wages. So people
are rational, but the real world of contracts
and morale prevents prices and wages from adjusting
instantly. Exactly. And because markets adjust
slowly due to these frictions, a rational government
stabilization policy can lead to a much more
efficient outcome than a pure hands -off approach.
It can prevent those catastrophic low employment
equilibriums that Keynes identified 80 years
before. This deep dive would just be incomplete
without getting into Section 5, the philosopher,
investor, and contradictory man. For a man who
focused on the cold logic of macroeconomics,
his personal life was just marked by this passionate
philosophy, cultural enthusiasm, and profound
contradictions. He was a genuine Renaissance
man, a central figure in the famed Bloomsbury
group of intellectuals and artists, a group that
explicitly rejected rigid Victorian morality.
And how did his time in the Bloomsbury group
influence his worldview? It provided the philosophical
ballast for his iconoclasm. He was deeply influenced
by G .E. Moore's ethical philosophy, which prized
the pleasures of human intercourse and the enjoyment
of beautiful objects. This wasn't just a hobby.
It was his moral framework. So that commitment
to aesthetic and intellectual honesty gave him
the confidence to reject economic dogma, just
like he rejected social dogma. I think so. And
he translated this commitment into massive public
service for the arts. He personally supported
the Cambridge Arts Theater. During World War
II, he helped secure vital government funding.
for institutions like the Royal Opera House.
And most critically, he became the founding chairman
of the Arts Council of Great Britain in 1946.
He also collected fine art Cezanne, Picasso,
and historic documents. Yes. His passion for
history was obvious in his acquisition of Isaac
Newton's papers. Based on those documents, Keynes
wrote a famous essay describing Newton not as
the first of the Enlightenment thinkers, but
as the last of the magicians. It shows Keynes'
own fascination with that transition from mystical
to rational thought. Now let's talk about his
personal life, which was marked by a great deal
of openness about his sexuality, which was later
weaponized by his political opponents. In his
early life, within the Bloomsbury circle, he
was openly homosexual. He kept meticulous diaries
about his encounters. His supreme male love was
the artist Duncan Grant. And how did his opponents
use this against him? In a deeply unpleasant
way. Critics of his lenient stance towards Germany
after the war would suggest his views were suspect,
distorted by his personal feelings for a German
negotiator. And later, his childlessness and
early life were used to attack his economic theories,
suggesting they lacked the long -term vision
that only a family could provide. But despite
identifying as bisexual, he did later marry.
Yes. In 1925, he married Lidia Lopakova, the
celebrated Russian ballerina. It was a union
that was initially surprising to his friends,
but they were exceptionally happy. It was described
as a marriage of beauty and brains, and it provided
him immense stability and joy. OK, let's pivot
to his other great contradiction. His phenomenal
success as a private investor, the inventor of
macroeconomics, was a master of the market. It's
truly fascinating. Many great economic theorists
are terrible investors. Keynes was not. He made
one huge mistake, nearly getting wiped out in
the 1929 crash. An error he admitted was because
he was focused too much on the big picture and
not enough on market psychology. But he recovered
quickly. Very quickly. By the time of his death
in 1946, his net worth was equivalent to about
23 million pounds today. And he did this while
refusing to sell into a falling market, which
he considered antisocial. And he managed the
King's College Endowment, right? For decades.
He radically shifted its strategy away from conservative
assets like land and bonds and into stocks, particularly
small and medium -sized companies with strong
growth. So he wasn't a trader. He was a long
-term strategist. Absolutely. He's seen today
as an early pioneer of value investing, buying
solid businesses for the long haul, and ignoring
the daily noise. It shows that while he questioned
the stability of the market, he certainly believed
in its underlying dynamism. But we have to address
the most jarring contradiction of all, his social
views on eugenics. Yes. And this is a fact that
requires careful contextualization. Keynes was
a lifelong proponent of eugenics, which today
we rightly view with horror. But in the early
20th century, this was a mainstream, though highly
misguided view held by many progressive intellectuals
and scientists across the political spectrum.
And he wasn't just a passive believer. He was
actively involved. He was. He served as a director
of the British Eugenics Society from 1937 to
1944. And as late as 1946, he called eugenics
the most important branch of sociology which
exists. It's a disturbing intellectual blind
spot for someone so brilliant. It is. It shows
a highly confident intellectual applying that
same rationalist planning impulse, the one that
sought to manage the economy, to the realm of
human biology, a movement with deeply troubling
ethical consequences. And despite all these internal
conflicts, his political stance was consistently
anti -communist and liberal. Resolutely liberal.
He refused to hold political office, believing
he had more influence as an independent intellectual.
He was vehemently anti -communist, dismissing
Marxism as a misunderstanding of Ricardo. He
really preferred the educated bourgeoisie, whom
he believed carried the seeds of all human advancement
over the boorish proletariat. What an extraordinary
tapestry of intellects, contradiction, and impact.
Let's bring this deep dive to a close with our
outro. We've covered Keynes' immense legacy,
haven't we? The rejection of the automatic full
-implorement model. the invention of counter
-cyclical government spending, and his effort
to build a system of managed, regulated international
trade. His core achievement really was providing
a legitimate intellectual framework for government
intervention in a crisis. He showed that laissez
-faire capitalism, though powerful, was just
prone to these catastrophic failures that only
proactive public spending could solve. He died
in 1946. He'd suffered a series of heart attacks,
likely made worse by the exhausting post -war
loan negotiations he undertook with the U .S.,
which he described as as absolute hell. He won
the favorable loan terms for Britain, but at
a severe personal cost. He did. And it's in this
context of exhaustion, right near the end of
his life, that we find what is maybe the final,
most profound irony, the provocative thought
we want to leave you with. Just before his death,
Keynes was speaking to a colleague, Henry Clay,
about the capitalist engine he'd spent two decades
trying to fix. And he told Clay that he found
himself More and more relying for a solution
of our problems on the invisible hand, which
I tried to eject from economic thinking 20 years
ago. The invisible hand. That cornerstone of
Adam Smith's classical theory. The ultimate symbol
of the free market he had rejected. It's a stunning
thing to say. It just raises the essential question.
Did Keynes at the end confess some doubt about
the ultimate efficacy of his own revolution?
Or, or does this comment suggest something else?
Maybe the ultimate utility of Keynesianism isn't
in permanently replacing the market, but in serving
as this sophisticated, necessary emergency brake.
That he wasn't the enemy of capitalism. He was
its most acute diagnostician. He knew the engine
was fundamentally sound, but just inherently
prone to these catastrophic failures of confidence.
His final acknowledgement might have been the
recognition that his entire life's work was dedicated
to creating the tools to moderate that powerful,
creative, but also destructive force of the capitalist
engine to ensure it could survive its own worst
tendencies. It wasn't about destruction. It was
about stabilization. And that idea that the market
needs an intelligent, rational mind acting as
its engineer during a crisis is still the defining
question of political economy today. And it's
one that Keynes forces us all to answer.