Keynes's Way to Wealth by John F. Wasik

Author:John F. Wasik
Language: eng
Format: epub
Publisher: McGraw-Hill Education
Published: 2014-07-22T16:00:00+00:00

Keynes Collapses

Fighting an economic war on two fronts in the political and investment arenas, Keynes was thoroughly depleted as the decade came to a close. Nevertheless, he was a durable cheerleader for stimulating demand. As he was writing his General Theory, he was also talking on the radio, trying to charm his country into stimulating economic demand:

Therefore, O patriotic housewives, sally out tomorrow early into the streets and go to the wonderful sales which are everywhere advertised. You will do yourselves good—for never were things so cheap, cheap beyond your dreams.28

In fact, Keynes was trying to dissuade the British public from practicing his paradox of thrift. In the public policy sphere, Keynes pushed his ideas for government investment in a loan-financed public works program through his London Times series entitled “The Means to Prosperity,” which appeared in March 1933.29 Despite his vigorous efforts to promote his job creation plan, Keynes failed to see much progress, even after he gained a brief audience with FDR. He was frustrated and “had come to see that there was no magic formula that would easily guarantee recovery,”30 according to Roger Backhouse and Bradley Bateman, who have written extensively on Keynes’s place in history.

Even though his General Theory began a revolution by suggesting that unemployment surges during downturns didn’t need to be severe, economist Hyman Minsky found that the view of Keynes’s book “is that no such tendency to achieve and then sustain full employment exists; that is, the basic path of a capitalist economy is cyclical.”31

A year after Keynes published the General Theory, his heart gave out. The economist had never been in robust health, but heart disease—believed to have been caused by a bacterial infection of his heart muscle—felled him in the spring of 1937. The man who had at least four extraordinary simultaneous careers was knocked flat by chest pains and breathlessness. He retreated to his bed and later to a Welsh sanitarium to convalesce, attended by the ever-devoted Lydia. He had felt something go awry as early as 1931, when challenges in the world economy and his portfolio had forced him to radically change his worldview. Now he was a virtual invalid. The doctors could do little for him at the time other than tell him to relax and cut back on his insane schedule.

Nevertheless, his investment management work had already moved boldly in a different direction. Money management had become infinitely less stressful than his speculative plunging in the 1920s and early 1930s. Having established a value bias in his investing in the 1930s, and being aware that animal spirits were creating mischief in the markets, he was armed with some powerful insights that would make him a better investor. His observations on the irrational nature of market behavior could be better measured by future economists: there was enormous untapped value for investors who truly could divine Keynes’s animal spirits.

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