John Maynard Keynes

A challenge to the Austrian School of Economics came from Britain's John Maynard Keynes (1883-1946). Keynes had become establishment during the 1930s. He had disturbed economists who believed in the ability of a free market to govern itself. Keynes believed that with the layoffs and reduced consumption that came with a business cycle downturn a government should act. It should spend money to stimulate the economy to overcome the layoffs, the drop in employment and the drop in consumers buying.

When the economy recovered and resulting budget surpluses, governments were supposed to pay back the money borrowed – the responsibility of the people's representatives.

In addition to being attacked by conservative economists he was attacked by Marxists for his trying to save capitalism.

Keynes distanced himself from the Marxists. In 1931 he wrote:

How can I accept the Communist doctrine, which sets up as its bible, above and beyond criticism, an obsolete textbook which I know not only to be scientifically erroneous but without interest or application to the modern world? How can I adopt a creed which, preferring the mud to the fish, exalts the boorish proletariat above the bourgeoisie and the intelligentsia, who with all their faults, are the quality of life and surely carry the seeds of all human achievement? ^note87

Keynes happened to pick up a book by Friedrich von Hayek and in it he read Hayek's criticism of points in his work on "Treatise on Money," written in 1930." These were points that no longer reflected Keynes thinking, and Keynes went on to read Hayek's famous book, The Road to Serfdom. He wrote to Hayek:

In my opinion it is a grand book ... Morally and philosophically I find myself in agreement with virtually the whole of it: and not only in agreement with it, but in deeply moved agreement. ^note88

In 1933, Keynes' Means to Prosperity was published, in which he argued for deficit spending to deal with rising unemployment and global recession. Keynes found the Roosevelt administration already engaged in it, and "Keynes at best provided only a confirming view." ^note89  Keynes was followed by the Social Democrats in Sweden after they came to power in 1932. Sweden's recovery from the Depression was remarkable, but some hold that Sweden's economy was too small to prove Keynes' ideas.

Keynes wrote his Magnus Opus in 1936, titled The General Theory of Employment, Interest and Money, said to serve as theoretical justification for his policies. It was a challenge to the old theory that laissez-faire was always best.

Collaboration on an article on Keynes by the conservative commentator Joe Scarborough and the liberal economist Jeffrey Sachs appeared in the Washington Post on 8 March 2013. They wrote of a "crude interpretation of Keynesian economics [that] ... Keynes himself disagreed with it." They reiterated Keynes' position:

Keynes worried about the long-term buildup of public debt and called for balancing the budget over the course of a business cycle – allowing deficits during downturns to be offset by surpluses during good times.

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