Many argue only Winston Churchill had a greater impact on British life than John Maynard Keynes over the last century. In the series Masters of Money, BBC Economics Editor Stephanie Flanders examines how three extraordinary thinkers - Keynes, Hayek and Marx – helped shape the 20th century and continue to exert a huge influence on our world today.
Episode one is on Keynes. Even today his ideas remain crucial to the most important debate of our time: how can we escape from the economic crisis? Should governments borrow and spend their way out of trouble or slash spending and reduce the national debt?
With contributions from some of the world’s leading economic thinkers including a Nobel laureate and the Governor of the Bank of England, Stephanie Flanders argues Keynes has never been more relevant - or controversial than now.
During his life, Keynes was credited with, amongst other things, helping to save capitalism from the Great Depression, funding the war against the Nazis and building post-war decades of growth and rising prosperity. And when the global crisis struck in 2008 it was his ideas that the world’s leaders turned to to help avoid another depression.
John Maynard Keynes (1883-1946) was the most brilliant and influential economist of the last century and his influence remains huge to this day. More than anyone he paved the way for activist government. He said there were things governments could and should do to make the economy work better for everyone.
There aren’t many people born in the 1880s whose name is heard as often in current debates as Keynes. His ideas – that countries shouldn’t beggar their neighbours, that economies are deeply unpredictable and can get stuck in slumps, have changed the way we think about the world.
Keynes was an economist, Bloomsbury Set aesthete, speculator, polemist and arts administrator, all coupled with a turbulent private life. Stephanie Flanders shows how his economic ideas sprang out of his own experiences. He was a passionate advocate of capitalism but one who saw that if it was left to its own devices, it could also go seriously wrong. Then it was up to governments to step in to get it back on track.
At the heart of Keynes' thinking – and the single idea that was so revolutionary in his time - is that there are times when governments need to intervene to make capitalism work better, even when that means spending money it doesn’t have. Stephanie Flanders asks if this makes him an economic saviour - or the man who led economies to ruin.
Keynes first came to prominence as a British delegate at the Treaty of Versailles talks at the end of the World War One. He argued that making the defeated Germany pay for the war would be self defeating. An impoverished Germany would not be able to buy goods from Britain and help it recover.
The programme explores parallels between the way the Germans were treated then, and Europe today where strong countries (including Germany) dictate economic terms to weak ones, like Greece.
Keynes saw that economies were fundamentally unpredictable – because people were unpredictable. In fact the times when economics looked most predictable, were usually the times when things were about to go disastrously wrong. He explained how investment bubbles occur – because of the herd mentality that takes over is self propagating.
Eventually, bubbles burst – they always do. If we had remembered this, Flanders suggests then perhaps the pre-crash housing bubble would not have collapsed with such disastrous results.
It was the Great Depression of the 30s that stimulated another important idea. He realised economies might sink, and then not automatically float back up. Up until then "Classical" economists, thought in a recession workers would agree to wage cuts, and then businesses would invest again, providing more employment, and reviving the economy.
Keynes disagreed, saying businesses would be scared to invest in case they lost even more money. They would be trapped in a spiral of despair and then the government had to step with its own stimulus.
His solution? Demolish south London, and then rebuild it. He wasn’t serious, but he was making a serious point. If governments borrowed to create jobs, people would spend more, confidence would rise and the economy would pick up.
It’s this question over the extent of government intervention in the economy that remains at the heart of political debate today.
So dominant is his influence that even today policies are defined as being Keynesian or anti-Keynesian. Post-crash they reached again for the old Keynesian levers as the then Chancellor of the Exchequer Alistair Darling MP describes "It was a classic Keynesian response. When individuals stop spending, when businesses stop spending money, if the government also stops spending money at the same time, then what happens is the economy basically crashes."
The programme travels to America to see Hoover Dam part of the New Deal stimulus package of President Roosevelt which tried to kick start the US economy out of the Depression.
Stephanie also visits the Solana plant at Gila Bend in Arizona which has been characterized as a modern day equivalent. It’s the biggest solar power plant of its kind in the world where almost one million mirrors will provide energy to 70,000 American homes.
Finally, she goes to Bretton Woods in New Hampshire, scene of the 1944 conference where Keynes helped devise a post war world of international trade and monetary cooperation. It was here that Keynes would be instrumental in helping to found the International Monetary Fund and the World Bank.
Stephanie Flanders concludes by saying maybe the biggest thing Keynes could do for us now would be to remind us of the traits that guided him all his life: imagination and optimism. When you read him today, she says, a powerful message comes through, about the radical uncertainty of economic life. He seems to say you shouldn’t ever feel you’ve abolished boom and bust.
Paradoxically the man who did most to make economists arrogant in their belief they could steer the economy also gave them the best reasons for self-doubt.
Masters of Money: Keynes will be first shown on BBC Two at 9.00pm on Monday, 17th September 2012. For further broadcast details, and to watch online where available, please visit bbc.co.uk.