Biography of Keynes

Author: Robert
Publisher:
Publish Date: 2006-04-01
Features: John Maynard Keynes had no direct contact with China or Asia. He was relatively familiar with India's situation because it was once part of the British Empire, and he had worked as a civil servant in the India Office for a short period. His book is about India's financial issues, although he never thought visiting India was a necessary condition for writing the book. However, he was not entirely ignorant of China. His understanding of China's finance came from his friend—Sir Charles Addis, a director of the Hongkong and Shanghai Banking Corporation, while his knowledge of China's politics and society came from another friend, Agnes Ross, a British consul officer who had served in China. In 1912, he wrote an article in the Economic Journal reviewing the work of a Chinese scholar, which was The Science of Finance in Confucianism (written by Chen Huanchang, a disciple of Kang Youwei, who received his Ph.D. from Columbia University in 1911—translator's note). In this book review, Keynes pointed out that Chinese scholars had long understood the "Gresham's Law" (the law of bad money driving out good money—translator's note) and the "Quantity Theory of Money." He cited the early Ming Dynasty scholar Ye Qiqi, who proposed in 1378 that "when prices fall, paper money should be issued; when prices rise, paper money should be withdrawn." He was baffled by China's population figures. He said that China's large population clearly emerged in modern times. China's population increased from 100 million in the early 18th century to 413 million by 1842. He found that there had been no significant economic or natural changes in China comparable to those in the Western world. Therefore, the rapid growth of China's population was inexplicable. He worried that "China's golden age might be gone forever, because the population that enjoyed these conditions was too large." Keynes began his career as a monetary economist, so only monetary issues related to China interested him. He was always a monetary reformer from the start. His monetary plan was the 1910 Chinese "Gold Exchange Standard" plan. He opposed issuing paper money in China because the historical experience of the Chinese people showed that paper money "would inevitably lead to economic instability and eventual disaster. Moreover, it would hinder the transition of rural areas from barter trade to monetary trade." He suggested "a currency circulate with silver but with gold as the standard currency." He believed that China should not accumulate gold but should keep interest-bearing deposits in London, which could be converted into gold for international payments. He used Japan as an example, saying that it had converted most of its reserves into British government bonds. Keynes's plan remained locked in a drawer until after his death before it was discovered. From a broader perspective, Keynes was deeply fascinated by Asia as depicted by W. S. Jevons. Jevons called Asia a "huge storehouse and market of precious metals" and believed that "the low prices of Eastern products had led to a continuous flow of precious metals to the East," "taking from us hundreds of millions of ingots of gold. These ingots would have been useless in the West." This vivid imagery triggered in Keynes an economic history theory of "money," linking long-term economic booms and busts to the fluctuations of gold and silver. Although Western precious metals were constantly flowing to Asia, the people there preferred to hoard them rather than use them, so they remained poor. Western Europe, on the other hand, fully utilized the silver flowing from South America in the 16th century and the gold wealth seized from India in the 18th century to begin its commercial and industrial revolutions. Keynes's liquidity preference theory of interest rates may have emerged from his reflections on these issues. In 1918, China once again entered Keynes's focus. He opposed citing the "Boxer Indemnity" imposed on China as a precedent in the issue of war reparations from Germany. In 1937, he urged Britain and the United States to sever all trade relations with Japan when it refused to abandon its aggression against China. During World War II, he participated in discussions about lending to China. Overall, he was indeed a friend of China, although he knew very little about it. Although Keynes's The Economic Consequences of the Peace has been translated into Chinese, I do not know how much influence his economic theories have had in China. Keynes's Keynesianism, as left behind by him, is essentially a short-term employment theory. He treated a society's economic structure as a "given condition," merely seeking to ensure sufficient effective demand for its industrial products. Therefore, Keynesianism seems to have little relation to the issues involved in economic development, as development requires large-scale transformation of traditional economic structures. Keynes's disciples Joan Robinson and Roy Harrod added a long-term development perspective to the structure of Keynesian economics: I do not know what impact their theories had on the economic thought of the Maoist era. Keynesian theory may not be very useful for China today, which faces the issue of transformation—abandoning inefficient state-owned economies and advancing economic integration with the global market economy system. However, assuming the government is competent and honest—a crucial prerequisite—Keynesian policies could help transform the economic structure by providing temporary