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Volume 13, Issue 8.   May 6, 2002.

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A General Theory of Keynes

John Maynard Keynes: Fighting for Freedom, 1937-1946
By Robert Skidelsky, Viking, 580 pages, $34.95.

John Maynard Keynes was an economist, a policy adviser to the British government (and, at times, a coruscating critic), an influential figure in the Liberal Party, an intimate member of the Bloomsbury Group, a prolific journalist of opinion, a patron of the arts, a gentleman farmer, a wealthy investor, a prominent business executive, a fixture of Cambridge University's intellectual life, and a homosexual who, in his early forties, married a Russian ballerina and lived thereafter (by all accounts) a deeply fulfilling life with her.

In vividly portraying that very complexity, biographer Robert Skidelsky has given us a great gift and has enriched our knowledge of the varieties and subtleties of Keynes's genius. In three definitive volumes crafted over two decades, Skidelsky has become the master of Keynes's life, a life made all the more extraordinary because it spanned seven extraordinary decades -- from the heyday of laissez-faire Victorian liberalism to the dawn of a post-World War II era that has since taken the name "Keynesian," at least in economics and public policy, as part of its very definition.

In the first volume (John Maynard Keynes: Hopes Betrayed, 1883-1920), Skidelsky delved into the importance of Keynes's forebears and the influence of his father, Neville, a Cambridge University administrator who was a close friend of legendary economist Alfred Marshall. We see Keynes joining the Apostles, a semi-secret club of brilliant young men who gathered around Cambridge philosopher G.E. Moore. Keynes called Moore's Principia Ethica "the most important book I ever read"; it propelled him, throughout his life, to place his economic work in a larger quest for justice, ethics, and beauty. Moore's ideas led Keynes to the aesthetically and morally revolutionary world of the Bloomsbury Group, and to explore his own sexuality. More important to the rest of us, they undergirded his vision of human society and the role economics should play in it.

In John Maynard Keynes: the Economist as Savior, 1920-1936, Skidelsky -- in sometimes daunting detail -- took the reader up to the creation and publication of Keynes's magnum opus, The General Theory of Employment, Interest and Money. Had Keynes died immediately after its appearance -- which he almost did, from a stroke -- his place in modern history would have been assured thanks to that one book.

It is impossible to overstate the influence of The General Theory. Its central idea -- that government is not only capable of managing modern capitalism's roller-coaster ride of business cycles but is obliged to -- governed post-World War II economic policy in the Anglo-American world. It led to new styles of economics, the most famous here in America being the "neoclassical synthesis" led by MIT's Paul Samuelson. In the 1970s, that brand of Keynesianism faltered and came under ferocious conservative attack, both as theory and policy. Yet there has been no successor, only passing rebuttals. By the 1990s, as Paul Krugman, Alan Blinder, and many other economists have argued, Keynesianism -- even when some hesitated to use the word -- was once again not only alive but thriving.

Keynes lived for a decade after The General Theory's appearance, and those years, 1937 to 1946, are the subject of Skidelsky's just-published final volume. For all of us today, it is a good thing that Keynes lived on. He played a vital role in disseminating The General Theory's key ideas. No less important, he went on to write How to Pay for the War, a smaller but in some ways almost equally influential work. Here he explained how government should manage markets when an economy is straining the limits of its productive capacities, as Western economies were in World War II. He sketched "full-employment budgeting" for the first time and, using back-of-the-envelope numbers (almost literally), showed economists how to forecast the gap between actual GNP and what it could be with full employment, a technique that became the stock-in-trade of liberal Keynesians thereafter. His supreme contribution before his death, however, was in helping create the World Bank and the International Monetary Fund (IMF) as part of the 1944 Bretton Woods agreement.

Many on the contemporary left, and some on the right, would take exception to describing the creation of the World Bank and IMF as a contribution. Liberals dislike those multilateral agencies largely for the "structural-adjustment policies" they began imposing on the third world after the OPEC price hikes of the 1970s, which led to a great global lending spree and the 1980s global debt crisis. Since then, we've seen repeated, rolling financial crises across the globe, right up to Argentina's bankruptcy late last year, the largest national bankruptcy to date.

