By William T Alpert and Sol W Sanders
Few would dispute the claim that John Maynard Milord Keynes was a genius.
He was one of a long line of British writers on the political economy, who revolutionized the sport. He was brilliant if sometimes torturous in seeking to explain the riddle of human economic life. Like his British [mainly Scots] forbears, and like their offspring on the Continent who continued the tradition after it had died in Britain, he was a savant of political, repeat, political economy. For they understood as successive generations of practitioners of “the dismal science” often have not, that it is not a science. They also knew that those who use statistics and, may the Lord help us, the new digital revolution, to build their “constructs”, not only to examine but to predict human behavior, will usually fail. Keynes, certainly, understood the “political” part of political economy well before James Buchanan received his Nobel Prize in public choice theory for its “discovery.”
Torturous? Well, at least more than a bit Machiavellian. He rather quickly left his Cambridge colleagues behind, including a homosexual lifestyle, when he ventured into the world. He had minimum truck with the leaders of the chattering classes of his time, the inbred Bloomsbury Set, and even less with the Fabian Society. The latter, of course, thought they had found the ultimate formula for a several hundred years search in utopian, Christian, anarcho, syndicalist, Marxian and other European socialisms. But unhappily, they were completely derailed by the Soviet heresy. For example, H.G. Wells would write a pamphlet not only endorsing but calling Stalin “beloved” on the eve of the Moscow Trials.
Torturous, too, if you are a layman and have tried to struggle through his General Theory of Employment, Interest and Money, generally acknowledged as his magnum opus or through an incredible array of writing — some of it surprisingly good. See for example his The Economic Consequences of the Peace, in which he predicts the disastrous outcome of the Treaty of Versailles.
Machiavellian? Keynes not only put his stamp on the academic world and excelled in the vicious infighting of government bureaucracy but he made a fortune gambling in commodities. A fund he set up for his Cambridge alma mater despite taking a massive hit during the Stock Market Crash of 1929, produced an average increase of 13.2% compared with the general market in the United Kingdom declining by an average 0.5% per annum until 1945.
His contempt for many if not most of his bureaucratic contemporaries was monumental. After the Bretton Woods agreements were signed, the attempt to reset the world’s economies after World War II over which he presided, he snidely told one of his gophers: “The clerks have got it wrong again. The Bank [International Bank for Reconstruction and Development, latterly to be called The World Bank] should have been called ‘fund’, and the Fund [International Monetary Fund] should have been called ‘bank’.”
In his own way, Keynes could be called the father of Europe’s post-World War II miraculous reconstruction. This time his proposal that modest reparations should be sought, that all the powers should unite in rebuilding and with American credits under the Marshall Plan was accepted. They had been rejected when as a young rising star in the British Treasury he had proposed them as early as 1915 and at the Versailles Conference. But Keynes, alas, was not by any means always right!
“The day is not far off”, he wrote, “when the economic problem will take the back seat where it belongs, and the arena of the heart and the head will be occupied or reoccupied, by our real problems/the problems of life and of human relations, of creation and behavior and religion.”
In 2010 we are still waiting.
His reputation, however, has become omnipresent – – spreading even to his self-acknowledged opponents. In 1999, Pres. Richard M. Nixon, having thrown his own primitive economic prejudices to the winds and instituted disastrous wage and price controls, said, “We are all Keynesians now”. But however politically wily domestically or brilliant at international strategy, it’s unlikely that Nixon knew much about what Keynes had in fact argued.
Things haven’t changed. A Greek chorus of the kind of economists who believe econometric models can predict social and political events is once again invoking the Old Boy’s name to bless profligacy.
It is true that Keynes was an interventionist, that he believed government had a role and should employ it, to curb and limit the business cycles which have dominated modern economic life since The Industrial Revolution began with the advent of capitalism — and perhaps before. But Keynes set strict limits on how governments might borrow and toss capital into the machinery to get it up and going again.
Keynes did believe in something he called “socialized investment”, that is public funds/borrowing that had to be made for the general good beyond the normal functioning of the capitalist system. And, if not lick the business cycle, to at least ameliorate it.
He wanted to set up separate budgets — for current accounts and for longer term capital projects which might require government assistance if not sponsorship. That’s something, by the way, that most corporations do today but which the Congress, which so far hasn’t produced this year’s budget. has never undertaken for one of the largest commercial enterprises in the world, the U.S. government.
But he neither believed in general funding of an amorphous public debt through public borrowing and spending, nor of using the tax tables to work out solutions to social problems.
