John Maynard Keynes: Fighting for Freedom, 1937-1946
By Robert Skidelsky, Viking, 580 pages, $34.95.
John Maynard Keynes was an economist, a policyadviser tothe British government (and, at times, a coruscating critic), an influentialfigurein the Liberal Party, an intimate member of the Bloomsbury Group, a prolificjournalist of opinion, a patron of the arts, a gentleman farmer, a wealthyinvestor, a prominent business executive, a fixture of Cambridge University'sintellectual life, and a homosexual who, in his early forties, married a Russianballerina and lived thereafter (by all accounts) a deeply fulfilling life withher.
In vividly portraying that very complexity, biographer RobertSkidelsky has given us a great gift and has enriched our knowledge of thevarieties and subtleties of Keynes's genius. In three definitive volumes craftedover two decades, Skidelsky has become the master of Keynes's life, a life madeall the more extraordinary because it spanned seven extraordinary decades --fromthe heyday of laissez-faire Victorian liberalism to the dawn of a post-World WarII era that has since taken the name "Keynesian," at least in economics andpublic 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 todescribing the creation of the World Bank and IMF as a contribution. Liberalsdislike those multilateral agencies largely for the "structural-adjustmentpolicies" they began imposing on the third world after the OPEC price hikes ofthe 1970s, which led to a great global lending spree and the 1980s global debtcrisis. Since then, we've seen repeated, rolling financial crises across theglobe, right up to Argentina's bankruptcy late last year, the largest nationalbankruptcy to date.
But the structural-adjustment programs adopted in the Reagan-Thatcher era wereat odds with Keynes's vision. His own designs for the World Bank and IMF weredecidedly more friendly to the poor and the indebted than to wealthy creditors.He wanted the two new multilateral agencies -- largely free of domination by theUnited States or anyone else -- to serve as "global banks" and "globaltreasuries."At the same time, he wanted them to be able to issue their own "currency" (calledthe "bancor") in order to provide liquidity in times of crisis and for long-termgrowth, and to do so at levels beyond those that private capital markets wouldprovide. In Keynes's plan, moreover, exchange rates were to be managed bygovernments, not 28-year-old traders staring at computer screens; commodityprices were to be stabilized by publicly controlled buffer stocks; and tradepolicy was to be shaped by domestic concerns for equality, democraticsovereignty, 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 ofKeynes's ideasleading up to Bretton Woods and then the co-optation/defeat of those ideas by theAmericans (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, politicaland economic leaders in London, Washington, and New York had begun planning theterms of a new post-war world. Skidelsky reveals the competing currents ofBritish and American economic policy during the war, from the creation ofLend-Lease in 1940 forward -- and the ambitions both sides held. Britain had longprospered under a system that extolled "free trade" but that was built, in nosmall part, on "imperial preferences," and that was anything but free to outsidecompetitors such as the United States. Beginning early in the twentieth century,America -- which had thoroughly rejected free trade for most of its ownhistory -- began chafing at English trade barriers. But until World War II,Washington had never been in a position to change London's rules governing globaltrade and finance.
The war brought the divergent interests and ambitions of the twoAllies to a head, even as it brought them together militarily. As America andBritain fought the war, they also waged a second-front battle, using pens andpolicy memos, over which of the two would dominate the world, economically andpolitically, when the Axis powers were defeated. The struggle played out viaLend-Lease (which put Britain deeply in debt to America), then through U.S.Treasury official Harry Dexter White's "American Plan" at Bretton Woods (whichinordinately favored the dollar over the pound as the post-war medium of tradeand finance), and then thanks to the seemingly generous post-war loan Americagranted 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 commonalityof Anglo-American interests, both during World War II and now. He also shows thatKeynes seldom wavered in his affection for America or in his faith that the twonations would eventually find a high common ground. In this, Keynes (unlikeChurchill and most others in Britain's wartime cabinet) was not seeking simply torestore Anglo-imperial relationships and global economic hegemony. Keynes'sliberalism was never narrowly nationalist on either score. Yet Skidelsky, as aBritish historian writing about a British economist, understands what was atstake and does not doubt that Keynes's plan was superior for Britain's long-terminterests. Indeed, this volume's British edition title is not "Fighting forFreedom" but "Fighting for Britain." The British vantage point is, in one sense,proper and even essential. Skidelsky's masterful work reminds us just howthoroughly English his subject was. Anyone who doubts this should look at howKeynes treated his tenant farmers in his role as local squire, or how he reactedto his wartime ennoblement as Lord Keynes of Tilton, and the letters to hismother weighing his choice of title.
