A Reviewers Notebook – For Want of Something Better

Robert Lekachman’s The Age of Keynes (Random House, $6) is aptly titled. As Professor Milton Friedman puts it, “We are all Keynesians now.” At least we all have had to make adaptation to the realities of Keynesian political manipulation. But, since John Maynard Keynes said so many things at so many different times in his life (he ended by expressing his worries about the future of individualism to Professor Hay­ek), professions of loyalty to the Master don’t really get us very far. Marx said in his old age that he was not a Marxist, and Keynes, if he had lived, might have fol­lowed suit.

Keynesianism, as Professor Le­kachman demonstrates, began as a special response to the economic condition of Britain in the nine­teen twenties and thirties. Those were the days of stagnation and the dole. As Keynes said, Winston Churchill, who held the uncon­genial post of Chancellor of the Exchequer in the mid-twenties, had committed himself “to force down money wages and all money values, without any idea of how it was to be done.” The attempt to return to the gold standard at a dollar valuation of the pound which made British costs and prices too high for competition in world markets was highly unreal­istic. For better or worse, the strength of union organization in the twentieth century is such that no democratic government dares make the attempt to restore profit­ability by forcing money wages down. Thus, an inflationary bias is built into the system of twen­tieth century capitalism. Realist that he was, Keynes recognized the power of the labor unions. His proposals for “government invest­ment” were pitched to building up “aggregate demand” to the point where capitalists could make money and still pay union wages to a lot more people. For want of something better, he offered a spe­cial formula for getting off a sticky wicket.

It is easy to understand how Keynesianism got its hold on the world in the nineteen thirties. The trouble is that it created a new breed of economists, of whom Professor Lekachman is at least tentatively one, that sees the whole future history of the human race as a continuation of the special situation that existed between the two world wars. This breed con­tinues to think of government “investment” of one sort or anoth­er as the only sure guarantee of enough “aggregate demand” to keep the enterprise system going without falling prey to the social­ists.

The “massive spending” theory seems to have been justified by what happened in World War II, when government purchases of war material put all our factories to work and wiped out the unem­ployment which had defied the most earnest cogitations of Frank­lin Roosevelt’s brain trusters. But it did this by breaking the dollar in two. At the same time it de­stroyed the currencies and the economic plant of two big con­tinents. When the war was over, a new “special situation” existed. As Will Clayton said, the “world was naked.” It had to do business with and in U.S. fifty-cent dollars. And reconstruction had to be carried forward. Psychologically, the age of stagnation had come to an end.

What picked things up to create such phenomena as the “German miracle,” the Japanese revival, and the long U.S. booms? If the play on words may be pardoned, we don’t find the key in Keynes, who was hipped on the monetary as­pects of economics. Schumpeter, who kept his eye on technological change, is a better guide to post-World War II history.

Pushers vs. Pullers

Economists seem to fall into two loose categories. There are the “pull” theoreticians who think that “aggregate demand” is a function of the money and credit supply. And there are the “push” theoreticians, beginning with the Say of Say’s Law of Markets, who think that the creation of goods and services makes for an exchange situation that automat­ically builds up “aggregate de­mand.” Whether one is a “pull” theoretician or a “push” advocate may very well be a matter of glan­dular endowment. The “pull” phi­losophy proceeds from a pessimis­tic view of the possibilities in­herent in human ingenuity and human energy. The “push” view is inseparable from an optimistic trust in what inventive men are capable of doing.

During the thirties, I spent the first half of the decade reading books about the plight of the world. Though I am congenitally an optimist, I forced myself into the negative mold that was then all the rage in the intellectual circles that fed the New Deal. During the second half of the decade I worked for Fortune Magazine, do­ing corporation stories. The latter experience was worth far more than the earlier dalliance among the pessimists.

For what was happening in the thirties at the laboratory and factory level was proof to a neo­phyte’s wondering eyes that the tides of economics move in response to the tinkerer, the laboratory man, the inventor, the ingenious rearranger, even more than they move in response to the fiscal and monetary priests. Economists should spend more time visiting factories! In the decade of the thirties the seeds were planted that led, after 1945, to the daz­zling efflorescence of the syn­thetics market. The Du Pont company owed far more to professors of chemistry than to professors of economics.

The Keynesians, trying to raise aggregate farm income by acreage restrictions, thought they had the agricultural situation well in hand. But the new fertilizers and in­secticides and genetic discoveries, coming out of the laboratories of the thirties, made a mock of re­strictionism, and the modern farm revolution, which forced many an inefficient producer off the land, happened anyway. The jet plane came with the war, and is only now coming into its own com­mercially, to the point where it yields higher wages to machinists who have succeeded in flouting Keynesian wage-price guideposts. The TV market, held back by gov­ernmental busybodies in the thir­ties, finally got off dead center. And the whole world of electron­ics, pushed along by the war-born need for such things as radar, boomed along with TV.

So, is it Keynesian wisdom that has kept us going since 1945, or is it the older wisdom that puts its trust in the constant emergence of so-called “ladder industries”? The “pull” theoretician will take Professor Lekachman’s word for it that Keynesian government servants have kept us prosperous. The “push” advocate will look back to older economists such as the forgotten Garet Garrett, or to Pro­fessor Schumpeter, or to the Aus­trians who think that if the money tinkerers desist, the inventors will have a better chance of getting their innovations to the buying public.

A Way with Words

Having posed my glandular bias against that of Professor Lekach­man, it remains to be said that The Age of Keynes is a delightfully written book. Keynes him­self was a literary man of high ability, and his way with words has rubbed off on many of his mod­ern disciples. Indeed, the influence of the neo-Keynesians may be due more to their gift for phrases than their economic logic.

Professor Lekachman’s history is mainly correct as to the facts he uses to support his theory. But there are some telling omissions. It is at least slightly unhistorical to give Professor Alvin Hansen the credit — or the obloquy — for evolving the theory of permanent American secular stagnation; Rex­ford Tugwell came before him, and, what is most important, it was Tugwell who sold the idea of the overbuilt economy to President Roosevelt. Again, it is a little strange to find Keynesians in general, and Professor Walter Heller in particular, reaping all the high praise for the 1965 income tax cut. Conservatives have been shouting for lo, these many years that high taxes are a drag on pro­ductivity. When Keynesians re­turn to common sense, it should be treated as a conversion, not a daz­zling discovery.