Robert Skidelsky's Keynes: The Return of the Master Peter Clarke's Keynes: The Rise, Fall, and Return of the 20th Century's Most Influential Economist
Block, Fred
BOOKS Keynes Lost and Found FRED BLOCK K :T R M by Robert Skidelsky Public Affairs, 2009, 256 pp. $25.95 K 2 T R , F , R 20 C ’ M I E by Peter Clarke Bloomsbury,...
...Even so, the fact that the stimulus packages did not receive unanimous endorsement from mainstream economists is shocking...
...His heresy was his belief that the economy was a means to an end—not an end in itself...
...The claim of market fundamentalism, therefore, cannot be durably defeated without insisting that the economy be subordinated to human purposes and morality...
...He put on the mask of an econ omist to gain authority, just as he put on dark suits and homburgs for life in the City...
...Keynes’s insights, as Skidelsky argues, “were never—could never be—properly integrated into the core of his discipline, which expelled them as soon as it conveniently could...
...As long as market economies were forced to compete with Soviet communism, there was a political advantage to limiting income inequalities and placing restraints on greed...
...The geniuses who created new generations of financial instruments such as collateralized debt obligations and credit default swaps were able to sell their snake oil because Keynes’s insights had been forgotten...
...It follows that the crisis of 2007–2009 will also not be sufficient to deprive those ideas of future influence...
...25.95 K 2 T R , F , R 20 C ’ M I E by Peter Clarke Bloomsbury, 2009, 211 pp...
...he was a heretic who learned how to play the game...
...This story encapsulates our current predicament...
...it was only a matter of time until some unforeseen circumstance revealed the hubris of imagining that an uncertain future could be successfully modeled so that investors and financial institutions would be painlessly insulated from unknowable contingencies...
...How is it that a discipline like economics would lose track of one of the most important theoretical innovations of the last century...
...But once the Berlin Wall fell, so, also, did these constraints...
...Their revolution to overthrow Keynesianism succeeded through the simple syllogism: (1) market economies are analytically autonomous entities governed by their own laws...
...20 A fierce debate raged on both sides of the Atlantic in December 2008 and January 2009 as to whether it was appropriate for governments to respond to the massive, global economic downturn by engaging in deficitfinanced stimulus spending...
...Empowered by the magical market thinking of the Chicago School, financial engineers imagined that all uncertainty could be transformed into calculable risk that could be bought and sold at appropriate prices...
...The question,” he wrote, “is whether we are prepared to move out of the nineteenth century laissezfaire state into an era of liberal socialism, by which I mean a system where we can act as an organized community for common purposes and to promote social and economic justice, whilst respecting and protecting the individual—his freedom of choice, his faith, his mind, and its expression, his enterprise and his property...
...His General Theory of Employment, Interest, and Money, published in 1936, directly attacked the economic orthodoxy of his day that insisted that the proper way to bring about recovery was for governments to balance their budgets and wait for a revival of private investment...
...2) government action such as taxes and regulation interfere with the laws of the autonomous economy...
...For Skidelsky, the key to understanding Keynes’s contribution is the distinction he makes between risk and uncertainty...
...He is currently completing a book with Margaret Somers on Karl Polanyi, called Free Market Utopianism...
...This is why, according to Keynes, economic recovery depends upon government’s taking action to increase demand and break the gloom and uncertainty that envelopes investors and entrepreneurs...
...This is precisely why Polanyi, in The Great Transformation, defined socialism as the tendency inherent in an industrial civi lization to transcend the selfregulating SPRING 2010 DISSENT 113 BOOKS market by consciously subordinating it to a democratic society...
...The debate in large part reprised arguments made in the mid1930s as governments struggled with the Great Depression...
...He insists that Keynes was, in his wife’s phrase, always “more than an economist...
...it successfully brings Keynes to life and captures the distinctiveness of his economic thought...
...How did it happen that by the time the financial crisis erupted, Keynes’s ideas were so out of fashion that the mere mention of them provoked snickers among some contemporary economists...
...In this way, he advanced a kind of “liberal socialism” at the end of the 1930s...
...For if the economy is analytically autonomous, it becomes extremely difficult to resist the claim that the economy is—and must be—free to operate according to its own rules...
...Skidelsky drives home this point by quoting a speech Keynes gave in Dublin in 1933, in which he said that the system of economic calculation made the whole conduct of life … into a sort of parody of an accountant’s nightmare...
...114 DISSENT SPRING 2010...
...But Keynes’s point was that unpredictable events do not fit any normal distribution: The use of the word “risk” to cover unin surable contingencies conveys a spurious precision, which comforts the markets, but has no basis in science...
...it was simply the idea that the human economy should be subordinated to human society...
...FB teaches sociology at the University of California at Davis...
...The problem was that when Keynes “put on the mask of the economist,” he adopted for purposes of discussion the discipline’s core assumption that the market economy is analyti BOOKS cally autonomous from other social institutions...
...For example, insurance can protect individuals from the risks of hurricanes and SPRING 2010 DISSENT 111 BOOKS heart attacks because it is possible to make reasonable estimates of the likelihood of such occurrences...
...Skidelsky, a historian and selfdescribed nonprofessional economist, is well known for his masterful, threevolume biography of Keynes...
...Keynes envisioned not just a society with full employment and economic growth, but also one that sought to eliminate poverty and afforded the educated classes time to spend on the kind of artistic pursuits that he and his Bloomsbury friends had favored...
...Both Keynes and his contemporary Karl Polanyi recognized that the term initially had little to do with ending private property or markets...
