The Keynesian Vision

Though John Maynard Keynes died 74 years ago, he remains an object of fascination. That owes much to the fact that Keynes was much more than just an economist. Besides being involved in policymaking at the highest levels from the end of World War I until his death in 1946, Keynes maintained a rich intellectual life outside economics and politics.

Keynes was deeply interested in philosophy, art, literature, epistemology, rare manuscripts, and other subjects which resist reduction to models or utility. That reflected Keynes’s classical education, the influence of the Cambridge philosopher G. E. Moore and his 1903 book Principia Ethica, as well as Keynes’s involvement in the Bloomsbury Set of intellectuals and artists. Much of Keynes’s economic thought was driven by a concern for things which fell outside the world of supply and demand.

These and other themes are the subject of a new intellectual biography of Keynes, The Price of Peace: Money, Democracy, and the Life of John Maynard Keynes (2020), by the HuffPost journalist Zachary D. Carter—or, at least the book’s first half. For this is really two books in one.

The first book analyzes the interplay between economics, culture, politics, and aesthetics in Keynes’s life as a man, scholar, and policymaker. After page 368, we encounter a second, quite different book—a jeremiad against “neoliberalism” and all its works that, alas, lacks the nuance of the first twelve chapters. And that is a shame because book two does provide insights from a decidedly progressive standpoint into postwar Western economic debates and policy-making.

Book One: Aesthete and Economist

Keynes is often depicted as a type of social democrat. Given the trajectory of his economic views from the 1920s onwards, that is understandable. Carter, however, underscores a point occasionally lost upon contemporary audiences: that Keynes was fundamentally a liberal.

By that, Carter has in mind two things. First, he sees Keynes as a type of Enlightenment figure who, like Adam Smith, moved easily between subjects like philosophy, economics, and aesthetics. Second, Carter emphasizes Keynes’s desire to spread what he regarded as the benefits of liberal civilization throughout society—benefits which went beyond material well-being. “[T]he democratic cause closest to his heart,” Carter writes, “was not health care but art.”

Where Keynes differed from nineteenth-century liberals is his diminishing confidence that the interplay of people’s free choices within a context of rule of law would generally benefit everyone over time. Though Keynes’ Economic Consequences of the Peace (1919) famously presented the period from the 1890s until 1914 as a liberal golden age, Keynes sought to address the problems proceeding from that world’s implosion by devising policies which, while stopping short of outright socialism, ascribed ever-growing economic roles to government.

All this has been previously covered in depth—like everything else about Keynes—in Robert Skidelsky’s three volume biography of Keynes (1983; 1992; 2000). Carter does not add anything new to Skidelsky’s exhaustive account. He does, however, provide a condensed overview for those unfamiliar with the many dimensions of Keynes’s life and interests and how they shaped his economic thought. These range from Keynes’ early preoccupations with religion and free trade (“I hate all priests and protectionists. Free trade and free thought! Down with pontiffs and tariffs!”), to his interactions with different politicians as he sought to shift the reigning economic orthodoxy towards using government spending and intervention to stimulate and manage the economy.

Above all, Carter captures the central motif driving Keynes’s thought and activity: the preservation of a liberal society through measures which Keynes believed would alleviate the type of political and economic pressures that led to people seeking authoritarian answers to society’s challenges. That is the consistency which binds the changes of mind and outright reversals of position (like his embrace of protectionist measures) which mark Keynes’s economic ideas. According to Carter, “pursuing a conservative aim of avoiding a class revolt by implementing an unorthodox left-wing reform” became Keynes’s modus operandi. It was not that Keynes was blind to the hazards of this approach. Nonetheless, he did believe that unless such risks were taken, the likelihood of fundamental social breakdown would become even more real and, with it, the disappearance of liberal societies.

There was, however, a price for all this. The link between Keynesian demand-side policies and the rampant inflation which began to destabilize Western economies in the 1970s, for example, is hard to deny. Those who suffered the most were the poor, savers, and people on fixed incomes.

More generally, the gradual culmination of ongoing government interventions and endless tinkering with the economy over time slowly weakens the “free” part of the free society which Keynes believed he was preserving. How does one reconcile liberalism’s commitment to freedom with a state involved in more and more of people’s economic lives? How do you promote the democratization of society envisaged by Keynes when you entrust increasingly unaccountable experts and growing state bureaucracies with responsibility for managing economies from the top-down?

The answer is that, at best, you end up with many messy compromises (something Keynes would happily concede); or, at worst, a government which accepts no theoretical limit on how far it can go in trying to manage the economy. Doing nothing during severe economic downturns is not, Keynesians and many market liberals would argue, politically feasible in democratic conditions. In the long-term, however, it is hard to see how snowballing government economic interventions cannot help but undermine the depth and breadth of freedom in ostensibly liberal societies.

Book Two: Keynesian Civil Wars and Nefarious “Aristocrats”

Such observations form part of Friedrich von Hayek’s critique of the trend towards economic planning in his The Road to Serfdom (1944). Its publication marked the beginning of Hayek’s public shift away from an economist’s focus on monetary and capital theory towards more overt reflection on political questions.

