Robert Skidelsky’s John Maynard Keynes: Fighting for Britain completes a remarkable biography. No other biographer of Keynes is likely to surpass it, and everyone who has an interest in the intellectual and public life of this country is in Skidelsky’s debt. This third volume starts in 1937, where the second volume left off. It might have been better had that volume finished with the publication of the The General Theory in 1936, rather than, as it did, with the debate over The General Theory. It ended, as a result, on rather an anti-climactic note (though that is anything but the tone of the book as a whole), since the debate was both indeterminate and, from Keynes’s point of view, unsatisfactory. Keynes, though he participated in the debate, was oddly detached, seeming at times not to see its significance to the argument of The General Theory. He took six months – astonishing, as Skidelsky points out, in one normally so punctilious in his correspondence – to respond to John Hicks’s famous reformulation of that argument, and did so in an offhand manner. Either he hadn’t grasped what Hicks was suggesting (which seems improbable) or else he didn’t wish to grasp it; to have done so would have been to acquiesce in a ‘Keynesianism’ interpreted via the (mild) heresies of Hicks, James Meade and Roy Harrod rather than via the true belief of Richard Kahn or Joan Robinson. In any event, Keynes made no further important theoretical contribution to economics. The running was left to others.
For Skidelsky, however, this is an unreal problem since the third volume is dominated by what he sees as the practical application of the ‘logic’ of The General Theory. Keynes’s further contributions to the debate, that is to say, took place in the world of affairs rather than in theory – but they did take place, which is why it might have been better to end Volume II in 1936. Keynes was, of course, always a public and political figure: he had made himself internationally famous by writing one of the great polemical tracts of the 20th century, The Economic Consequences of the Peace – a memorable attack on the financial provisions of the Treaty of Versailles and on those who had devised them – and throughout the 1920s and 1930s he deployed his immense persuasive skills in one controversy after another. An economics which stood aside from ‘the great issues of the day’ would have been to him inconceivable. Throughout most of this volume, however, he is a participant in the world of affairs and not just a brilliantly gifted commentator. The country’s political elite, having wished little else in the previous twenty years than that he would go away, mobilised him on the outbreak of war ‘to fight for Britain’, or, more precisely, to find the money which would enable Britain to fight. Much of the book, consequently, is given over to Anglo-American financial arrangements in which Keynes was a leading negotiator. Skidelsky’s stylistic and biographical skills give to these wearying, often maddening negotiations an interest and drive which a lesser biographer might not have managed. Nonetheless, this is a book moving in a different gear from its predecessor. It is probably too long: the details and diversions can impede the narrative, while the intellectual excitement of the second volume – the sense of a work of genius slowly emerging, the false starts and backtracks, the final achievement – is absent here. This is, for all Keynes’s continuing wit and vivacity, a darker book: one sees Keynes destroying his health and exhausting his intellect in causes which were, in the event, probably worth neither.
Keynes began ‘applying’ The General Theory almost as soon as it was published. In 1937 he started to look seriously at the financing of rearmament. He doubted whether borrowing to pay for it was likely to be inflationary and made a stab at estimating the size of the ‘output gap’ – the extent to which the productive capacity of the economy was unused and how far, therefore, rearmament could be financed by borrowing without causing inflation. He was frustrated by the absence of reliable data and his frustrationeventually resulted – during the war itself – in the first serious calculations of the national income statistics.
Keynes’s prewar interventions on the financing of armaments anticipated the famous booklet How to Pay for the War, which was published in February 1940. Skidelsky thinks it arguable that this was ‘the quintessence of Keynes’s achievement’. It engaged, he writes, ‘all the qualities of his complex nature. The union of theory and practice, the linking of economic doctrine to political philosophy here achieved its most compelling artistic expression.’ The basis of Keynes’s argument was that the war should not be financed as the First World War was financed – by inflation, with the Government printing money, lowering the real value of working-class wages, and then taxing at almost confiscatory levels the windfall profits of manufacturers. Keynes now proposed that as much consumption-demand as possible should be taken out of the economy by forms of wage deferral which would both reduce the inflationary tendency of war-financing and diminish demand for non-essential goods. For the rest, demand would be controlled by either a rise or fall in prices. This was the ‘fiscal theory’ of war financing. In fact, it was never adopted in one piece: Keynes underestimated both the need for planning in a war of this size and the extent to which social solidarity depended on planning and rationing. Nonetheless, Skidelsky is surely right to argue that How to Pay for the War displayed Keynes’s abilities at their highest. It also sold very well, despite what Keynes thought was the utter slackness of his publisher, and received enormous press coverage.
