The most famous words Keynes wrote – apart from the ones pointing out that in the long run we are all dead – were the concluding sentences of the General Theory:
the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas. Not, indeed, immediately, but after a certain interval; for in the field of economic and political philosophy there are not many who are influenced by new theories after they are twenty-five or thirty years of age, so that the ideas which civil servants and politicians and even agitators apply to current events are not likely to be the newest. But, soon or late, it is ideas, not vested interests, which are dangerous for good or evil.
Keynes’s thesis about the seminal influence of ideas not only appeared in the General Theory, it was exemplified by it, through the influence subsequently attributed to the book. Keynes had explicitly intended it to change the way the world thought about economic problems, and by the time of his death in 1946 he had apparently fulfilled his most extravagant hope (or hype). The next quarter-century became an era of Keynesian triumphalism. Academics thumbed through the General Theory as though citation of the appropriate text was sufficient authority to settle any argument. Policymakers promiscuously but confidently invoked Keynesian sanction. The common assumption was that error had given way to wisdom, or at least stupidity to cleverness – as it was bound to, sooner or later. An enlightened generation, scorning its deluded predecessors, blithely celebrated its own privileged access to the truth.
With hindsight this clearly signals hubris, since we know that there was to be more than one nasty surprise around the corner. The General Theory abruptly ceased to be compared with Newton’s Principia or Darwin’s Origin, those revolutionary texts generated by illustrious Cambridge predecessors. Instead, its scientific status came to seem comparable with that of an equally celebrated breakthrough originating among Keynes’s Sussex neighbours – Piltdown Man. Yet the reasons for these puzzling changes in intellectual fashion have to be understood in a context which is more than intellectual. It was the long post-war boom, with historically unprecedented levels of employment, which formed the pedestal on which the statue of its patron saint reposed. When the pedestal crumbled, the statue tumbled.
The General Theory’s claim about the importance of ideas surely masked – indeed, hardly bothered to mask – a further claim about the status of those who generate the right kind of ideas. If it was an old notion that the philosopher was best fitted to be king, the new twist was that the economist was now disclosed as the real boss. Here was a happy prospectus for Keynes’s own profession, and one borne out by post-war experience. The Keynesian injunction that government had a responsibility to create jobs took tangible shape in the jobs it proceeded to create for economists. The World, it soon seemed, was ruled by little else, or at any rate nobody else.
The self-serving function of Keynes’s proposition is obvious. But the constituency whose interest it served, or whose self-esteem it bolstered, was simultaneously narrower and broader than that of Keynesianism as such. Even disciples who were ready to lap up the substance of Keynes’s own economic doctrines were not always willing to swallow these imperial pretensions. Conversely, the claim that Keynes made on behalf of intellectuals had an appeal that extended to intellectuals who were not otherwise in sympathy with him. They too could take comfort from the hint that it was not only poets who were the unacknowledged legislators of the world. Moreover, the very lack of acknowledgment could be read as a perverse testimony to the intellectuals’ own superior powers of discernment. They were flattered by the paradox that it was the practical men who showed their naivety precisely by supposing themselves quite exempt from intellectual influences which only other intellectuals could recognise as enslaving them. Academic scribblers of all persuasions could share the ambition to make slaves of future generations of madmen in authority – perhaps, in due course, of mad women too.
Hence at the floodtide of Keynesian influence and prestige, with Keynes himself posthumously honoured as the architect of the post-war economic regime, his lifelong opponent, Professor F.A. Hayek, set out his own agenda for the Mont Pèlerin Society with a nicely ambivalent tribute, as double-edged as it was backhanded. ‘I do not find myself often agreeing with the late Lord Keynes,’ he prefaced a long quotation from the passage above; but Keynes had ‘never said a truer thing’. Here is the theme of Richard Cockett’s study, Thinking the Unthinkable, which has seized on a superb subject. Using archival and oral sources to supplement the published record, it traces the activities of a number of intellectual pressure groups, or think-tanks, in proselytising for economic liberalism and thus preparing the ground for the rejection of the Keynesian consensus in the Thatcher era. Here is the story of how the Mont Pèlerin Society kept the Hayekian flame live; how the Institute of Economic Affairs – with a framed copy of the final paragraph of the General Theory hung as its motto in the front office – persisted in setting out the stall for free-market remedies; and how the Centre for Policy Studies, egged on by accomplices like the Adam Smith Institute, ultimately succeeded in hi-jacking the Conservative Party. It is a case-study in the way that ideas are dangerous, for good or evil.
