It was Keynes' enduring view that a basic tendency of the modern economy was not necessarily to the employment of all available and willing workers; it could be to an equilibrium of low performance, of unemployment. And it was his companion case that this equilibrium could only be broken and relatively full employment assured by government fiscal intervention--by the government spending money in excess of its revenues to put people to work. This, with the further multiplier effect, would enhance the flow of aggregate demand and thus increase production and employment. A more than incidental consequence would be that the country would get the fruits of this employment--the housing, highways, bridges, airports, post offices, schools, hospitals, parks, conserved forest lands, whatever came from men and women working rather than subsisting on the barren reward from unemployment compensation and relief payments--in Keynes' world, the dole.
No one should suppose that these ideas are either dated or confined in any way to one part of the ideological spectrum. It is only that they may be applied without being admitted, even identified. During the late 1980s, Ronald Reagan established himself as the most committed Keynesian of modern times. Following the sharp recession of his first months in office, he presided over a major expenditure and employment program, which led to unprecedented peacetime government borrowing and a deficit that ranged up to billion in fiscal year 1986. That the principal object of expenditure was armaments--the defense buildup--does not alter the underlying economic fact. In the absence of this massive stimulus, the economic performance during his presidency would have been very different, and sadly so. Stagnation, and an unforgiving level of unemployment, would have been near-certainties. Mr. Reagan should keep a copy of Keynes' General Theory of Employment Interest and Money by his bedside and finger it affectionately each night before dozing off into yet deeper sleep.
After the collapse of the speculative boom of the 1980s--the banking and S&L disaster, the end of the mergers-and-acquisitions and leveraged-buyout mania--and with the defense buildup tapering off, the economy settled into a new underemployment equilibrium, one that more than anything else brought an end to Mr. Bush and his administration. It was to this that Mr. Clinton's very modest and politically ill-fated stimulus package was addressed. In Keynes' time and still today, no idea was or is more resisted in the more primitive canons of orthodox finance than the notion of a normal underperformance by the economy. Balance the budget and all is well. Nothing could be more visibly in error.
The influence of John Maynard Keynes went far beyond the matter of modern macroeconomic policy with which his name is most intimately identified. As a very young man during World War I, he had a responsible role in handling Britain's overseas financial needs and resources. Afterward he was a junior member of the British delegation to Versailles and attracted worldwide attention by resigning and writing a decisively influential book, The Economic Consequences of the Peace, this on the insanity of the proceedings and the resulting reparations claims.
In the 1920s and 1930s, Keynes wrote and spoke prodigiously on British (and world) economic policy, and with historic force on the decision of the British Treasury, the City of London financial establishment, and their captive Chancellor of the Exchequer, Winston Churchill, to return to the gold standard at the old pre-war parity with the now much stronger dollar. The result was to force an extreme deflation on British export industries, most notably coal, leading on to the General Strike. These disasters Keynes had predicted in nearly explicit terms; few economists have ever been so dramatically right. He went on to publish The General Theory above mentioned, to have a major role in wartime economic policy in both London and Washington, and then to be a dominant influence in the creation of the World Bank and the International Monetary Fund. And as I will suggest in a moment, there was much, much more. A good part of his influence proceeded from his incredible energy; there was no economic problem in the United Kingdom and not many in the Western world on which, between 1918 and 1946, he did not speak, lecture, and write.
Robert Skidelsky is a British university don and a member of the House of Lords, where he sits on the Conservative benches; he has devoted all his recent years to writing the life of John Maynard Keynes. The first volume carried Keynes through his student days, his wartime years and Versailles, to 1920. This volume, which will be the most important of the three Skidelsky plans, covers the years from 1920 through 1936, the period of Keynes' greatest productivity and influence. The third is yet to come, on the years of the Keynesian revolution and on to World War II. Much of that will concern the United States.
It was in the United States that Keynes found some of his most devoted and influential followers, a matter to which he was by no means indifferent. A personal note: In 1937, I went to Cambridge University to spend a year in the Keynesian circle. I did not see him, for it was at that time that he suffered the first of the heart attacks from which, in 1946, he was to die. Subsequently, in wartime Washington, I did come to know him. I was by then, effectively, the wartime price czar; Keynes met, on occasion, with his young disciples. From him I had firm word on some of my price control errors.
Skidelsky is a clear and competent writer, fully qualified as an economist and strongly sympathetic to his subject which, as here made evident, even a British Tory can be at this point in time. He writes with equal attention of Keynes' public and private life and in particular of his ability, unequalled in his time or perhaps any time, to live several lives at once. This last was impressive; the reader coming to this book and freshly to Keynes' life will be all but astounded.
Thus Keynes combined an extremely public and political life with a deeply private existence. No major matter of economic policy escaped his interest, his concern, or his effort at persuasion. At the same time he was strongly protective of his circle of friends and of his own enjoyments. He was devoted to his duties to colleagues, students, and College and University business as a fellow of Kings College at Cambridge. There he spent part of the week. For the rest of the time he was with his literary, artistic, bohemian, and sometimes socially perverse friends in Bloomsbury. Though a serious academic concerned with some of the deeper intricacies of economic theory he also spent a great deal of time making and, on a couple of occasions, losing a lot of money. He combined massive popular writing with intensely intricate theory. His sex life went from intense homosexual affairs to a long and loving marriage to Lydia Lopokova, the noted ballet star over whose career he presided with devout attention. A British newspaper celebrated their wedding: "Was there ever such a union of beauty and brains as when the lovely Lopokova married John Maynard Keynes?"
Keynes' marriage was helped by a long interest in and association with the arts; he undertook to have a theatre built for the performing arts in Cambridge. He is, in other words, a model for all economists who are tempted to specialize for a lifetime on the more esoteric aspects of perfect market behavior or the deeper subtleties of rational expectations doctrine. Keynes did not specialize. Of this Skidelsky leaves no one in doubt.
But the author is also excellent on Keynes' dominant contribution. This, as noted, is his view of economic performance and nonperformance and the appropriate public policy. It is to this that the author comes definitively in the last chapters of this book. He tells, in effect, how modern macroeconomics was born.
Here is the grim possibility of our own time. Have we, as happened more deeply in the 1930s, settled into another underemployment equilibrium? Is it now the case, as then, that orthodox finance and its obtrusive voice on budget-balancing is a formula for continuing stagnation? Are the weekly forecasts of improvement, now as then, tedious expressions of hope? Is it possible--a particularly depressing but now inescapable thought--that influential individuals and interests prefer confortable stagnation to vigorous growth and certainly prefer it to corrective fiscal action?
These are questions which anyone reading Skidelsky will be led to ask, or so I hope. He or she will not, I should warn, find the reading entirely easy. The author has not only an eye for detail but a nearly insatiable appetite. Much in this book I liked; for example, the letters of Lydia to her husband in elegantly contrived English are enchanting; likewise his journeys to the United States, one of which included a visit to FDR. But sometimes one gets a little lost. Skidelsky is especially unsparing on the evolution of Keynes' economic thought, going back to articles, letters, conversations, and even to notes taken by students as Keynes expressed his developing views in his Cambridge lectures. There have been biographies of Keynes before; there will never be another quite so exhaustive and, on occasion, quite so exhausting as this. The reader can, in good conscience, pass over some of the personal and theoretical minutiae; there should be no sense of guilt in doing so.
What must not be passed over, however, is the thought that on balanced budgets and conservative finance, history may be repeating itself; that the voices of orthodox finance, both insistent and supremely confident in error, may again be prescribing unemployment and deprivation for the many so conveniently distant and unknown. This forms the solid center of this highly relevant treatise.