For American readers, though, this vantage point leaves gaping and troublingholes in the narrative. Consider that Harvard's Alvin Hansen, who was Keynes'stowering American apostle, rates here only one brief mention. The criticalwartime role played by a young John Kenneth Galbraith in promoting Keynes to thecountry's most powerful businessmen while Galbraith was senior editor atFortune 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 Americanofficials he does portray than he does for their British counterparts. And what'sworse, Skidelsky's handling of Franklin Roosevelt and Treasury Secretary HenryMorgenthau 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 narrativereason, since it is the prolonged Bretton Woods contest between Keynes and Whitethat personifies the Anglo-American economic contest at the heart of this volume.But White is, even today, a complex and haunting enigma. Formally accused afterthe war of being a Soviet agent, White was called before a congressionalcommittee and vehemently denied the charges. He died of a heart attack dayslater. Several years ago, thanks to release of the Venona files --long-classifiedU.S. intercepts of wartime Soviet cable traffic -- the charges against Whiteresurfaced, and there has been a grim back-and-forth battle ever since overWhite's guilt or innocence.
All this is no doubt relevant, but Skidelsky doesn't explain precisely why. Itis hard to see what advantage Moscow might have gained from White's Bretton Woodsvictory over Keynes -- especially because the Soviets, after attending BrettonWoods, refused to become a signatory to "the American Plan" that White devised.Skidelsky is convinced that the Russian-Jewish White (né Weit) was somehowdevoted to aligning the interests of the Soviets and the Americans against theBritish and their empire. What he misses is that the whole wartime issue ofsenior New Dealers sharing information with Communists and theirsympathizers -- and in some cases directly with Soviet representatives whom theymay or may not have known were intelligence officers -- is still fraught withmorecomplexity and nuance than most of us who grew up during the Cold War canimagine.
FDR himself, to give one amazing example, sent "Wild Bill" Donovan, his Officeof Strategic Services (the OSS was the CIA's wartime predecessor) chief to Moscowin 1944 to return a Soviet code book that had fallen into U.S. hands. Donovan'smission 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 wouldbe a world where greater trade and the freer exchange of ideas would guardagainst the conditions that led to World War II. This was, after all, ageneration haunted by the failures of the 1919 Versailles Peace Conference. Whathappened 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 prosperousworld, shorn of European rivalries and European domination, lay ahead if onlythis time America did not retreat from its new global obligations. As Rooseveltonce said, he had no intention of seeing America keep playing "the tail on theBritish kite."
But why does Skidelsky so often seem to miss ormisjudge thesubtle currents, and complex personalities and interests, on the American side atthis extraordinary moment when global economic rules were being profoundlyredefined? It may be because he is not only a British historian but aconservativeone. Though his title is missing from the book jacket, he is Lord Skidelsky ofTilton, a Conservative-appointed life peer and a deep admirer of MargaretThatcher's economic programs. For a time he even served as the ConservativeParty's official chief spokesman in the Lords on financial affairs; and he listsprivatization of education among the long list of "de-collectivization"strategies he favors. (Though to complicate easy pigeonholing, Skidelsky recentlybecame an English James Jeffords, angrily leaving the Conservative Party indisgust with its phobias about the European community.)
Skidelsky's later chapters in particular show how he would have usultimately understand Keynes: as a youthful, rebellious "outsider" from theBritish ruling classes who nonetheless embraced his mature membership in theestablishment; as a critic of inequality who nonetheless died worth $20 million(in today's dollars) and as an economist who subverted the assumptions ofneoclassical economics yet could, in private correspondence, fulsomely praiseFriedrich von Hayek, that paragon of libertarian conservatism. In Skidelsky'snarrative, Keynes was a prodigal son who came home to the British establishmentand whose promotion of "the Middle Way" is today reflected in neoconservative(andneoliberal) policy on both sides of the Atlantic.
