Keynes’s real lesson for today

Since the onset of the crisis in 2008, it has been natural to look to past masters for wisdom and a few names have recurred more than most:

for his analysis of the inherent instability of finance,
for predicting the inherent instability of capitalism per se, and above all John Maynard Keynes for all round brilliance about the economy in crisis: what should our governments and central bankers actually be doing? However, there have been at least as many interpretations of Keynes as books written about him, and one might imagine there is no room for another on the crowded shelves of that new section in our bookstores, ‘Economic Crisis’. That would be wrong. Roger Backhouse and Bradley Bateman have written a new book,
, which is a brilliant summary of both what Keynes said about his own times, how his work influenced policy at different times in the past, and how to interpret him for our times. As they put it early in the book, there is a Keynes for good times and bad times.The book is a terrific read, marvellously clear, and will illuminate this great economist for both experts and general readers.

They have one underlying message as well, which is that we should take above all from Keynes the lesson that there is a moral dimension to policy as well as a technical one.  As he put it: “No man of spirit will consent to remain poor if he believes his betters to have gained their goods by lucky gambling.” (Quoted here p59). One chapter in Capitalist Revolutionary explains Keynes’s deep engagement with moral philosophy, starting as an acolyte at Cambridge of G.E. Moore. This, they say, is the real relevance of his work to the present crisis: economists must re-learn how to discuss morals, and the nature of the whole economic system. The authors’ recent New York Times article summarised this line of argument.

The book does a great job of setting Keynes’s influence in the context of his times. In the 1930s, “There was a deep-seated change in attitudes toward government policy that was the result of many political and social factors, to which Keynes’s name came to be attached.” (p30). It shows that

was so important because it is the lens through which subsequent generations see previous work and also provided a framework for a subsequent explosion of creative thinking by other economists. That framework proved flexible, and Keynes himself encouraged younger economists to take different paths, and hence the many interpretations now of what it is to be ‘Keynesian’. What’s more, Keynes insisted that macroeconomics was contingent, that it had no truths that stood for all time. Earlier in his career, although clear that “capitalism was an imperfect machine that needed to be maintained and updated if it were to continue to work to meet society’s needs” (p56), he had hunted for a ‘magic formula’ to solve the economic crisis. But by the time of the General Theory he had concluded that the radical uncertainty that is the most important feature of the world, and the importance of the specifics of time and place, meant there could be no noisy certainty about simple solutions.Indeed he embraced ambiguity.

Would Keynes share either the certainty of one branch of macroeconomics that what the world needs now is bigger government deficits to maintain effective demand, or of the other branch that what we need is to eliminate deficits to keep real interest rates low and encourage investment? The authors are clear that he was more cautious about budget deficits than the economists labelled ‘Keynesian’ who advocated fine-tuning in the 1960s and 70s. He thought the government should not borrow for consumption, but only to finance investments, so the deficit would ultimately pay for itself. He scaled back William Beveridge’s initial plans for the welfare state to ensure it was affordable. By the end of the book, however, it is clear that trying to read off an answer to today’s problems from The General Theory – never mind from the other works of a man who was not afraid to change his mind – is a meaningless exercise. Keynes himself would have wanted to know the detail of our times, and would know that any given policy might or might not work depending on how it affected people’s expectations, inherently unforecastable.

This relatively short book also gives a tremendous flavour of the richness of Keynes’s interests, the importance he attached to the arts as the meaningful part of life, his idiosyncratic career as a mix of policy expert, academic, journalist, bohemian and speculator. I would say that if you’re only going to read one book about Keynes, it should be this one. I really enjoyed it and learnt a lot.

[amazon_image id=”0674057759″ link=”true” target=”_blank” size=”medium” ]Capitalist Revolutionary: John Maynard Keynes[/amazon_image]

 

 

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  1. Pingback: Kahneman, Keynes and unknown unknowns | The Enlightened Economist

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