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
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

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 --
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
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
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
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
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
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
the neo-classical synthesis when it appeared shortly after the war as
Foundations of Economic Analysis -- is entirely absent. So, too, is the
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 --
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
complexity and nuance than most of us who grew up during the Cold War can

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
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
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

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
and policy in the years after World War I. The purpose behind The General
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
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
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

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.

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