Is that who Keynes really was? To many of us, Keynes and Keynesianismrepresent the apotheosis of modern liberalism in economics. This is a view sharedby Galbraith and Samuelson, as well as by Milton Friedman (and Hayek, too, in histime). But it is somehow not so apparent to Skidelsky, who thinks such a view isin need of correction. This matter of "correcting" our understanding of Keynes isnever without its consequences, or agendas. Once Richard Nixon, in 1971, declaredhimself a Keynesian, we should have foreseen the troubles ahead. Such troubleswere fully realized when Ronald Reagan began likening himself to FDR and Reagan'seconomists began claiming that their supply-side tax policies were simplyfollowing the Keynesian model of the 1964 Kennedy-Johnson tax cuts (when in factthey were all about, in David Stockman's inimitable phrase, "hogs feeding at thetrough"). 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 radicalKeynesians, and in recent years so-called neo-Keynesians and post-Keynesians havebeen added to the mix. In the United States, as early as World War II, the CEDrepresented a moderate, mainly Republican "business" Keynesianism. Its views werestrikingly different than those of Alvin Hansen, or John Kenneth Galbraith, orAbba Lerner. Under Eisenhower, this CED Keynesianism led to support for theminimally Keynesian "automatic stabilizer" approach to business cycles, a far cryfrom the fuller-blooded Keynesianism of the activist "fine tuners" in theKennedy-Johnson era. But it took Richard Nixon to do the most damage to theliberal 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, thegovernment-business-labor concordat that made both conservative and liberalKeynesianism possible, collapsed. Ever since, America and Britain have been insearch of new economic credos to follow, almost all of them decidedlyun-Keynesian, if not anti-Keynesian. Now that we've seen the failures ofmonetarism, of the rational expectations school, of supply-side economics, and ofold-fashioned GOP tax breaks for the rich, one might have thought that revisitingKeynes's teachings would be high on the agenda, at least of liberals. But ithasn't been.
Were Keynes today to pay an unexpected visit to review the economic policiesof Bill Clinton or Tony Blair, he would be hard-pressed to see anything Keynesianin their essences. (And he would need no substantial review before dismissing thepolicies of Thatcher, Reagan, or the Bushes.) He would see parsimonious cautionin our era's neoliberal policies, not the authentic liberalism, the generousvision, and the bold practice with which Keynes sought to design economic theoryand shape policy.
Keynes's goal today wouldn't be to oversee the end of "big government" or tomake government the handmaiden of markets. He wanted to see governments overseeand influence markets to free all of us, around the world, from as much toil aspossible. Men and women were not meant to be put on a lifelong treadmill of workfor the sake of aggregate economic growth and ever greater productivity. Heenvisioned a world in which people could cultivate themselves through increasedleisure, greater access to the arts, and everything concerned with the spirit.Economists, in such a world, would not exactly wither away, he said, but wouldbecome "like dentists," serving a useful but hardly central function in a goodsociety.
In this, Keynes was as Rooseveltian as Roosevelt -- perhaps even more so. He hadbeen no less appalled by the failures of Versailles, and he loathed thetight-fisted, anti-democratic and anti-egalitarian conservatism of economictheoryand policy in the years after World War I. The purpose behind The GeneralTheory 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 isworthlooking up Keynes's lengthy reply to a letter from the archbishop of York duringWorld War II. Here Keynes affirmed the central role of liberal ethics ineconomics -- and urged the progressive archbishop to speak out forcefully onissuesof economic and social justice. This was, after all, an economist who, on adifferent occasion, had said modern capitalism was "absolutely irreligious, andwithout internal union, without much public spirit, often, though not always, amere 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 -- asdistinguished from the love of money as a means to the enjoymentsand realities of life -- will be recognized for what it is, a somewhat disgustingmorbidity, one of those semi-criminal, semi-pathological propensities which onehands over with a shudder to the specialists in mental disease." Keynes was justas unambiguous about the role we could expect of conservatives in helping reachsuch a world: "Conservatism leads nowhere; it satisfies no ideal; it conforms tono intellectual standard; it is not even safe, or calculated to preserve fromspoilers that degree of civilisation which we have already attained."
Moreover, he left no doubt about how their resistance to liberal reforms oughtto be addressed. "There is no reason," he wrote, "why we should not feelourselves free to be bold, to be open, to experiment, to take action, to try thepossibility of things. And over against us, standing in the path, there isnothing but a few old gentlemen tightly buttoned up in their frock coats, whoonly need to be treated with a little friendly disrespect and bowled over likeninepins."
Skidelsky, exhaustively attentive to detail in other matters, omits mention ofKeynes's correspondence with the archbishop. One wonders what the author mighthave 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 toour understanding of Keynes's life and thought, has failed us. Despite hisrevisionism (and the warmth with which it's been received in some circles), noamount of effort can do the impossible: turn the silk purse that was John MaynardKeynes, the genius of modern economics, into a conservative sow's ear.