But the structural-adjustment programs adopted in the Reagan-Thatcher era were at odds with Keynes's vision. His own designs for the World Bank and IMF were decidedly more friendly to the poor and the indebted than to wealthy creditors. He wanted the two new multilateral agencies -- largely free of domination by the United States or anyone else -- to serve as "global banks" and "global treasuries." At the same time, he wanted them to be able to issue their own "currency" (called the "bancor") in order to provide liquidity in times of crisis and for long-term growth, and to do so at levels beyond those that private capital markets would provide. In Keynes's plan, moreover, exchange rates were to be managed by governments, not 28-year-old traders staring at computer screens; commodity prices were to be stabilized by publicly controlled buffer stocks; and trade policy was to be shaped by domestic concerns for equality, democratic sovereignty, and stable growth, not by a free-trade-whatever-the-cost ideology. His model was, in essence, a generously liberal version of domestic Keynesianism, rewritten for the world.

Skidelsky's new volume details the development of Keynes's ideas leading up to Bretton Woods and then the co-optation/defeat of those ideas by the Americans (the judgment here is not simple, or binary, or at times even clear). Most of us today forget (or never knew) that, even before Pearl Harbor, political and economic leaders in London, Washington, and New York had begun planning the terms of a new post-war world. Skidelsky reveals the competing currents of British and American economic policy during the war, from the creation of Lend-Lease in 1940 forward -- and the ambitions both sides held. Britain had long prospered under a system that extolled "free trade" but that was built, in no small part, on "imperial preferences," and that was anything but free to outside competitors such as the United States. Beginning early in the twentieth century, America -- which had thoroughly rejected free trade for most of its own history -- began chafing at English trade barriers. But until World War II, Washington had never been in a position to change London's rules governing global trade and finance.

The war brought the divergent interests and ambitions of the two Allies to a head, even as it brought them together militarily. As America and Britain fought the war, they also waged a second-front battle, using pens and policy memos, over which of the two would dominate the world, economically and politically, when the Axis powers were defeated. The struggle played out via Lend-Lease (which put Britain deeply in debt to America), then through U.S. Treasury official Harry Dexter White's "American Plan" at Bretton Woods (which inordinately favored the dollar over the pound as the post-war medium of trade and finance), and then thanks to the seemingly generous post-war loan America granted Britain. (I say seemingly generous because the United States had insisted on convertibility of the pound as a lending condition -- and thus guaranteed that the money Washington lent London's first-ever Labour government almost immediately rushed back to New York banks.) From this now-long-forgotten struggle with its closest ally, America emerged victorious.

That said, Skidelsky goes to great pains to stress the fundamental commonality of Anglo-American interests, both during World War II and now. He also shows that Keynes seldom wavered in his affection for America or in his faith that the two nations would eventually find a high common ground. In this, Keynes (unlike Churchill and most others in Britain's wartime cabinet) was not seeking simply to restore Anglo-imperial relationships and global economic hegemony. Keynes's liberalism was never narrowly nationalist on either score. Yet Skidelsky, as a British historian writing about a British economist, understands what was at stake and does not doubt that Keynes's plan was superior for Britain's long-term interests. Indeed, this volume's British edition title is not "Fighting for Freedom" but "Fighting for Britain." The British vantage point is, in one sense, proper and even essential. Skidelsky's masterful work reminds us just how thoroughly English his subject was. Anyone who doubts this should look at how Keynes treated his tenant farmers in his role as local squire, or how he reacted to his wartime ennoblement as Lord Keynes of Tilton, and the letters to his mother weighing his choice of title.

For American readers, though, this vantage point leaves gaping and troubling holes in the narrative. Consider that Harvard's Alvin Hansen, who was Keynes's towering American apostle, rates here only one brief mention. The critical wartime role played by a young John Kenneth Galbraith in promoting Keynes to the country's most powerful businessmen while Galbraith was senior editor at Fortune isn't mentioned at all. The mid-war emergence of the Committee for Economic Development (CED), which promulgated a cautious, even conservative, brand of Keynesianism that proved highly influential in the 1950s, likewise is ignored. Paul Samuelson -- whose Harvard doctoral thesis became the Magna Carta of the neo-classical synthesis when it appeared shortly after the war as Foundations of Economic Analysis -- is entirely absent. So, too, is the fight over the Full Employment Act of 1945, that classic piece of Keynesian policy making that was reduced to something much less as the Employment Act of 1946.

Skidelsky shows a less well-rounded feel for several of the principal American officials he does portray than he does for their British counterparts. And what's worse, Skidelsky's handling of Franklin Roosevelt and Treasury Secretary Henry Morgenthau fails to convey the authentic capacities and visions of both men (though, in fairness, here Skidelsky follows Keynes's own private evaluations). It's Harry Dexter White who gets the most attention -- and with good narrative reason, since it is the prolonged Bretton Woods contest between Keynes and White that personifies the Anglo-American economic contest at the heart of this volume. But White is, even today, a complex and haunting enigma. Formally accused after the war of being a Soviet agent, White was called before a congressional committee and vehemently denied the charges. He died of a heart attack days later. Several years ago, thanks to release of the Venona files -- long-classified U.S. intercepts of wartime Soviet cable traffic -- the charges against White resurfaced, and there has been a grim back-and-forth battle ever since over White's guilt or innocence.

