A Tract on Monetary Reform

This treatise, written in 1923 by the renowned proponent of deficit spending, is devoted to the need for stable currency as the indispensable foundation to a healthy world economy. Keynes begins by laying out data showing the serious fluctuations in the value of money that began in 1914 and subjected North America, Europe, and India to injurious cycles of inflation and deflation. He describes the various effects on investors, business people, and wage earners of this erratic underlying influence and makes it clear that policies limiting such fluctuations must be implemented to ensure greater economic and social stability. He finds the gold standard, which was used as the basis of value for many currencies, including the U.S. dollar at that time, to be ultimately unreliable since gold itself is also prey to unstable valuations. In the final analysis he recommends the implementation of policies by Great Britain and the United States that aim at achieving stability of the commodity value of the dollar rather than the gold value. ＂[T]he ideal state of affairs,＂ he argues, ＂is an intimate co-operation between the Federal Reserve Board and the Bank of England, as a result of which stability of prices and of exchange would be achieved at the same time.＂As always, Keynes proved to be amazingly prescient: The United States did eventually abandon the gold standard and the U.S. dollar is indeed the basis of currency values today. Keynes’s brilliant, clear analysis of the world monetary situation at the beginning of the twentieth century, with his many suggestions and his masterful elucidation of economic principles, is still well worth reading today at the beginning of the twenty-first century.

John Maynard Keynes was born in Cambridge, England, on July 5, 1883. His father, John Neville Keynes, was a professor and administrator at Cambridge University and himself the author of The Scope and Methods of Political Economy. After attending Eton (1897-1902), Keynes entered King’s College, where he studied economics. Following graduation, he worked in the India Office (1906-1908); lectured on economics at Cambridge (1908); was made a fellow of King’s College (1909), editor of the Economic Journal, and secretary of the Royal Economic Society (1911); and accepted a position in the British treasury.

In 1919 Keynes was principal representative of the treasury at the Paris Peace Conference. Disturbed by developments at the conference, however, he soon resigned. His Economic Consequences of the Peace (1919) gave voice to his strong objection to the punitive measures being enacted against Germany. In this eloquently argued and strangely prescient work, Keynes detailed the problems that would result from the war reparations to be made by conquered Germany beyond her ability to pay, as well as the devastating economic, social, and political consequences of continuing European ultranationalism.

Keynes returned to England to resume teaching at Cambridge (1920-37), during which time he gave the Sidney Ball Lecture that was published as the pamphlet The End of Laissez-Faire (1926) and wrote his main work, The General Theory of Employment, Interest, and Money (1935-36). Critiquing the neoclassical theory of Alfred Marshall, namely, that a normally functioning market
economy leads to full employment, Keynes showed that a market economy can operate at less than full employment and that it may even work against reducing unemployment. Keynes advocated enlightened governmental intervention over unregulated laissez-faire policies. The Keynesian analysis of how monetary and financial arrangements affect the economy has formed the basis of subsequent activist governmental fiscal and monetary policy.

Heart trouble ended Keynes’s academic career in 1937. However, he remained active as an adviser to the chancellor of the exchequer (1940) and as principal British delegate and negotiator at the Bretton Woods Conference (1944), Stage II of Lend Lease (1944), arrangements for a United States loan to Britain (1945), and the inauguration of the International Monetary Fund and the International Bank (1946). In 1942, he was raised to the peerage, being named 1st Baron Keynes of Tilton. John Maynard Keynes died in Firle, Sussex, on April 21, 1946.

Keynes’s other published works include A Revision of the Treaty (1922), A Tract on Monetary Reform (1923), A Treatise on Money (1930), and How to Pay for the War (1940).