Wednesday, March 08, 2006


Lord John Maynard Keynes

70 years ago this year, John Maynard Keynes published his General Theory of Employment, Interest, and Money--(for better or worse) one of the most influential books in economic intellectual history.

A lot of ink has been spilt trying to explain exactly what Keynes was saying in this book. In the Americas, the most influential interpretation has been the one offered by John Hicks. More recently, Paul Krugman written his own very brief summation of the General Theory.

Personally, I have wanted to post about Keynes since Chris invited me to this blog. Even in undergrad I looked up to him as an individual because of the full life he led, and after reading the General Theory last summer (with great help from Hansen's Guide to Keynes) I feel like I have a better appreciation for his contributions to economics. Granted he got a lot of the details wrong (just one example, he seems to have thought interest rates are determined exclusively in the money market), but don't most pioneering economists? Look at Adam Smith and the Labor Theory of Value for an illustration. I'm not an economist so I wont try to gauge Keynes' intellectual impact myself. I will only recommend Krugman's assessment and say that I enjoy his characterization of Keynes as a "savior" of Capitalism.

What do you guys think about Keynes? Any opinions?

I would also recomend checking out Robert Skidelsky(whom Krugman seems to be a cribbing a bit) 3 volume biography of Keynes. I havn't finished them all, but the first volume is wonderful and so are the chunks I've read of the second. Here is a very short bio in the mean time.

Here is an essay by Skidelsky on Keynes and the Ethics of Capitalism.

** Warning **

While I like and admire Keynes, I am not endorsing everything he said. So if your post starts with "but how can you agree with him when he says...", chances are I don't. So don't waste the key strokes. ;)
Many of the things that I have heard about Keynes lead me to believe that he was a very well intentioned and intelligent gentleman. My first introduction with Keynes came while reading The Worldy Philosopher. I enjoyed learning about him and I think he is a fairly interesting subject of modern history and economics.

What I meant above about "well intentioned" was his submission to the disease of his own ego that so many economists ail from. He was opposed to socialism -- which he quite aptly understood, but (due to his own ailments) many of the contributions led to further governmental involvement into the economy. I think he can be faulted (as many others should) for furthering economic regulation in England and American. [Obviously the free marketers aren't the biggest of fans.]

He was nearly a superstar in his day and he should be remembered for his many contributions.
"apart from the necessity of central controls to bring about an adjustment between the propensity to consume and the inducement to invest, there is no more reason to socialize economic life than there was before."

Do you agree with this statement, Dallas? It was supposed to show how Keynes was generally a supporter of the free market, but I think it shows how much of a "central controller" he really was.

I'm not even sure what controls he means here.
To answer your second question first, here is a list of Keynes controls from earlier in the same chapter in the GT.

"For whilst it indicates the vital importance of establishing certain central controls in matters which are now left in the main to individual initiative, there are wide fields of activity which are unaffected. The State will have to exercise a guiding influence on the propensity to consume partly through its scheme of taxation, partly by fixing the rate of interest, and partly, perhaps, in other ways."

These follow from Keynes judgement that interest rates do not co-ordinate decisions between borrowers and savers like "classicals" believed. But he did not dogmatize these policy perscriptions. My impression is that his main goal was demand management (a goal apparently shared by today Federal Reserve).

Whether this makes him a "central planner" or not is a matter of definition. I can say that he apparently believed the free market was marvelous for creating wealth and promoting individual liberties, and he saw his policies as an attempt to save this prosperous system. I'll let Keynes speak for himself here.

"Let us stop for a moment to remind ourselves what these advantages are. They are partly advantages of efficiency — the advantages of decentralisation and of the play of self-interest. The advantage to efficiency of the decentralisation of decisions and of individual responsibility is even greater, perhaps, than the nineteenth century supposed; and the reaction against the appeal to self-interest may have gone too far. But, above all, individualism, if it can be purged of its defects and its abuses, is the best safeguard of personal liberty in the sense that, compared with any other system, it greatly widens the field for the exercise of personal choice. It is also the best safeguard of the variety of life, which emerges precisely from this extended field of personal choice, and the loss of which is the greatest of all the losses of the homogeneous or totalitarian state. For this variety preserves the traditions which embody the most secure and successful choices of former generations; it colours the present with the diversification of its fancy; and, being the handmaid of experiment as well as of tradition and of fancy, it is the most powerful instrument to better the future.

Whilst, therefore, the enlargement of the functions of government, involved in the task of adjusting to one another the propensity to consume and the inducement to invest, would seem to a nineteenth-century publicist or to a contemporary American financier to be a terrific encroachment on individualism. I defend it, on the contrary, both as the only practicable means of avoiding the destruction of existing economic forms in their entirety and as the condition of the successful functioning of individual initiative."

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