John Maynard Keynes

John Maynard Keynes was a prominent economist who profoundly influenced the economic thought of the 20th century. His seminal work, The General Theory of Employment, Interest and Money, became the basis upon which modern macroeconomic thought was founded. Keynes is also known for his calls for the United Kingdom to abandon the international gold standard.

Fall of the Gold Standard

He is also notable for predicting and advocating for the abandonment of the international gold standard. Keynes argued that the gold standard had become a burden rather than a boon to the British economy, as the standard informally required states to refrain from engaging in domestic policy autonomy. Keynes argued that the gold standard system had worked previously solely due to luck, but that in the post-World War I economic reality, expansionary monetary and fiscal policy were necessary to solve rising unemployment. He also held that one country's prosperity on the Gold standard was directly related to another's loss, mainly because gold is an inherently unpredictable commodity-- the supply is hard to regulate. As the supply of gold in the 20s waned considerably, the new gold standard held a deflationary bias as the stock of goods and services grew faster than the money supply, causing states to unilaterally pursue gold and hoard it in many cases as seen with the US and France. Keynes thus called for the abandonment of the gold standard and the creation of a new monetary system to provide larger amounts of liquidity. He chose to stay silent on the fatal error on the part of the Bank of England when it chose not to raise interest rates in order to shore up the sterling, when by some estimates only a two percentage point increase was necessary to solve overvaluation. As a result, the gold standard collapsed in Britain. Keynes used the temporary collapse of the gold standard to bring his criticisms and calls for a new currency system to the forefront of the public debate, and successfully convinced the British government to permanently abandon the standard.