jobs for infrastructure projects—this is what was once called "public works." In the 1920s, Britain saw its old export industries replaced by new consumer goods export industries, creating massive unemployment. Keynes believed that the multiplier effect of additional government spending could accelerate the development of new industries and ultimately absorb the labor force discarded by the old export industries. Britain never adopted this policy, but it would still be useful for an economy where aggregate demand has been depressed for a long time due to the failure of traditional industries (or the industrial sectors of a socialist economy). In the early 1990s, the "Washington Consensus" seemed to have buried Keynesianism completely. But since then, a series of events has somewhat refuted the simple thinking of the early 1990s. I need only point to the long-term stagnation of the Japanese and German economies, the Asian financial crisis of 1997–1998, and the 2001 Wall Street stock market crash. These events are not yet sufficient to prove that "capitalism has entered a comprehensive crisis," but they do show that economic potential is not being fully realized and the economic situation is highly unstable. Keynes, if he were alive, would certainly have something to say about this. Keynes's three tenets are particularly relevant today. , he was never an ardent advocate of free trade. He believed that because of the lack of domestic policies to guarantee full employment, many countries had to rely too heavily on export-driven development, which ultimately led to a strong reaction of international trade protectionism. He wrote that in promoting a country's integration with the international economy, "strong self-restraint" was necessary. This warning is apt for China, which is rapidly moving towards globalization. Second, he believed that business activities are constrained by uncertainties that cannot be reduced. Business decisions depend on long-term expectations, and long-term expectations "cannot be scientifically grounded and based on predictable probabilities." This means that under a capitalist market economy system, financial market fluctuations are a characteristic epidemic. As for exchange rates, there is still no consensus in academia. Keynes himself trusted a fixed exchange rate system regulated by international agreements. He lived through the currency wars of the 1920s and 1930s and witnessed firsthand how countries manipulated exchange rates to gain a trade advantage. He attributed Britain's economic recession in 1921 to the substantial devaluation of East Asian currencies. Therefore, he would certainly oppose a country using a currency with a low exchange rate to continuously accumulate foreign exchange reserves to achieve export-driven economic development. He repeatedly pointed out that foreign exchange reserves were meant for use, not hoarding. Therefore, I believe he would urge China to spend more and save less. As I said at the end of this book, "As long as the world needs it, Keynesian thought will endure." However, a biography of Keynes cannot only describe his economic thought. As his wife Lydia Lopukhova said in her accented English, he "was not just an economist." Keynes made contributions in many areas, particularly philosophy. He left his mark in these fields, which also influenced his approach to thinking about economics and economic problems. While economists are dedicated to "doing good things," few take ethics seriously. Economists believe that as long as people's material lives are improved, they are doing them a favor. However, Keynes insisted that economic development was only a just cause when it could improve people's moral standing. To some extent, economics and ethics should go hand in hand. But when people's income levels exceed a certain standard, economics and ethics begin to diverge. Today, Western society is experiencing a wave of out-of-control consumerism, where cultural and spiritual values have become sacrifices to the "love of money." Keynes would certainly be displeased with this. In philosophy, Keynes was an intuitionist, believing that people have direct, a priori knowledge of good and evil, truth and falsehood, right and wrong. This intuition exists beyond a person's experience. In this sense, he was more of a Kantian than a utilitarian. His evaluation of Isaac Newton was: "His intuitive muscles are strong and resilient. No one has been so favored by heaven as he." This applies to Keynes as well. His friend Oswald von Nell-Breuning doubted whether his mind was "truly typical of the West or just a facade." Keynes believed that an analysis of any problem was merely the "surface appearance of his thought structure, not its substance." This was more like an artist's mind than a scientist's. Personality-wise, Keynes had the dual nature of an aesthete and a manager. His tastes and interests were aesthetic: his great works in economics had a poetic quality. But these artistic sparks served the task of defending the threatened social order. He was often willing to sacrifice what he believed was right to gain what he thought he could achieve. His intuition in this regard was keen. He realized: "Civilization is a thin, fragile shell built by a few individuals' personalities and will. People can only maintain civilization by skillfully formulating and ruthlessly upholding rules and customs." He continues to capture our attention because he was one of those "few individuals." He devoted his life and thoughts to the cause of defending the "thin, fragile" shell of civilization.