Keynes Returns

Keynes is all the rage these days. Our House of Commons and Lords–sorry, House of Representatives and Senate–are brimming with Keynesians, and more than one news commentator has boldly declared (as we’ve heard before), “We’re all Keynesians now.” (An exception is Newsweek, whose cover blares, “We Are All Socialists Now,” but the difference, when you come down to it, is trifling.)

In light of the resurrection of the at least twice-interred Keynes (1946 and some time in the 1970s, the long run and the longer run), I decided to revisit some of the gentleman’s writings. It occurred to me that before people started tattooing Keynes’s name on their forearms, they might like to become better familiar with what he actually believed. I realize that many who profess Keynesian views on the economy may not feel obliged to embrace his political or social views. But the categories may not be as distinct as they think. Keynes, at least, didn’t seem to think so. Let us recall that in 1936 he introduced the German edition of The General Theory of Employment, Interest, and Money by noting that “[T]he theory of output as a whole, which is what the following book purports to provide, is much more easily adapted to the conditions of a totalitarian state [emphasis added], than is the theory of the production and distribution of a given output produced under conditions of free competition and a large measure of laissez-faire.” My translation: your system and mine are made for each other.

For the purposes of today’s symposium, I chose Keynes’s 1926 essay, “The End of Laissez-Faire,” which was based on lectures he had given around that time. I’ll skip his synopsis of the intellectual history of individualism and cut to the chase.

One of the revealing passages of the essay is where Keynes explains why he rejects “State Socialism.”  But first he enumerates those features which he does not find  objectionable: “I criticise doctrinaire State Socialism, not because it seeks to engage men’s altruistic impulses in the service of society, or because it departs from laissez-faire, or because it takes away from man’s natural liberty to make a million, or because it has courage for bold experiments. All these things I applaud. [Emphasis added.] I criticise it because it misses the significance of what is actually happening; because it is, in fact, little better than a  dusty survival of a plan to meet the problems of fifty years ago, based on a misunderstanding of what someone said a hundred years ago.”

In other words, the problem with State Socialism is only that it’s out of date and confused. Other than that, it has much to recommend it. It engages our altruistic impulses, and it isn’t hung up on the freedom to make lots of money. Best of all, it isn’t afraid to experiment. To fully appreciate Keynes’s sentiment, take a moment and remind yourself what was going on around this time in the Bold Socialist Experiment taking place to the east.

Keynes prefers the “semi-socialism” of “semi-autonomous corporations.” (We might call this fascism.) He writes, “It is true that many big undertakings, particularly public utility enterprises and other business requiring a large fixed capital, still need to be semi-socialised. But we must keep our minds flexible regarding the forms of this semi-socialism. We must take full advantage of the natural tendencies of the day….” Like his fellow Progressives, he had nothing against giant monopoly firms; quite the contrary — as long as they are directed at the public interest and not private profit. What he disliked was decentralization and money making.

“I suggest, therefore, that progress lies in the growth and the recognition of semi-autonomous bodies within the State-bodies whose criterion of action within their own field is solely the public good as they understand it, and from whose deliberations motives of private advantage are excluded, though some place it may still be necessary to leave, until the ambit of men’s altruism grows wider, to the separate advantage of particular groups, classes, or faculties — bodies which in the ordinary course of affairs are mainly autonomous within their prescribed limitations, but are subject in the last resort to the sovereignty of the democracy expressed through Parliament.

“I propose a return, it may be said, towards medieval conceptions of separate autonomies.” Now that sounds progressive.

 

Deliberate Control

 

Keynes proposes to cure the great economic evils that are “the fruits of risk, uncertainty, and ignorance.” These are what create disparities in wealth and unemployment. “I believe that the cure for these things,” he writes, “is partly to be sought in the deliberate control of the currency and of credit by a central institution, and partly in the collection and dissemination on a great scale of data relating to the business situation, including the full publicity, by law if necessary, of all business facts which it is useful to know. These measures would involve society in exercising directive intelligence through some appropriate organ of action over many of the inner intricacies of private business, yet it would leave private initiative and enterprise unhindered.”