All this is no doubt relevant, but Skidelsky doesn't explain precisely why. It is hard to see what advantage Moscow might have gained from White's Bretton Woods victory over Keynes -- especially because the Soviets, after attending Bretton Woods, refused to become a signatory to "the American Plan" that White devised. Skidelsky is convinced that the Russian-Jewish White (né Weit) was somehow devoted to aligning the interests of the Soviets and the Americans against the British and their empire. What he misses is that the whole wartime issue of senior New Dealers sharing information with Communists and their sympathizers -- and in some cases directly with Soviet representatives whom they may or may not have known were intelligence officers -- is still fraught with more complexity and nuance than most of us who grew up during the Cold War can imagine.

FDR himself, to give one amazing example, sent "Wild Bill" Donovan, his Office of Strategic Services (the OSS was the CIA's wartime predecessor) chief to Moscow in 1944 to return a Soviet code book that had fallen into U.S. hands. Donovan's mission was part of FDR's wartime strategy to lure Stalin out of his distrust (not least of the British) and his isolation, and into what Roosevelt hoped would be a world where greater trade and the freer exchange of ideas would guard against the conditions that led to World War II. This was, after all, a generation haunted by the failures of the 1919 Versailles Peace Conference. What happened at Bretton Woods is not explained by White's intentions or allegiances, but by American suspicions toward Britain that were two centuries old by then. That is in addition to the American belief that a democratic and prosperous world, shorn of European rivalries and European domination, lay ahead if only this time America did not retreat from its new global obligations. As Roosevelt once said, he had no intention of seeing America keep playing "the tail on the British kite."

But why does Skidelsky so often seem to miss or misjudge the subtle currents, and complex personalities and interests, on the American side at this extraordinary moment when global economic rules were being profoundly redefined? It may be because he is not only a British historian but a conservative one. Though his title is missing from the book jacket, he is Lord Skidelsky of Tilton, a Conservative-appointed life peer and a deep admirer of Margaret Thatcher's economic programs. For a time he even served as the Conservative Party's official chief spokesman in the Lords on financial affairs; and he lists privatization of education among the long list of "de-collectivization" strategies he favors. (Though to complicate easy pigeonholing, Skidelsky recently became an English James Jeffords, angrily leaving the Conservative Party in disgust with its phobias about the European community.)

Skidelsky's later chapters in particular show how he would have us ultimately understand Keynes: as a youthful, rebellious "outsider" from the British ruling classes who nonetheless embraced his mature membership in the establishment; as a critic of inequality who nonetheless died worth $20 million (in today's dollars) and as an economist who subverted the assumptions of neoclassical economics yet could, in private correspondence, fulsomely praise Friedrich von Hayek, that paragon of libertarian conservatism. In Skidelsky's narrative, Keynes was a prodigal son who came home to the British establishment and whose promotion of "the Middle Way" is today reflected in neoconservative (and neoliberal) policy on both sides of the Atlantic.

Is that who Keynes really was? To many of us, Keynes and Keynesianism represent the apotheosis of modern liberalism in economics. This is a view shared by Galbraith and Samuelson, as well as by Milton Friedman (and Hayek, too, in his time). But it is somehow not so apparent to Skidelsky, who thinks such a view is in need of correction. This matter of "correcting" our understanding of Keynes is never without its consequences, or agendas. Once Richard Nixon, in 1971, declared himself a Keynesian, we should have foreseen the troubles ahead. Such troubles were fully realized when Ronald Reagan began likening himself to FDR and Reagan's economists began claiming that their supply-side tax policies were simply following the Keynesian model of the 1964 Kennedy-Johnson tax cuts (when in fact they were all about, in David Stockman's inimitable phrase, "hogs feeding at the trough"). Even The Economist, which despite its dislike of Keynesians should have known better, began referring in the mid-1980s to Ronald Reagan's huge deficits as "turbo-charged Keynesianism." They weren't that; they were the massive, purposeless results of bad conservative policy.

