Abstract
As President Nixon once observed, “we are all Keynesians.” And we do indeed live in a macroeconomic world, essentially, as defined and elucidated by Keynes. But Keynes himself is underrepresented in both political science and in mainstream economics. This is a costly intellectual error. Keynes’ prodigious writings, as well as his actions, offer a treasure trove of inspiration, analysis, and insight. This article considers four themes in Keynes’ oeuvre that are especially worthy of revisiting: the importance of economic inequality, the potentially fragile underpinnings of international economic order, the inherent dysfunctions of the international monetary economy, and, perhaps most important, Keynes’ philosophy and its relationship to economic inquiry.
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Notes
Gregory Mankiw, Chairman of the Council of Economic Advisors from 2003-2005, described the logic behind the Bush tax cuts of 2003 as “quintessentially Keynesian” (Mankiw 2006). The reaction to the sub-prime mortgage crisis in the U.S. provides yet another example of this. While some might suggest that twenty-first century liberalization and globalization point toward a return to a classical conception of the market, the swift responses of public actors and institutions, fiscal and monetary, were quintessentially Keynesian.
Notably, however, with the emergence of a major global recession in 2008, countries around the world reached for fiscal, and Keynesian, devices. On the need for fiscal stimulus, Martin Feldstein, one of the most influential conservative economists of the last quarter century, commented, “Well I think Alan Blinder was right on. I think the plan has to be big, it has to be quick, and it has to be focused on creating employment.” PBS Newshour, November 10, 2008. See also “China’s Fiscal Stimulus: Dr. Keynes’s Chinese Patient,” Economist November 13, 2008, for a description of “a massive fiscal-stimulus package” described by the Economist as “ a giant step in the right direction.” Now, more than ever, and especially when the chips are down, we are indeed all Keynesians.
Keynes wrote extensively on money in the 1920s, and these writings, not surprisingly, often emphasized monetary policy and its significance. See for example Keynes (1923), volume IV (hereafter CW). But it is fair to critique the Keynesian revolution in macroeconomics on the grounds that it undervalued the role of monetary policy. See Brunner and Meltzer (1993).
The outcome of the Bretton Woods negotiations resulted in a system much closer to the American (White) plan than the Keynes plan, and Keynes was disappointed with many aspects of the outcome. However, as John Ikenberry has argued, the negotiations and their purpose were framed by Keynes’ ideas and intellectual influence. Gardner (1980), Skidelsky (2001), esp. pp. 356–7, 466–7, Ikenberry (1992).
Keynes (1941a).
Friedman (1968), Phelps (1967), Lucas and Sargent (1979), Blinder (1988), Gordon (1990), on these developments more generally, see Kirshner (2001). It should also be noted, as one astute reader of an earlier draft of this article did, that Keynes’ legacy in the economics discipline was much broader than might be implied by the thread of the discussion here. Post-Keynesians, for example, were among several other communities of scholars who sought to advance the research agenda suggested by Keynes’ writing (and teaching). See Chick (1983).
“If I had a copyright on who could use the term ‘Keynesian’ I wouldn’t allow them to use it.” Tobin (1994); Gregory Mankiw reaches a similar conclusion, but with approval: “Keynes might not recognize the new Keynesians as Keynesians at all.” Ibid, p. 338.
Johnson’s most famous disciples are Eric Clapton, and, to a lesser extent, Led Zeppelin, and the Rolling Stones. Bob Dylan emphasizes Johnson’s influence in his memoirs (Dylan 2004).
Robert Skidelsky places less emphasis on the role of distributive justice in Keynes’ moral philosophy. See Skidelsky (1994), esp. pp. 62, 223; but see also p. 233 which is closer to my position above.
Keynes’ emphasis on the perception of fairness was a significant factor in his wariness regarding inflation, which redistributed wealth arbitrarily. “No man of spirit will consent to remain poor if he believes his betters have gained their goods by lucky gambling,” Tract on Monetary Reform, p. 24. On the risk of a backlash against capitalism, see “Letter to F. A. Hayek,” June 28, 1944 (CW: XXVII, p. 387).
Keynes, The General Theory, pp. 372 (quote), 377 (taxes); Keynes (1937b), (1936c). Yet Keynes was invariably alert to the concern “too much” equality might undermine economic progress. “If society had always been strictly just, I am not sure that we might not still be monkeys in a forest,” Keynes (1927).
Keynes (1937a) (CW: XIV, p. 122 (quote); see also pp. 113–114 for a discussion of the importance of uncertainty, such as “the prospect of a European war” or “the rate of interest twenty years hence” or “the obsolescence of a new invention,” matters where “there is no scientific basis on which to form any calculable probability whatsoever.” On “animal spirits,” see The General Theory, pp. 161–2.