Keynes was a master euphemist. For him, government, which at its foundation is nothing but legalized aggressive force, is simply “society . . . exercising directive intelligence through some appropriate organ of action.” This organ will centrally control money and credit, determining who does and doesn’t have access to capital. (He endorses this idea again ten years later in The General Theory.) Yet initiative and enterprise will be “unhindered.” Keynes was a magician as well.

Keynes elaborates: “I believe that some coordinated act of intelligent judgement is required as to the scale on which it is desirable that the community as a whole should save, the scale on which these savings should go abroad in the form of foreign investments, and whether the present organisation of the investment market distributes savings along the most nationally productive channels. I do not think that these matters should be left entirely to the chances of private judgement and private profits, as they are at present.”

We are to presume that leaving these matters to politicians and bureaucrats entails no chance. Unlike the money-motivated, they are not moved by “animal spirits.” Can you imagine a man being taken seriously after proposing that the government — “some coordinated act of intelligent judgement” — dictate how much the population should save? (Bear in mind that Keynes thought saving was antisocial.)

 

The Scary Part

 

As he nears the end of his essay, Keynes gets downright scary in thinking of things for the state to do that “at present are not done at all.” I shall simply quote him:

“The time has already come when each country needs a considered national policy about what size of population, whether larger or smaller than at present or the same, is most expedient. And having settled this policy, we must take steps to carry it into operation. The time may arrive a little later when the community as a whole must pay attention to the innate quality as well as to the mere numbers of its future members.”

Well, no surprise here. If we can intelligently design an economy, why not the human race itself? The eugenics movement once teemed with Progressives, although after the program’s gory bold experiment in totalitarian Germany, some biographies were airbrushed to obscure that fact.

Keynes could speak like a politician whose last intention was to frighten anyone. He winds up by saying that “These reflections have been directed towards possible improvements in the technique of modern capitalism by the agency of collective action. There is nothing in them which is seriously incompatible with what seems to me to be the essential characteristic of capitalism, namely the dependence upon an intense appeal to the money-making and money-loving instincts of individuals as the main motive force of the economic machine.”

Remember that when he says “capitalism,” he does not mean the free market. He means the sort of state-regulated economy then in practice in both Britain and the United States, complete with central bank. The laissez-faire whose end he foresaw and favored was not an existing system but a philosophy. He laments that the Great War, with its “centralised social action on a great scale,” had not turned the old stalwarts into reformers despite its impressive record. “War socialism unquestionably achieved a production of wealth on a scale far greater than we ever knew in peace, for though the goods and services delivered were destined for immediate and fruitless extinction, none the less they were wealth [!].” He concedes, however, that the waste and obliviousness to cost were “disgusting.” Minor details.

For Keynes, capitalism is the system driven by the “money-motive of individuals.” There must be a better way, but most of us are too reactionary to see this.

“A preference for arranging our affairs in such a way as to appeal to the money-motive as little as possible, rather than as much as possible, need not be entirely a priori, but may be based on the comparison of experiences.. . . On the other hand, most men today . . . do not doubt the real advantages of wealth. Moreover, it seems obvious to them that one cannot do without the money-motive, and that, apart from certain admitted abuses, it does its job well. In the result the average man averts his attention from the problem, and has no clear idea what he really thinks and feels about the whole confounded matter.”

Not to worry. The Enlightened, such as Keynes, will show the way to a new world.

“Confusion of thought and feeling leads to confusion of speech. Many people, who are really objecting to capitalism as a way of life, argue as though they were objecting to it on the ground of its inefficiency in attaining its own objects. Contrariwise, devotees of capitalism are often unduly conservative, and reject reforms in its technique, which might really strengthen and preserve it, for fear that they may prove to be first steps away from capitalism itself. Nevertheless, a time may be coming when we shall get clearer than at present as to when we are talking about capitalism as an efficient or inefficient technique, and when we are talking about it as desirable or objectionable in itself. For my part I think that capitalism, wisely managed, can probably be made more efficient for attaining economic ends than any alternative system yet in sight, but that in itself it is in many ways extremely objectionable. Our problem is to work out a social organisation which shall be as efficient as possible without offending our notions of a satisfactory way of life.” (Emphasis added.)

He sought to assure us that with him and like-minded people at the helm, we were in good hands. His spiritual descendants do the same today. Who will protect us from our protectors?