Hayek was Austrian by birth but had held a chair at the London School of Economics since 1931 and had become naturalised as a British subject. His image of Britain was as the island fortress of liberty, but one ill-garrisoned by Anglo-Saxon liberals, who, with a 20th-century weakness for social democracy, had themselves become the enemy within. If Hayek identified himself as a liberal, it was with reference to a tradition of Gladstonian rigour in its suspicion of all forms of state action. He was predestined to remain unpersuaded by Keynes’s arguments for intervention to alleviate unemployment, but only in the Forties did Hayek emerge from academic obscurity. It was his tract, the Road to Serfdom, published in 1944, which gave him a high profile internationally as a critic of collectivism, the welfare state and economic planning. It even became a Reader’s Digest condensed book. Hayek thus had excellent credentials for organising a meeting in Switzerland in 1947, drawing like-minded academics and publicists from Europe and the USA. Philosophers were heavily outnumbered by economists, among whom Milton Friedman, on his first trip to Europe, looked distinctly under-age.
Hayek had thought of it as the Acton-Tocqueville Society: others favoured Burke and Smith; the free-market solution was to call it after the mountain on which it convened. The Mont Pèlerin Society offered an escape from the dreary post-war Britain of food rationing and exchange controls into a world where the amenities of a fine Swiss hotel, unimpaired by six years of neutrality, were handsomely subsidised by assorted businessmen, united by a devotion to the theory and practice of economic liberalism. It was the perfect setting in which to savour the apophthegm that there is no such thing as a free lunch. Little wonder that the members of this select society found themselves wonderfully fortified in their common principles, tinctured with mutual admiration. But, as Cockett tells us, ‘in the context of the late Forties, with the tides of Socialism and collectivism showing few signs of ebbing, there were some who felt that the MPS was choosing to proceed at too leisurely a pace, breathing the oxygen of pure thought which more ordinary mortals found difficult to inhale.’
It was at this stage that the Institute of Economic Affairs came into the story. ‘Without the IEA,’ Friedman is quoted as saying, ‘I doubt very much whether there would have been a Thatcherite revolution.’ Admittedly he is also quoted as saying that ‘the drastic change that has occurred in economic theory has not been a result of ideological warfare’ but instead ‘responded almost entirely to the force of events’. Perhaps there is only a contradiction here if either explanation is regarded as sufficient, whereas both may be necessary.
The godfather of the IEA, Antony Fisher, had a genius for picking up economic ideas second-hand and turning in a nice profit by marketing them properly. The theory of economic liberalism was one example. This was cribbed from Hayek and proselytised via the IEA, just as Fisher pinched the idea of broiler chicken-farming from the Americans and made it the basis for the firm of Buxted Chickens, which he sold in the Sixties for twenty million pounds. When Fisher set up the IEA he had a Fabian example in mind, hoping to catch his customers at an impressionable stage in their lives, in the way he believed Laski and Dalton had done at the LSE. Once caught by the right doctrine, ‘they will never lose it and will spread these ideas as they grow up.’ Fisher maintained. This catch-them-young strategy was perhaps too simple. One thing it did not explain was why so many economic liberals were actually converts from left-wing beliefs, which they had maintained in their youth with all the zeal which, belatedly transmuted, turned them into born-again Thatcherites.
The career of Arthur Seldon, a long-serving editorial director of the IEA, was not untypical. Born in the East End, he had gone to the LSE in the Thirties as an ardent socialist, only to be converted to economic liberalism by Hayek and his colleagues. Seldon emerges as an engaging figure who, in conducting his long-range campaign, was fortified by an unflinching confidence in his intellectual case rather than by personal self-righteousness or denigration of his opponents. ‘The IEA would be the artillery firing the shells (ideas),’ was how he explained the plan. ‘Some would land on target (the intellectuals), while others might miss. But the Institute would never be the infantry engaged in short-term, face-to-face grappling with the enemy.’ Its role was to clear the ground, clear the mind, clear the agenda. This was not a party-political exercise. Seldon himself had long thought the Liberal Party the natural home of economic liberals. By 1969, however, he had found a Conservative politician who was prepared to speak out for her convictions. He wrote to Margaret Thatcher: ‘I am particularly glad you did not say that so-and-so policy was eminently desirable but “politically impossible”.’