See The General Theory pp. 156–8 for the “beauty contest” analogy and more.
John Maynard Keynes (1919a).
These are found in the middle three chapters, on “The Conference,” “The Treaty,” and “Reparation.” On the “Bloomsbury voice,” and Eminent Victorians, see Harrod (1951), pp. 184–6, 211.
Economic Consequences, pp. 7, 9; Two Memoirs (1946) is reprinted in CW: X, pp. 389–450. Pursuing similar themes, Keynes also warned that underestimating the underlying fragility of the pre-War payments system contributed to a cavalier attitude (especially of the U.S.) toward inter-allied debts after the war. See Keynes’ memorandum (1919b).
Keynes (1930a) CW: VI, p. 272.
See esp. John Maynard Keynes (1931), reprinted in Essays in Persuasion under the title “The End of the Gold Standard,” CW: IX, p. 248, and for Keynes’ famous phrase, “There are few Englishmen who do not rejoice at the breaking of our golden fetters,” p. 245. See also The Economic Consequences of Mr. Churchill (1925), CW: IX, pp. 207–30.
John Maynard Keynes (1941a), (CW: XXV, pp. 27, 28, 30); Keynes (1941b); (CW: XXV, pp. 46, 52, 53; Keynes (1942), (CW: XXV, p. 149); Keynes, speech before the House of Lords, May 18, 1943, (CW: XXV, p. 272); Keynes, speech before the House of Lords, May 23, 1944, (CW: XXVI, p. 17). See also Helleiner States and the Reemergence of Global Finance, Chapter 2: “Bretton Woods and the Endorsement of Capital Controls,” 25–50.
On this issue more generally, see Cohen (2006).
On these issues, see Kirshner (2003).
Skidelsky (1983); see also all of chapter 6, pp. 133–160. D. E. Moggridge also devotes a full chapter to “My Early Beliefs,” see Moggridge (1992). Roy Harrod’s treatment is less satisfactory on this key issue (Life of Keynes, pp. 75–91); it is possible that the early publication date of this book was a contributing factor here and to the more cautious tone of the biography as a whole.
Keynes (1949).
John Maynard Keynes (1930b). The significance of Keynes’ toast and comments upon stepping down after thirty three years as editor of the Economic Journal is emphasized by Harrod, who was in attendance as his successor. Harrod, Life of Keynes, pp. 193–4; Note also Harrod’s comment that Keynes “found something unsatisfactory in the quest for gain as such.” Charles Foster Kane expressed a similar sentiment: “if I hadn’t been very rich, I might have been a really great man” (Orson Welles, “Citizen Kane”, 1941)
John Maynard Keynes (1938). Note that in this essay, the mature Keynes looks back at the beliefs of the younger Keynes and his cohort, and, noting that while he still holds them, now recognizes the potentially irresponsible implications of these tenets (“We were not aware that civilization was a thin and precarious crust . . . only maintained by rules and conventions”), p. 447.
David Bowie, interview in the documentary “VH1: The Seventies.”
John Maynard Keynes (1937c), (1933). Keynes self-sufficiency essay is oft-quoted, usually in support of Keynes as a protectionist or at least a skeptic of the international economy. This takes the paper, which stands as an outlier in Keynes’ writings, out of context, in particular the utter failure of efforts at international cooperation to coordinate productive responses to the depression. Keynes was a life-long free trader, and even in supporting a revenue tariff for Britain he was under no illusions regarding the costs and inefficiencies involved. See Keynes (1932), also Moggridge, An Economist’s Biography, p. 575.
Along one dimension, the self-sufficiency essay did reflect continuity with regard to Keynes’ philosophy – the rejection of economism. The embrace of laissez-faire capitalism as a sacrosanct end in itself reduces “the whole conduct of life . . . into sort of a parody of an accountant’s nightmare,” where every potential course of action is judged by its financial results. “We destroy the beauty of the countryside because the unappropriated splendours of nature have no economic value. We are capable of shutting off the sun and the stars because they do not pay a dividend.” (“National Self Sufficiency”, pp. 241, 242.)
This is not to suggest that Keynes was not shaped by the fact that he was, as we all are, a product of a specific time and place; as Harrod wrote in the first paragraph of his biography, “His roots were deep in 6 Harvey Road, which embodied the stable values of the civilization in which he was bred” (Keynes was born at 6 Harvey Road, the home his parents lived in for his entire life). Harrod, Life of Keynes, p. 1.
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Acknowledgments
I thank Miguel Centeno, Eric Helleiner, Robert Skidelsky, and an anonymous referee for comments and suggestions.
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Kirshner, J. Keynes, legacies, and inquiry. Theor Soc 38, 527–541 (2009). https://doi.org/10.1007/s11186-009-9089-1
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DOI: https://doi.org/10.1007/s11186-009-9089-1