It was clear that Keynes could not be kept out of the Treasury for long. Despite a bruising row with it over its supervision of foreign exchange (during which, he told Richard Kahn, ‘the more I understand what has been happening, the more ghastly their record seems to be’), on 12 August 1940 the Chancellor of the Exchequer, Kingsley Wood, offered him a room and a ‘roving commission’, which he accepted. For the next few months Keynes was engaged in the preparation of the 1941 Budget which, while not ‘Keynesian’ as such, incorporated the notion of deferred pay and encouraged the Treasury to think in terms of ‘an inflation gap’: the amount of consumption-demand that needed to be withdrawn from the economy. The 1941 Budget, as Skidelsky notes, established the framework of budgeting for the remainder of the war. In practice, however, Keynes spent most of his time in the Treasury on Anglo-American financial negotiations, at the expense of issues where his talents might have been better exercised. He played, therefore, comparatively little part in the development of postwar social or employment policy.
In April 1941, Keynes made the first of six trips to the United States. There were (more or less) four subjects for negotiation: the financing of British purchases before Lend-Lease, the terms of Lend-Lease itself, postwar international financial arrangements (what became known as the ‘Bretton Woods’ system) and the American loan (1945). The details of these negotiations are immensely complex and are treated at length by Skidelsky. Keynes, broadly speaking, sought to secure grants and not loans from the Americans; to retain Britain’s postwar economic independence; to protect the integrity of the sterling area; to commit the United States to European reconstruction and give the world access to American goods; to re-establish an international financial order which had learnt from the catastrophes of the interwar years – an order, above all, which did not oblige debtor nations to deflate. The difficulty was that Britain had a very weak hand, and as time went on it got weaker. Nor could it draw on the claims of morality. Keynes, though he soon enough learnt to the contrary, exaggerated America’s goodwill towards Britain and underestimated its pervasive Anglophobia, not least among the people with whom the British had to negotiate: the early behaviour of the Secretary of the Treasury, Henry Morgenthau, and his chief negotiator, Harry Dexter White, make grim reading. Keynes believed, as did most of the British delegation, that Britain had made an utterly disproportionate sacrifice in a joint cause: that she had fought America’s war for two years and that the United States had consequently acquired a moral, and thus financial, obligation. He was continually outraged to find that the Americans did not necessarily see it that way. Skidelsky writes that Keynes ‘never forgave’ the US Treasury and State Department for this, noting, furthermore, just how far differing postwar expectations determined American and British attitudes:
The British expected to emerge from the war stripped of trade and assets and burdened with debts; the Americans in the opposite position. Keynes’s, therefore, was a debtor’s, White’s a creditor’s position. The British wanted a scheme which would enable them to borrow without strings; the Americans one which would lend with strings . . . The British plan came from a banking tradition, the American one from a legal tradition. The British wanted a scheme based on prudential maxims; the Americans one based on legal rules.
Keynes achieved few of his objectives. The Americans were very unwilling to make grants; under Lend-Lease arrangements the US Treasury got the right to police Britain’s reserves and balance of payments; although the Bretton Woods system had its origins partly in Keynes’s Clearing Union proposals it was more an American than a British affair, and, in any case, did not really operate until the late 1950s; and the abrupt cancellation of Lend-Lease at the end of the war forced Britain into seeking a loan from the United States for which Keynes had to do the hard work and for which, had he lived, he would probably have had to take the blame. Was the loan ever worth it? Almost certainly not. Keynes himself hoped that Britain would not be driven to seek a loan, wishing, from 1942 onwards, that it would ‘retrench’ its war effort so as to minimise postwar indebtedness. But Britain did not do that: it financed the war in the hope that the future would look after itself and the United States would look after Britain. In any case, to retrench or otherwise was not Keynes’s decision to make. Since Britain had not retrenched he became convinced that the loan was necessary as a transitional payment once Lend-Lease had been cancelled. It did not fulfil Keynes’s hopes. Much of it was spent on ‘great power’ obligations which did the country little good. He complained that Britain had no sense of the reality of its own position; but the fact was that, in the absence of American assistance, many of these obligations were almost inescapable. The sting in the tail of the loan, of course, was the convertibil-ity clause; a clause, forced on the British by the Americans, which required the full convertibility of sterling by July 1947, and which predictably ended in the disaster of a run on the pound and the abandonment of convertibility.