...The severity of the downturn convinces these entrepreneurs that negative surprises will continue, suggesting that it is futile to make positive bets on future profitopportunities...
...3) therefore, economic efficiency requires keeping taxes and regulation to an absolute minimum so that market signals can do their work without distortion...
...Skidelsky’s book, while also well written, is more demanding and more ambitious in scope: Skidelsky wants to explain why so many contemporary economists have been unable or unwilling to incorporate Keynes’s most important insights into their theoretical frameworks, and he contrasts Keynes’s ideas with those that have reigned supreme among economists for the past twenty years...
...As John Judis notes in the New Republic (February 4, 2009): In 1939, Keynes described his political approach as “liberal socialism...
...But despite the fame and acclaim that Keynes received in the 1930s and 1940s, remarkably, many economists in 20082009 repeated the old orthodoxy from the 1930s that increased government spending and borrowing was bad policy and that the better choice was simply to wait for private investmentflows to revive...
...But other contingencies, such as the losses that accrue over several years as a result of climate change or of a new economic downturn, are simply uncertain and unknowable...
...Attempting to subject these uncertainties to probabilistic analysis is tempting, but it is a fool’s errand...
...Those who systematized and simplified Keynes’s insights, particularly in the United States, stripped away the more radical elements of his framework in their haste to make the ideas acceptable to business and political elites and to reconcile them with earlier economic thinking...
...That reform is, in essence, the recognition that humans “do not live by bread alone” and that our economy must not be seen as analytically or morally autonomous from social institutions, purposes, and values...
...In fact, Keynes had an abiding suspicion of materialism, of moneymaking, and especially of the “love of money...
...A further irony is that the collapse of the Soviet Union locked into place a distorted definition of socialism...
...We are capable of shutting off the sun and the stars because they do not pay a dividend...
...John Maynard Keynes argued strongly then for aggressive government spending to put people back to work...
...Both Skidelsky and Clarke revisit Keynes’s major theoretical breakthroughs to situate them not only within the trajectory of his own development as a thinker but also within the political debates over economic policy...
...Human beings are social animals, and “socialism” is the belief that the social should be dominant—as in socialism...
...These questions are at the heart of two new books about Keynes by Robert Skidelsky and Peter Clarke...
...We destroy the beauty of the countryside because the unappropriated splendours of nature have no economic value...
...On the contrary, he showed that an economic depression is likely to dampen the “animal spirits” of entrepreneurs, leading them to hoard their wealth in cash even when prevailing interest rates provide almost no return on shortterm savings...
...But Skidelsky also makes a more original argument...
...This, of course, is the central belief of Milton Friedman and all the other market fundamentalists...
...He writes: Deep down, he was not an economist at all...
...The crisis of the 1930s was not sufficient to prevent the return of discredited market fundamentalist ideas in the 1970s...
...Part of his explanation is the conventional one conveyed by Joan Robinson’s label of “Bastard Keynesianism” for the system of ideas created by some of Keynes’s followers...
...He wanted to use technical, economic means to achieve moral ends...
...But he did not believe in the system of ideas by which economists lived, and still live...
...Keynes’s insight into how investments are made helped undermine the credibility of the claim that a return to a high employment equilibrium will inevitably and spontaneously follow a downturn...
...And when those prices did fall, it quickly became clear that the models designed to estimate the risk of particular portfolios had failed to consider that investors might suddenly flee from all risky financial assets...
...Granting this analytic autonomy in order to “do” economics meant he had to downplay in his major work his moral critique of the market...
...For example, according to standard economics, new investments occur when entrepreneurs spot opportunities to produce new profitstreams, given the existing costs of capital, labor, and materials...
...Or as Keynes grasped in 1939, one could not affirm that the economy should serve moral and human ends without embracing some version of socialism...
...Clarke is also a historian and has written extensively on twentiethcentury England, including a volume on the Keynesian revolution in economics...
...Fortunately, neither Barack Obama nor Gordon Brown let themselves be influenced by such retrograde arguments, and the stimulus measures they took stopped the downward economic spiral...
...In short, the whole elaborate superstructure of financial derivatives was built on sand...
...Of course, he could “do” economics—and with the best...
...The most distinctive aspect of Skidelsky’s book, however, is his effort to explain how professional economists systematically unlearned the lessons that Keynes had taught...
...In retrospect, had it not been for the cold war, Keynes’s influence would likely have declined even sooner...
...As Polanyi wrote in Commentary in 1947, to overcome the ideas of the free market ideologues: …which constrict our minds and souls and greatly enhance the difficulty of the lifesaving adjustment, may require no less than a reform of our consciousness...
...We know now that the financial engineers totally discounted the possibility that residential real estate prices would fall across the entire country...
...But Keynes argues that actual entrepreneurs make investments based, to a greater or lesser degree, upon conventions, emotions, and other factors that help them cope with their inability to foresee what the future will bring...
...he did 112 DISSENT SPRING 2010 not worship at the temple...
...BOOKS Keynes Lost and Found FRED BLOCK K :T R M by Robert Skidelsky Public Affairs, 2009, 256 pp...
...Clarke’s book is an easier read...
...But Keynes avoided such claims in the General Theory to make his position more acceptable to economists and policymakers...
...Because an economy’s future is inevitably shrouded in uncertainty, many assumptions made by conventional economic models are simply mistaken...
...Keynes’s distinction between risk and uncertainty helps us understand why the recent downturn happened in the first place...
...Things that are risky are subject to probabilistic analysis...
Vol. 57 • March 2010 • No. 2
