The Keynesian Revolution: A new biography of John Maynard Keynes

I think Keynes was misunderstood massively like Karl Marx.

Marx said "I am not a Marxist" when he saw his ideas being put into a something bordering a religious teaching.

And later, I think, Keynes was rather unsettled with how his works been used to legitimise a new maxim "government can print money out of thin air," from an inverse of what dominated US economic thinking before him. It was not his idea at all.

Beyond simply affirming that aggregate demand thing exists, and that a lot things in economy spin around it, he did not produce a religious edict on how to run a government monetary policy.

If he saw Keynesianists today, he would feel rather disappointed.

It is literally true that the government can print money out of thin air. This is a genuine fact about the world today, so I don't see how Keynes would draw a different conclusion.

Keynes did say

  If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again… the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.

which is a more eloquent argument for an expansionary monetary policy than most current economists could produce.

The treatment of Keynes' post-WWI comments is an apologia that misses the deeper point. Keynes was not merely wrong about the German ability to pay, he misread the strategic situation. The French position was not merely motivated by vengeance.

The Post-WWI situation was simple in a way yet strage. Germany was defeated, yet it remained the strongest country in continental Europe. Britain and France were bled dry, Russia was in chaos and the Western Front was mostly fought on French soil. This left the question of how to settle things so that Germany does not refight the war for the same old objectives.

The French position was a Realist position - make Germany too weak to make trouble. The Keynes position was Idealist, but it needed one condition to be viable in any form: a defence alliance to prevent Germany from making trouble. Which was something that was probably politically impossible in the US, and I don't recall Keynes advocating for it.

So his contribution was to help weaken one option that was politically workable without giving a good alternative; Eventually (years later) helping to lead to an arrangement that merely goaded Germany in the wrong direction. There was a need to ask how to reintegrate Germany, but this was not served well by ignoring the strategic situation.

Keynes explicitly wouldn't have been concerned about government debt, which is just the government's portion of the national debt. The other part of the national debt is held by the population of the country, and there is an identity that if you increase one, you lower the other. Where you decide to balance that is arbitrary, although debt held by individuals makes them individually subject to the demands of the people who hold the debt and government debt is held by the collective, which is better able to defend itself and make demands.

What Keynes was concerned about was the balance of payments, and using inflation as a spring to make sure that it would always be pulled towards zero, pulling harder the farther away a nation got. The US suffers from a strong dollar policy intentionally instituted after 70s inflation that demands that the trade deficit be massive forever. A refusal to print money under those circumstances is just pawning off that debt onto individuals, and the opposite of what a "Bancor" based system would enforce (which would be a trade surplus, removing the need for increasing debt.)

One of Keynes' major contributions was to _convince_ that aggregate demand was a strong influence on economic output, and that left to its own devices the private sector would not be willing or able to perform the countercyclical spending necessary to stabilise an economy during a recession (by stabilise I specifically mean increase output back to the long run productive capacity of the economy). GDP = aggregate spending = aggregate incomes. With such a large output gap unable to be restored by the private sector, you end up in a depression. So he convinced governments to expand the federal deficit in order purchase goods & services from the private sector in sufficient quantity to kickstart economic output.

So I think to say that he simply affirmed that aggregate demand exists is underselling his contribution - he managed to convince all the important policymakers of the time that it was important enough to overturn their prior thinking about how to use fiscal (not monetary) policy in a countercyclical manner.

The scare quotes around money printing don't help progress the dialogue around the mechanics and consequences of government spending either. Today with a fiat currency system, the government can enact countercyclical fiscal policy by simply crediting private sector accounts, and increasing a balancing government liability electronically (note there are _no taxes involved in doing this_). No money is 'printed' (the term conveys unrealistic connotations), private sector demand deposits are simply increased electronically.

The increase of these demand deposits is not inflationary unless they are used to purchase goods and services in excess of what can be supplied at a constant price level. So when we find ourselves in a situation where 20% of the workforce is suddenly unemployed due to a shutdown of economic output, the government can spend to help stabilise aggregate incomes without risking inflation, because no-one is buying stuff otherwise (and as a result, no-one would be making any income).

It is certainly true that a number of economic schools of thought have tried to use his name to legitimise their ideas, and he'd likely be disappointed with a few of them.