For a man who could twist the English language until it screamed for mercy, he actually made this point very clearly:
The more socialised we become, the more important it is to associate as closely as possible the cost of particular services with the sources out of which they are provided even when a grant-in-aid is also required from general taxes. This is the only way by which to preserve sound accounting, to measure efficiency, to maintain economy and to keep the public properly aware of what things cost. [CW, vol. XXVII,p p. 224-225] As early as 1931 [although it was hardly early for the British who already had endured a painful decade of restoration of the pound to its pre-war status,], Keynes, in a radio address, said:
“[At] the present time, all Governments have large deficits. For government, borrowing of one kind or another is nature’s remedy… for preventing business loses from being, in so severe a slump as the present one, so great as to bring production altogether to a standstill. It is much better in every way that the borrowing should be for the purpose of financing capital works, if these works are of any use at all than for the purpose of paying doles [or veterans’ bonuses]. But, so long as the slump lasts on the present scale, this is the only effective choice for the one purpose or the other [or a diminished Sinking Fund, which has the same effect] is practically inevitable For this is the case, fortunately perhaps, where the weakness of human nature will, we can be sure, come to the rescue of human wrong-headedness.”
“… My own policy for the Budget, so long as the slump lasts, would be to suspend the Sinking Fund, to continue to borrow for the Unemployment-Fund, and to impose a Revenue Tariff. [Author’s note: Few recognize that his The General Theory was written with the assumption of an economy closed to foreign trade – – unlike our own today, but that is the subject for another time.] To get us out of the slump we must look to quite other expedients. When the slump is over, when the demands of private enterprise for new capital have recovered to normal and employment is good and the yield of taxation is increasing, then is the time to restore the Sinking fund and to look critically at the less productive state enterprises.” [Essays in Persuasion, Norton 1963, pp. 161 and 162]
Perhaps even more to the point:
“I should aim at having a surplus on the ordinary Budget, . . . thus gradually replacing dead-weight debt by productive or semi-productive debt. . . . I should not aim at attempting to compensate cyclical fluctuations by means of the ordinary Budget.” The collected writings of John Maynard Keynes, 1971 by Macmillan, St. Martin’s Press, for the Royal Economic Society in [London], [New York] vol. 27 pp 277 – 278.
Maybe Keynes wouldn’t have been a Tea Party-er. But there is little doubt that his mind and heart would not have been with the Dodd-Frank-Geithner spend-until-we- recover crowd who have taken his name in vain. Pres. Barack Hussein Obama’s stalwarts may think they know what they are doing, throwing “stimulus” about – – mostly in the form of supporting and expanding government through national and regional public sector employment. But their claim that it is all following the philosophy of one of the last of the great political economists [rather than today’s econometricians pretending they are] is false.
His ghost must be screaming about the downs at Tilton in Sussex where his ashes were scattered in 1946.
William T. Alpert, Associate Professor of Economics University of Connecticut is co-founding managing partner of FIDES, Philanthropic Management and Advisory Services, LLC. Formally, Senior Program Officer of the William H. Donner Foundation, he publishes in labor economics. He is Executive Director of the Connecticut Council on Economic Education and Director of the Center for Economic Education at the University. He serves on several not-for-profit boards of directors. Alpert previously taught at Lehigh University (1981-83), Washington University, St. Louis, (1977-81), and Columbia University (1973-77). Alpert earned his Ph.D. M. Phil. and MA degrees (Economics) Columbia University and AB from Lehigh University.
Sol W. Sanders A 60+-year career in writing and political analysis for a wide variety of media and corporate entities, currently columnist THE WASHINGTON TIMES [“Follow the money $£ € ¥ “], website http://www.yeoldecrabb.wordpress.com Author: A SENSE OF ASIA, HONDA: THE MAN AND HIS MACHINES, MEXICO: CHAOS ON OUR DOORSTEP, THE COSTA RICAN LABORATORY, LIVING OFF THE WEST: GORBACHEV’S SECRET AGENDA AND WHY IT WILL FAIL, A MEDIA GUIDE TO THE CANADIAN CRISIS, THE U.S. ROLE IN THE ASIAN CENTURY, [Ed.], TV documentary “The Silent Invasion” (illegal immigration), MITSUBISHI ELECTRIC: THE CHALLENGE OF GLOBALIZATION,executive editor, GLOBAL AFFAIRS, over the decades op‑ed articles in THE WALL ST. JOURNAL, THE CHRISTIAN SCIENCE MONITOR, THE STRATEGIC REVIEW, ASIAN AFFAIRS, THE NEW LEADER, CONFLICT, SURVEY.
Institutional Risk Analyst
April 20, 2011