There have always been conservative, moderate, liberal, and radical Keynesians, and in recent years so-called neo-Keynesians and post-Keynesians have been added to the mix. In the United States, as early as World War II, the CED represented a moderate, mainly Republican "business" Keynesianism. Its views were strikingly different than those of Alvin Hansen, or John Kenneth Galbraith, or Abba Lerner. Under Eisenhower, this CED Keynesianism led to support for the minimally Keynesian "automatic stabilizer" approach to business cycles, a far cry from the fuller-blooded Keynesianism of the activist "fine tuners" in the Kennedy-Johnson era. But it took Richard Nixon to do the most damage to the liberal legacy of Keynes's teachings.

In the midst of stagflation and the soaring energy prices that followed the "Keynesian" Nixon's jettisoning of the Bretton Woods agreements, the government-business-labor concordat that made both conservative and liberal Keynesianism possible, collapsed. Ever since, America and Britain have been in search of new economic credos to follow, almost all of them decidedly un-Keynesian, if not anti-Keynesian. Now that we've seen the failures of monetarism, of the rational expectations school, of supply-side economics, and of old-fashioned GOP tax breaks for the rich, one might have thought that revisiting Keynes's teachings would be high on the agenda, at least of liberals. But it hasn't been.

Were Keynes today to pay an unexpected visit to review the economic policies of Bill Clinton or Tony Blair, he would be hard-pressed to see anything Keynesian in their essences. (And he would need no substantial review before dismissing the policies of Thatcher, Reagan, or the Bushes.) He would see parsimonious caution in our era's neoliberal policies, not the authentic liberalism, the generous vision, and the bold practice with which Keynes sought to design economic theory and shape policy.

Keynes's goal today wouldn't be to oversee the end of "big government" or to make government the handmaiden of markets. He wanted to see governments oversee and influence markets to free all of us, around the world, from as much toil as possible. Men and women were not meant to be put on a lifelong treadmill of work for the sake of aggregate economic growth and ever greater productivity. He envisioned a world in which people could cultivate themselves through increased leisure, greater access to the arts, and everything concerned with the spirit. Economists, in such a world, would not exactly wither away, he said, but would become "like dentists," serving a useful but hardly central function in a good society.

In this, Keynes was as Rooseveltian as Roosevelt -- perhaps even more so. He had been no less appalled by the failures of Versailles, and he loathed the tight-fisted, anti-democratic and anti-egalitarian conservatism of economic theory and policy in the years after World War I. The purpose behind The General Theory and his Bretton Woods design alike stands far removed from Reagan-Thatcher-Bush conservatism and the neo-liberalism of Clinton and Blair on domestic and international economics.

To any who doubt this after reading Skidelsky, it is worth looking up Keynes's lengthy reply to a letter from the archbishop of York during World War II. Here Keynes affirmed the central role of liberal ethics in economics -- and urged the progressive archbishop to speak out forcefully on issues of economic and social justice. This was, after all, an economist who, on a different occasion, had said modern capitalism was "absolutely irreligious, and without internal union, without much public spirit, often, though not always, a mere congeries of possessors and pursuers," and who cursed "the hag-ridden" worship of "the money-motive."

Keynes instead foresaw a time when "the love of money as a possession -- as distinguished from the love of money as a means to the enjoyments and realities of life -- will be recognized for what it is, a somewhat disgusting morbidity, one of those semi-criminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental disease." Keynes was just as unambiguous about the role we could expect of conservatives in helping reach such a world: "Conservatism leads nowhere; it satisfies no ideal; it conforms to no intellectual standard; it is not even safe, or calculated to preserve from spoilers that degree of civilisation which we have already attained."

Moreover, he left no doubt about how their resistance to liberal reforms ought to be addressed. "There is no reason," he wrote, "why we should not feel ourselves free to be bold, to be open, to experiment, to take action, to try the possibility of things. And over against us, standing in the path, there is nothing but a few old gentlemen tightly buttoned up in their frock coats, who only need to be treated with a little friendly disrespect and bowled over like ninepins."

Skidelsky, exhaustively attentive to detail in other matters, omits mention of Keynes's correspondence with the archbishop. One wonders what the author might have made of it, for it underscores this lapidary fact: Keynes was many things, but never a conservative. In this, Skidelsky, for all his other contributions to our understanding of Keynes's life and thought, has failed us. Despite his revisionism (and the warmth with which it's been received in some circles), no amount of effort can do the impossible: turn the silk purse that was John Maynard Keynes, the genius of modern economics, into a conservative sow's ear.

Richard Parker

Copyright © 2002 by The American Prospect, Inc. Preferred Citation: Richard Parker, "A General Theory of Keynes," The American Prospect vol. 13 no. 8, May 6, 2002. This article may not be resold, reprinted, or redistributed for compensation of any kind without prior written permission from the author. Direct questions about permissions to

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