Keynes, as Skidelsky points out, showed no interest in the European alternative. Richard Clarke of the Treasury had suggested, as a ‘fall-back’, a sterling area-Western Europe bloc, whose centre would be London, as a way of escaping the American embrace. This was a serious alternative, but Keynes would have none of it. He dismissed Clarke’s suggestion as a ‘fantasy’ and argued, amazingly, that ‘there was no serious risk’ of a gold or dollar shortage in the first three years after the war. An American loan, he argued, was the only way Britain could avoid a ‘financial Dunkirk’, an odd judgment since Dunkirk had been a miraculous deliverance. It’s hard not to see this essentially non-economic, and also wrong argument, as a sign of things to come. To Keynes, Skidelsky writes, the ‘Channel had become wider than the Atlantic; perhaps it always had been’. The reluctance to think of an alternative to the Americans is even more surprising given how dispiriting Keynes found negotiations with them. ‘They mean us no harm,’ he wrote to his mother, ‘but their minds are so small, their prospect so restricted, their knowledge so inadequate, their obstinacy so boundless and their legal pedantries so infuriating.’ The real problem was the political context. In the event, those things Keynes hoped to achieve were achieved, but in a profoundly altered environment. Once the Americans had concluded that the Soviet Union was a threat to them they provided the kind of assistance and accepted the kind of discriminations they had refused to give in 1945-46. Britain’s present political elite, presuming the embarrassing illusions they hold as to the country’s standing in the United States actually survive the Presidency of George W. Bush, would do well to read Skidelsky’s account of Anglo-American negotiations during the Second World War.
It would be wrong to think that failure, or relative failure, is the only theme of this volume. There is the constant pleasure of reading Keynes’s written and spoken words; of his remarkable intellectual ingenuity and penetration; of his colossal capacity for work; of the jokes that probably should not have been made; of his wife Lydia Lopokova’s wonderfully eccentric English and of Lydia and Maynard’s mutual devotion. And there are successes. In becoming involved in the Council for the Encouragement of Music and the Arts, and then as first chairman of the Arts Council, Keynes, at least partially, succeeded in overcoming what he thought one of the worst legacies of the 18th century: the view that the state had no role in the funding of the arts. (What he would think of a country which in large measure financed its arts from the receipts of a privately-owned lottery is hardly open to doubt.) Skidelsky’s account of this is enlightening, and not unmoving.
Keynes’s death in April 1946 was premature by any standards. In terms of his intellectual and personal standing he had few equals in 20th-century Britain. Skidelsky quotes a marvellous passage from Lionel Robbins, who had frequently differed with Keynes, a passage which captures what his contemporaries felt:
I often find myself thinking that Keynes must be one of the most remarkable men that have ever lived – the quick logic, the bird-like swoop of intuition, the vivid fancy, the wide vision, above all the incomparable sense of the fitness of words, all combine to make something several degrees beyond the limit of ordinary human achievement.
Yet Keynes’s standing at the moment is problematic. He, Adam Smith and Marx are the holy trinity of Western political economy: there is not much in it which they did not in some way transform. Smith is today in the ascendant, though he would probably be surprised at the kinds of people who claim his inheritance. Marx is dead as an economist but has a sociology of knowledge and ideology so powerful that he can survive the passing of his economics. Keynes is probably the most marginalised of the three. Certainly, it is on his grave that the free-marketeers dance most triumphantly. Why is this?
It is clear that their critique is to a considerable extent moral. Keynes is charged with laxness in life as well as in economics. (For those who think this way Skidelsky’s first volume provided plenty of ammunition.) His all too public scepticism as to the virtues of the ‘hidden hand’ and the altruism of businessmen and bankers, his repeated assertions that life was not meant to be hard, that the answers to our economic problems are actually quite simple, that there was little point in trying to bludgeon trade unions, were all blows struck hard at a certain kind of political-economic morality. And it is easy to associate the inflation of the 1970s with ‘Keynesian’ governments which spent money we did not have on a reckless high-living we should not have been allowed to enjoy. The other side of Keynes, the rather austere figure of the 1940s, disappears from view, as does an economics which was, as Skidelsky argues, a technique of stabilisation designed to ensure that we did not lurch from boom to bust and back again.
