Life and Legacy

John Maynard Keynes’ legacy stems primarily from his theory of optimal economic policy during recessions and stagnations. However, forgotten in the invocation of Keynesian policies to expand macroeconomic output and income, and to reduce unemployment, is that Keynes stood squarely in the middle of the debate over the meaning and significance of interest rates. Like Irving Fisher, the father of a classical interpretation of the role of the interest rate, Keynes also tied consumption, future consumption, and savings to the interest rate. In doing so, he was equally significant in our interpretation of the interest rate and its effect on consumption and savings. While Fisher is often regarded as a pioneer in the study of finance, Keynes is rarely remembered for his contribution to our understanding of interest rates and personal finance. Rather, we must remember that Keynes’ most influential treatise, The General Theory of Employment, Interest and Money, expressly described the role of, and a new interpretation for, the interest rate and devoted one of the three main sections to the interest rate and investment.