Hayek’s longer-term aim was not simply to revive the classical liberal tradition from the doldrums into which he believed it had fallen. It is sometimes forgotten that Hayek and other mid-20th century market liberals like Wilhelm Röpke and Jacques Rueff wanted to rethink parts of that tradition. Herein are found the origins of the word “neoliberalism,” first used by the German economist Alexander Rüstow at the Colloque Walter Lippmann in 1938. It wasn’t enough, such market liberals believed, to regurgitate the maxims of 19th-century liberalism. Like Keynes, they wanted to re-conceptualize the state’s economic role, albeit in market-compatible ways that generally put them at odds with Keynes’s prescriptions. They were also interested, as Keynes was, in normative and cultural questions. Their position was rather different from the highly empirical direction in which Milton Friedman and others later took the free market movement.

This deeper background is only touched upon by Carter. The focus of his highly polemical second book-within-a-book is upon two stories.

One is Carter’s account of a post-1946 Keynesian civil war. On one side were “left-Keynesians” like John Kenneth Galbraith and the British economist Joan Robinson who thought that postwar economics had given excessive attention to growth. They confronted “right-Keynesians” like Paul Samuelson and those who presided over economics’ mathematization as they tried to invest it with the apparatus of something like an empirical science.

One difficulty with this account is that it exaggerates market liberalism’s influence in the academy and policy-making institutions, even during the world’s rather sporadic turn to markets between 1970 and 2008.

This part of Carter’s analysis brings out methodological and policy differences between the two schools. Keynes’s many changes of mind, his rhetorical flourishes, and the lofty imprecision which marks much of his writing provided material for both sides to marshal against each other. Ultimately, leading left-Keynesians like Robinson not only concluded that Samuelson and others tried to give economics a predictability that Keynes himself considered impossible. They also believed Keynes had been naïve about just how radical you needed to be to realize real change. Carter finds it “hard to disagree with” this conclusion.

Carter’s second story is how figures on the right sought to discredit Keynesian-influenced economists and their ideas. Carter labels them “the aristocrats.”

This is a play on Hayek’s minor aristocratic background, one which ignores the fact that Keynes was about as establishment as it was possible to be in the Britain of his time. A combination of intellectual, business and political “aristocrats,” Carter maintains, undermined those followers of Keynes who were working to create a more stable economy and equitable society. These “aristocrats” were enabled by foundations like the Volker Fund and organizations such as the National Association of Manufacturers. Their strategy, Carter claims, included capitalizing on the anti-Communism sweeping postwar America to tar Keynesianism with Marxist associations.

Into this mix are thrown figures ranging from Friedman and William F. Buckley. They are portrayed as rather suspect characters who exerted woeful influences upon politics and policy. But those singled out by Carter as especially worthy of condemnation for pursuing market-liberalization policies are center-left governments such as the Clinton Administration and groups like the Democratic Leadership Council. Even the Obama Administration is criticized for what Carter sees as its unwillingness to purge many market liberal assumptions from economic policy when the 2008 financial crisis created opportunities to do so.

One difficulty with this account is that it exaggerates market liberalism’s influence in the academy and policy-making institutions, even during the world’s rather sporadic turn to markets between 1970 and 2008. Dedicated market liberals, for example, never achieved an ascendancy in the economic profession during these decades, and they remain a minority among economists today. Carter himself states that “Keynesian economics became not only a new orthodoxy in American social science but integral to the very language of U.S. political power.” Major parts of that orthodoxy are firmly in place in contemporary economic thought and policymaking. Macroeconomics is, as Carter notes, more-or-less Keynes’s creation; it continues to be a central feature of the world’s economics curricula. Indeed, it reinforces the conviction of governments and central banks that, by pulling the right levers, they can somehow manage 21 trillion dollar economies.

The Vision Thing

Carter concludes by painting a picture of our world as one in which “the aristocratic deregulatory agenda of Hayekian neoliberalism” has been mixed with “Keynesian disaster management—bailouts and stimulus programs.” The result is what I will call a “Hayekeynesian” hybrid. Given the relentless growth of the number of pages in the Federal Code of Regulations since 1950—including during the decades of neoliberalism’s alleged triumphs—it’s unclear to me that deregulation has been pursued with any lasting success.

Whatever the facts, Carter has no doubt that an absence of vision characterizes economic policymaking today. We need, he believes, to reimagine economic potentialities, much as Keynes did in his 1930 essay Economic Possibilities for Our Grandchildren. Carter references the Green New Deal as an example of what might be produced by such reflection.

I think that Western societies could do with far fewer grand schemes for salvation-via-politics-and-experts. They rarely turn out well. But Carter’s conclusion neatly captures what animates progressives and their confidence in the justice of their cause. That is what he regards as Keynes’s true genius and why Carter considers Keynesianism as “not so much a school of economic thought as a spirit of radical optimism”—even if such optimism, Carter concedes, is “unjustified by most of human history.”

The problem with such radical optimism is that it invariably disappoints and frequently leads to the error of imagining that we can realize heaven-on-earth. In many cases, it becomes the path to guillotines, gulags, and killing fields. In other instances, it results in enormous power being given to human beings who, however smart, are fallible and bound to make errors. Such power also has a way of insulating its holders from critique and alternative views, thus compromising their ability to make sound judgments or to recognize that they are living in an echo-chamber.

Yet if there is anything that Keynes can teach those of us on the opposite side of the economic debate, it is that while good economics and good economic policy are important, they are not enough. The vision-thing matters. Keynes understood the importance of this and, I would argue, comprehensively outmatched his free market opponents in this area. As progressives understand better than most people, if you win the vision game, you likely win everything else. This is the lesson that Keynes offers to market liberals in our time. The bigger question is how many are willing to learn.