Seldon exemplified the principled case justifying those who had campaigned single-mindedly, virtually single-handedly, for economic liberalism throughout the Fifties and Sixties to come out as Thateherites in the Seventies and Eighties. But the tide of opinion brought in a good deal of flotsam and jetsam from earlier ideological shipwrecks. Cockett notes at one point the remarkable number of high-profile Thatcheritc publicists who had once been left-wing socialists and even Comunists. ‘Temperamentally, they remained the same,’ he comments; ‘they remained true believers, but merely changed the political doctrine in which they believed.’ This is surely a valid insight, with psychological implications which the author might well have pressed further. As it is, Paul Johnson, still hot (at any rate under the collar) from his editorship of the New Statesman, receives a comment so bland – ‘To Johnson and others, the prophecy of Hayek’s Road to Serfdom was rapidly coming to pass’ – that the unwary reader might wonder whether to take it at face value and shiver at our own narrow escape in 1979 from a British gulag.
Alfred Sherman possessed a more robust self-knowledge, with correspondingly less self-deception about the roots of his own Pauline conversion. He emerged in the mid Seventies as the intellectual driving-force of the Centre for Policy Studies, making it into the spearhead of Thatcherism within the Conservative Party. But his fervour, as he did not blench from recognising, was distilled from the residue of an East End Jewish upbringing, membership of the Communist Party and enlistment in the Spanish Civil War. He identified with Hegel’s dictum: ‘men are so hungry for certainties that they will readily subordinate consciousness and conscience to it; men need great ideals to move them, and the passions created outlast the struggles they served.’ This might be called the light-that-failed syndrome, with each failure fuelling an insatiable quest for a substitute light. People like Sherman were not just evangelists but serial evangelists.
‘The original purpose of the Centre,’ Sherman wrote later, ‘was to change the climate of opinion, in Party and Country, in order to pave the way for the implementation of the policies we knew to be right.’ In retrospect it may look as though the infantry only moved in once the artillery had done its work, but back in 1974, when the proposal to set up the Centre was slipped past a sceptical Heath by Sir Keith Joseph, improvisation was the order of the day. Failing any better idea, it was decided that Joseph should start making speeches – and Sherman start writing them for him. This proved to be a headline-grabbing recipe, with a politician who had cast discretion to the winds delivering lines written by a speechwriter who saw no distinction between taking the offensive and being offensive. Joseph’s repudiation of the Keynesian consensus at Upminster in June 1974 was followed three months later by his Preston speech, which brought ‘monetarism’ into the centre of political debate. The embarrassment of the leader of the Conservative Party was shortlived since a new leader was soon found who was not embarrassed at all.
Cockett’s account reaches its climax with the breakdown of the Keynesian consensus by 1976. He comments that ‘there was surely no better vindication of Hayek’s conviction that the long-term intellectual campaign that he had conceived of in 1947 would be successful in the end.’ Nor, on this reading, was it simply a swing in ideological fashion, susceptible of intellectual, psychological, sociological or political explanation. The persistent suggestion is that economic liberalism came into its own at this moment because history proved it right. The Keynesian consensus ‘now buckled, as Hayek had predicted it would, under the weight of the brute experience of inflation, unemployment and the industrial disorder and strikes which accompanied inflation’. The crass triumphalism of the old Keynesian version is simply turned inside-out, upside-down and back-to-front.
It may be a pity that Cockett spoils his account in this way but it is not accidental. Intellectually his analysis is vitiated by the fact that he does not show enough economic sophistication to make his criticisms stick. Thus his contention that Keynesianism was ‘flawed from the start’ is based on a reading of the General Theory mediated through its strongest critics among the economic liberals. Keynes’s argument is represented as turning on a political judgment to dodge the problem of wage rigidity, because real wages fixed at too high a level are axiomatically the cause of unemployment. It is true that Keynes once accepted this axiom – but before he wrote the General Theory. It is a pity that this point eluded Cockett in his first chapter, given that so much analytical weight is then imposed on this unsound foundation.
Finally, however, the triumphalist air of this account seems misplaced when measured by a simpler test. If economic liberalism was such a fine idea, why did Thatcherism go sour? The assumption which pervades much of the book is that the Thatcher Government succeeded in remedying the evils identified by the economic liberals. Take quangos, for example: ‘The incoming Conservative Government eventually eliminated over six hundred of them.’ And created another five thousand. The approving reference to ‘the replacement of local government monopolies with private monopolies’ is more puzzling (or perhaps just Freudian).
At any rate, it is simply not good enough to turn around in the Epilogue, with a sudden denunciation of Thatcher’s arrogance and Lawson’s apostasy to account for the disappointments of economic liberalism, without seriously asking whether, like Keynesianism, it might have been oversold in the first place. ‘As it was,’ Cockett writes, ‘economic liberalism as applied in the Eighties effectively wiped out a large part of Britain’s manufacturing industry and, at the end of a decade of economic experiment and dislocation, left as many people unemployed as there were in the Thirties.’ so Cockett ends by anticipating a counter-revolution against economic liberalism: a provoking conclusion to a provocative book.