John Maynard Keynes is the godfather of modern macroeconomics. He was the biggest name in the field for the better part of a century, serving the British government through both world wars and the global depression in between. He was directly entangled with international monetary policy throughout these major events and they shaped him both as an economist and as a human being. He was 31 when the First World War broke out in Europe, and died in 1946 after the close of the second, at the age of 62. Economics, war, and the Great Depression dominated his adult life and influenced a majority of his thinking and writing. His books and ideas went on to inspire generations of (now-called Keynesian) economists from schools around the world. It was the assassination of Archduke Franz Ferdinand in June of 1914 by a young Bosnian freedom fighter that set all of these events in motion, and they followed each other one after another like dominos.

Before the First World War, London was the global financial center, lending money to the rest of developing Europe and the surrounding countries as international trade was mutually beneficial and everyone was on the upswing. During the war, as the years raged on and the bodies piled up, the United States was brought in first as a financier and later as a military contributor. It was J.P. Morgan Jr. himself, operating on behalf of the family banking business, that financed the British and French governments. He negotiated a 1% commission on $3 billion in purchases and investment, bagging himself and his bank a cool $30 million dollars as the shells continued to fall. By mid-1916, Keynes calculated that “40 percent of the £5 million a day the United Kingdom was spending on the war was coming from the United States.” The torch had officially been passed from London to Wall Street—the United States having no plans to ever relinquish this power.

After the war, the US and European powers came together to negotiate what has come to be known as the Treaty of Versailles, an agreement that ultimately proved as disastrous as the bullet that took the Archduke’s life four years prior. France, England, Italy, and America each wanted a piece of the reparations pie, arguing for such high financial compensation from Germany that Georges Clemenceau (the Prime Minister of France) “began calling to simply remove any mention of a final reparations number in the treaty at all.” This, of course, was idiotic, and could only have produced disastrous results. Germany needed capital investment to rebuilt its society, but if it was sending all of its hard earned money and goods away as reparations, the country would be kept in a state of poverty. As Keynes, who was present at the negotiations in Paris later noted: “A farmer who had lost his son and half his acreage would not feel a rush of gratitude at the prospect of diverting a huge portion of his labor to the enrichment of American bankers. The austerity required by debt repayment would breed resentment and invite demagoguery from opportunists looking to blame a country’s problems on outsiders.” Enter Adolf Hitler.

Since the 1800’s, in order to maintain the monetary balance between different country’s currencies, all money was equal to a particular amount of gold. This was called the gold standard. Citizens could walk into a bank with a banknote and walk out with the equivalent amount of gold, both of which could be used for goods and services. This was how money was regulated until the 1930’s, when both England and the United States abandoned the gold standard for what we now call fiat currency. “Under the gold standard, it was possible for a government to run out of money; there was only so much gold in the vaults. But a government that controlled its own currency,” Keynes observed, “could not go bankrupt.” Using a fiat currency, like the British pound or the American dollar, governments could easily print their way out of excessive debt. This was one of the policy decisions that helped everyone crawl out of the Great Depression.

On the one hand, this is a helpful tool for governments that need to stimulate an economy. Printing money and getting it into circulation can help dig people out of financial holes. On the other hand, the more money that is in circulation, the less value each individual dollar has (seen in rising prices during an inflation). A quick google search reveals that the US government is currently around $30 trillion dollars in debt (about a third of which has been printed since the Covid-19 pandemic). Obviously this is a ludicrous number that we can never conceivably hope to pay down. Today, money only possesses value because the government and broader swaths of society all mutually agree that it does. This is why we call it a ‘fiat’ currency.

As a young man living in the early 1900’s, Keynes was a proponent for laissez-faire capitalism. He believed that the free market was best left alone to stabilize itself, and that the government should remain mostly hands-off. However, after the stock market crash of 1929 and the following Great Depression, he came to see the free-market as flawed. He began advocating for government intervention as a means to curb unemployment and support economic growth during hard times, thinking that eventually led him to his foundational theories now referred to as Keynesian Economics. The federal government should spend its way out of recession and depression, he argued, even if it created a budget deficit. And with the abandonment of the gold standard, governments could actually do this, and they did. Keynesian ideology was the foundation for US President Franklin Roosevelt’s New Deal of 1933, a giant spending package that greatly aided many Americans at a time of desperate need.

Indeed, addressing inequality and social progress became one of Keynes’ central themes. The majority of problems of the twentieth century, he argued, were best solved by alleviating inequality both domestically and internationally. He states this clearly in The General Theory of Employment, Interest, and Money—his most influential book. “Enterprise and economic growth were driven not by the unique genius and vast fortunes of the very rich” he believed, “but by the purchasing power of the masses.” To put people to work, governments needed to create systems of support for the poor and the middle class, not new favors for the rich. This is precisely what Roosevelt did—to wondrous success.

While many people see economics as a field of facts and figures, Keynes came to understand his profession as a social phenomena. Economics was “not a hard science bound by iron laws, like physics,” but a flexible field of customs and rules of thumb like politics. The price of a good is not a reliable source of consumer preference. It is, at best, an “approximation, always subject to change based on new attitudes about an uncertain future.” Uncertainty about the future is one of the most important facets of economics to realize and understand. This is because monetary policies are created by humans, none of whom can see the future, all of whom are emotionally driven and susceptible to the winds of change.

As we are currently living through a global pandemic, these winds of change are blowing hard. Inflation is driving up prices and people’s savings are dwindling. What will the governments of the world do to combat these monetary changes and generational hardships?