BOOK REVIEW A lost morality Keynes: The Return of the Master by Robert Skidelsky
Reviewed by Julian Delasantellis
The wars of the generation gap have raged since at least the human race's
arrival outside the gates of Eden, but besides the youth battling their parents
for independence, the parents also frequently have to fight a two-front war
against both their kids and their own parents, defeated and assigned to
permanent irrelevancy so many years back.
The story of today's children of the economics profession reaching up and over
their parents to their grandparents' generation, that of John Maynard Keynes,
is the core tale told in Keynes:The Return of the Master by Robert
(Lord) Skidelsky.
Few people can be said to be better qualified for this subject than
Skidelsky, the author of a massive, 1,900 page, three-volume biography of the
early 20th century's most famous economist. Appointed as a life peer to the
UK's House of Lords in 1991, his current work, even though under 300 pages,
certainly speaks with the gravitas-laden timber of the establishment, if not
today's, then of some time in the past.
Up until very recently in the specialized, academic media, and continuing in
the polarized, popular press, Keynes has not been enjoying much popular
acclaim. As the intellectual forefather of the huge fiscal deficits being used
to pull Western capitalist economies, especially Britain and the United States,
out of their current quagmires, some observers see him as a sort of concierge
to the Lubyanka, a finely attired and mellifluously sounding guide for the trip
down into the chained hell of state socialism.
From Skidelsky:
In the US, more than in Britain, he is considered a
kind of socialist. This is wrong. Keynes was not a nationalizer, nor even much
of a regulator. He came not exactly to praise, capitalism, but certainly not to
bury it. He thought that, for all its defects, it was the best economic system
on offer, a necessary stage in the passage from scarcity to abundance, from
toil to the good life.
Keynes is also considered to be the apostle of permanent budget deficits.
"Deficits don't matter." This was not Keynes, it was Glenn Hubbard, chairman of
George W Bush's Council of Economic Advisors in 2003. It may surprise readers
to learn that Keynes thought that government budgets should normally be in
surplus.
The beginning of the book features a fairly standard
elucidation of the capitalist world's present difficulties with the ongoing
financial crisis; one delivered, I suppose, with the maximum amount of "I told
you so." Then come some real details of Keynes' life and work.
As both an economic scribbler and speculator myself, I have always been
interested in Keynes' adventures doing the same. In essence, Keynes made and
lost three fortunes in the markets before his death at the age of 63 in 1946.
In the early 1920s, he made and lost a fortune in the currency chaos that
followed World War II; similarly in commodities as the Great Crash approached
in the late 1920s; then another boom to bust as Franklin Delano Roosevelt's New
Deal was scaled back in 1937. Whatever the circumstance, Keynes made money off
it.
It was 1936 that Keynes published his masterwork, The General Theory of
Employment, Interest and Money, credited by many with effecting a
quicker end to the Great Depression, at least in Britain and America. After the
war, with Keynes' acolytes all over the finance ministries of the newly
liberated Western colonies, his star shone ever the more brightly.
But around 1973, his star began to fade. The 1973 Arab oil embargo abruptly
ended all the easy economic growth from those countries not blessed with
generous domestic factor imports and in response, the American economic
community began to fracture.
Skidelsky and others have come up with a categorical guide to modern American
economists worthy of a sporting goods magazine On one side are the so-called
"saltwater" economists, primarily Keynesians from America's Ivy League colleges
on the Atlantic coasts, along with the University of California/Berkeley and
Stanford from greater San Francisco. Opposing them were the so-called
"freshwater" economists, primarily from or at schools whose economics
departments either then or previously were in the orbit of monetarist Milton
Friedman.
And, oh, according to Skidelsky, how the freshwater economists polluted the
ecosphere with such heresies as the efficient markets hypotheses (EMH), the
rational expectations model, real business cycle theory, and others.
So what was it that really seemed to fuel Keynes' animus towards the
money-centered economics ideologies he loathed so much? We might think it
fairly amazing for an economics scholar or bond trader/consultant of these
days, but back then the discipline was just emerging from under the skirts of
protestant stringency, and the reverend's influence still showed.
For Keynes, economics was simple and moral. It was pointless to argue the
famous Say's Law, which stated that the inexpensive supply of something fueled
its own demand. No, if a product, or the sum of all the products in an economy,
were not being purchased, it meant that demand for these products had to be
replaced, from other consumers, businesses conducting investments, or
government spending. Money, or money-based economics, may have been the root of
all evil, but there could have been no such opprobrium attached to a man simply
trying to feed his family.
Skidelsky bends and pulls on the argument rather vigorously when he seeks to
link Keynes' record and genius to the years of world capitalist prosperity up
to 1973, giving to Friedman the science's doleful record since, which he names
with the shorthand moniker of the "Washington Consensus".
Well, I suppose this is understandable; after all, how easy it for someone,
even a lord, to slap the face of a god?
On a more serious note, the post-1973 period was not particularly studded with
accolades for any of the world's economists, including Friedman. I've written
before how it was not Friedman nor Keynes that best called the financial
crisis, but Hyman Minsky, with his theory of financial cycles (see
Too late to learn, Asia Times Online, December 23, 2009.)
From Skisdelsky:
Keynes' big idea was to use macroeconomic policy to
maintain full employment. His specific suggestion was to use monetary policy to
secure a permanently low interest rate and fiscal policy to achieve a
continuously high level of public or semi-public investment. Over time, as the
returns on further additions fell, the high-investment policy should yield to
the encouragement of consumption through redistributing income from the higher-
to the lower-saving section of the population.
Of course, this
is exactly what did not happen during the run-up to the recent crash.
Investment returns were ginned up again and again through financial legerdemain
and artifice, and by the end, even the social workers thought that their
imported Greek stone countertops looked better than giving the money back to
the poor.
Not that it would have mattered much for Keynes; he probably never saw himself
as just an economist or a man stationed as Cerberus at the king's treasure
vaults. He was a philosopher, a towering man of erudition and morality.
Politics
was for Keynes a branch of practical ethics: it was the science of how
governments should behave. The purpose of government was not to bring about
states of affairs "good, intrinsically and in isolation", but to facilitate the
pursuit of such goods by members of the community. The presumption was that the
more prosperous and contented a community is, and the fairer its social
arrangements, the better will be the states of mind of the inhabitants.
And what better suits the state of mind of today's Wall Street or corporate
American class of professional economist? Maybe all they have left to them now
is the realization that they are almost all just first offenders, and how
hopefully that will prevent the prosecutors from submitting to the anger of the
mob by asking for the most fearsome consecutive imprisonment sentences
possible.
Keynes: The Return of the Master by Robert Skidelsky. PublicAffairs
(2009). ISBN-10: 1586488279. Price US$25.95, 240 pages.
Julian Delasantellis is a management consultant, private investor and
educator in international business in the US state of Washington. He can be
reached at juliandelasantellis@yahoo.com.
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Up until very recently in the specialized, academic media, and continuing in
the polarized, popular press, Keynes has not been enjoying much popular
acclaim. As the intellectual forefather of the huge fiscal deficits being used
to pull Western capitalist economies, especially Britain and the United States,
out of their current quagmires, some observers see him as a sort of concierge
to the Lubyanka, a finely attired and mellifluously sounding guide for the trip
down into the chained hell of state socialism.