It can also be argued that as a summa of Keynesian economics The General Theory is badly flawed: that its organisation is not harmonious, that it is loosely based on several competing models of an economic system, that it is tactless. But by that standard no great work of political economy would pass muster: The Wealth of Nations and Capital are also disorganised, internally inconsistent and unnecessarily rude to other economists. The General Theory is dependent on a series of brilliant insights into the sociology of economic behaviour which might not be ‘true’ (though never less than plausible) but which, nonetheless, profoundly changed the way we think. In any case, Keynes, like Marx, was a brilliant simplifier of his own argument. It is thus possible for someone to have a perfectly good idea of what he thought without having read The General Theory – by reading The Means to Prosperity, for example.
Skidelsky himself thinks that the problem of The General Theory is its abstraction. It is written, he suggests, in the highly abstract tradition of Anglo-Saxon economics, as against the Continental tradition, where men, institutions and history determine the structure of economic argument. There is some truth to this, but it is a criticism (if criticism it is) which would have dismayed Keynes. He was intensely hostile to the extreme abstraction which Ricardo bequeathed to British economic writing. Is The General Theory written in that tradition, however? Ricardo sought to strip an economic system bare, to reveal the skeletal reality underneath. But he ripped away the heart, lungs and nervous system and was left with a heap of dry bones. The General Theory is not like that. It has emotion and wit and frequent invocations of the real world. Nor is it all that divorced from a real-world economy. Although it is often argued that Keynes spoke only from a British position, my own view is that his tacit model in The General Theory was the United States, and that his argument ‘fits’ the experience and possibilities of the interwar American economy pretty well.
The real problem was who and what Keynes attacked. He said he was trying to overthrow ‘classical’ economics and the ‘classical’ economists. But Keynes’s classical economist, as has often been noted, was a straw man: it is hard to find any economist who actually held all the views he attributes to classical economics – certainly not poor Pigou who was singled out in The General Theory. Like Marx, what Keynes was trying to demolish, at least in the interwar years, was that whole edifice of common-sense economics – ‘wise sayings’ as he called it – by which most of us, not just bankers and businessmen, conduct our lives. He was thus arguing a case which affronted, and affronts, a view of the world most of us think entirely reasonable. It is this which gave Keynesian economics its subversive and dissident character; and because it undermines the reasonable many hold it responsible for the economic misfortunes of the 1970s. The victory of Mrs Thatcher in 1979 re-enthroned the commonsense economics that has dominated the thinking of our political elites ever since.
Keynes also weakened his case by not having any useful theory of politics. The General Theory, for instance, is a profoundly political book with the politics left out. Robbins thought Keynes had no real sense of politics as a struggle for power, of the socio-economic origins of the ideas people have. And I suppose the famous last paragraph of The General Theory, which asserts the tyranny of ‘ideas’ over both practical men and madmen in authority, might support this. I do not, however, think this is entirely true. What is true is that Keynes’s politics is implicit and incomplete. Especially incomplete is his view of the state. Skidelsky argues interestingly that Keynes meant by the state not government or bureaucracy ‘but that group of institutions, whether privately or publicly owned, which pursue public interest aims rather than short-term profits’. The increasing significance of these state-like institutions is what Keynes meant when he said the economy was ‘socialising’ itself. But in The General Theory the ‘state’ is given a very specific role in the allocation of investment, since it alone can take the ‘long view’. There can, however, be no possible guarantee, if Skidelsky’s argument is right, that these state-like institutions could perform such a specific directive function – particularly, as is all too likely, if those who lead them are slaves to some defunct economist. The absence of an adequate definition of the state or a theory of political action makes it difficult for those who wish to adhere to a ‘Keynesian’ politics. To say ‘I am Marxist’ or ‘I am a conservative’ can mean a number of things, but those to whom it’s said usually have a fairly good idea of what is implied. To say ‘I am a Keynesian’ – which one can certainly do – requires a much more elaborate explanation. As it stands, Keynesianism is a political ‘approach’ or ‘spirit’: a would-be Keynesian has to fill in the gaps. The gaps, however, have unquestionably weakened Keynesianism as a system of political economy.
The intellectual deaths of Marx and Keynes have frequently been announced; yet both are capable of almost infinite resurrection. Keynes will not go away any more than he went away in the interwar years. And Skidelsky’s biography is one of the reasons why he will always be with us. It constitutes a great achievement; but nothing less than Keynes deserves.