- Keynes and His Critics: Treasury Responses to the Keynesian Revolution 1925-46 edited by G.C. Peden
Oxford, 372 pp, £45.00, December 2004, ISBN 0 19 726322 4
The Institute of Economic Affairs is approaching its 50th birthday, and has much to celebrate. It was founded in the heyday of the so-called Keynesian consensus that dominated British political economy for about thirty years after World War Two. The mission of the IEA was to challenge that consensus through an intellectual assault on its foundations and to proselytise instead for free-market remedies. This looked like an uphill struggle at the time. Keynesian economics seemed to have carried the day not only in the universities but in Whitehall, whichever party was in power. Harold Macmillan was on the verge of a long premiership, during which he often reaffirmed his fealty not only as Keynes’s publisher but as his disciple.
Within a generation the IEA not only saw the climate change but could claim that it had helped to make the weather. It became the prime source of new ideas – well, old ideas for the most part, but nicely freshened up – which pervasively made their way from its published tracts into wider economic debate and from there into politics, eventually becoming known as Thatcherism. Never has a think-tank nurtured a bigger fish. Not that the IEA departed from its initial decision to abjure any overt political affiliation; its method was different. ‘The IEA would be the artillery firing the shells (ideas),’ was how its first editorial director put it. ‘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.’ Whatever induced these otherwise hard-nosed people to believe that such a strategy might work?
The answer was proudly displayed in a framed text that hung on the wall of their front office. I have never made the pilgrimage to see it and remain content to imagine it as reverently executed in poker-work, like an old-fashioned scriptural motto. Certainly it provided the inspiration for the efforts of all the artillery officers, from General Hayek, in his Swiss château, to Colonel Friedman, on secondment from the US artillery, to recruits like Major Walters, not yet a staff officer treading the backstairs of 10 Downing Street, as well as a phalanx of fresh-faced subalterns, all set on loading the shells into the breech to fire off in the next IEA bombardment. Their order of the day is worth quoting at its original length:
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 25 or 30 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 and evil.
The author of this passage was John Maynard Keynes. His words were not carelessly uttered but form the pregnant last paragraph of his magnum opus, The General Theory, published in 1936. This obviously expressed his hope that his own ideas would be disseminated through such a process and in this sort of trajectory. Quoting the passage in 1947, a year after his great rival’s death (though oddly, still employing the present tense), Hayek said that Keynes ‘has never said a truer thing’, moreover ‘on a subject on which his own experience has singularly qualified him to speak’. Hayek clearly meant that the reception of Keynes’s ideas, in conquering initial scepticism, had validated his hope and claim about the power of economic ideas (just as the claim itself might in turn come to validate the hope of achieving a counter-coup). In either case, though the substantive effect might be different, the process was assumed to be the same.
It is this general assumption about the influence of theoretical ideas on public policy that has underpinned much of the vast literature about the Keynesian revolution. For what distinguishes Keynes is that he remains a commanding figure both in the history of economic theory and in the history of economic policy, especially that pursued by the British Treasury. It still makes sense to ask how far Treasury policy – even today – can be analysed in Keynesian terms. But such questions need to be properly framed (like the IEA’s text). It is no longer enough to invoke a simple paradigm of influence, based on an implicit intellectual hierarchy: a model in which ideas have an immaculate conception in a purely abstract form in the minds of great thinkers, whose theories are then disseminated, albeit with a natural pedagogic time-lag, to the rising generation who knowingly or unknowingly implement them.
These days historians are conscious that if we are concerned with the influence of economic ideas, we need to concentrate on their reception as much as their genesis. Once the artillery has performed its ballistic feats, somebody has to take and hold the ground, wading through the mud of the shell-holes to clear up the mess, and all the while taking the decisions that are immediately necessary. The poor bloody infantry also deserves recognition and historical commemoration.
The full text of this book review is only available to subscribers of the London Review of Books.