Mr. Keynes

I find much to criticize in Adam Davidson’s conversation this morning with Renee Montagne (“Keynes' Economic Theories Back In Vogue”, Morning Edition , January 16, 2009). “Just Plain Nuts”: First it very difficult to find any support for the statement Mr. Davidson made that "Most of what Keynes wrote was just plain nuts" or that there is a consensus to this effect. It is in fact quite easy to find statements such as the following written by the late Milton Friedman some 20 years ago. Certainly not commonly thought of as an admirer of Keynes, Friedman referred to Keynes as a "brilliant scholar" and "one of the great economists of all time." He described The General Theory as a "great book," saying at the same time that he considered Keynes’s Tract on Monetary Reform as his best work. Friedman in this same piece further states that "I believe that Keynes's theory is the right kind of theory in its simplicity, its concentration on a few key magnitudes, its potential fruitfulness." (Milton Friedman, "Keynes's Political Legacy," in John Burton, ed., Keynes's General Theory: Fifty Years On (London: Institute of Economic Affairs, 1986), pp. 47-48, 52). “He wasn't worried about contradicting himself” As far as Keynes’s inconsistency, I would simply note that as an economist very well-schooled in orthodox economics, Keynes struggled to fit the rough-edged square shaped pegs of the real world into the smoothly carved round holes of orthodoxy. One can look at the evolution of Keynes's monetary theory (dating all the way back to a review article of American economist Irving Fisher's The Purchasing Power of Money in 1911) in this light with his two volume Treatise on Money (1930) , the General Theory(1936) and his article summarizing the General Theory that was published in the Quarterly Journal of Economics the following year (1937) as representing the culmination of those efforts. Over the course of this intellectual struggle his views of the proper role of government policy and his faith in the essentially self-adjusting nature of market economies changed radically. When because of this Keynes was accused of being inconsistent , of being the “rubberman” Keynes is famously quoted as having said that “When the facts change, I change my mind. What do you do, sir?” (when taken to task for having changed his position on monetary policy, as quoted in Lost Prophets: An Insider's History of the Modern Economists (1994) by Alfred L. Malabre, p. 220). “A prolific writer who owned a magazine and published his own books” Keynes’s books were not self-published as the statement “..and he published his own books’ would seem to imply nor did he own the Economic Journal although he served as its editor for years. Keynes as a snob, anti-semite, and so on: Unfortunately, among upper class Englishmen of Keynes’s day being a snob, anti-semitic or not particularly fond of the French would not I should imagine be uncommon. For example, do we have any evidence that Keynes was any guiltier of this than Churchill or the Queen Mum? Also I find the accusation hard to reconcile with what one finds pp. 485-488 on Robert Skidelsky’s John Maynard Keynes:The Economist as Savior, 1920-1937. Keynes’s homosexuality: Perhaps I am being unfair to Mr. Davidson but I think the lowest point of this four minute conversation with Renee Montaigne came when he discussed Keynes’s sexual orientation. Are we to conclude from this that not only what Keynes wrote was “just plain nuts” but so was he? Is a person’s sexual orientation an indicator of this? Bloomsbury was an island of tolerance and I do not know whether or not there is any evidence that Keynes, outside this wide circle of friends and acquaintances, openly flaunted his interest in persons of the same sex. Anyone interested in this matter should consult volume one of Skidelsky’s biography of Keynes. Also perhaps given his long and close relationship to wife, the Russian ballerina, Lydia Lopokova it might be more accurate to describe Keynes’s sexual orientation as bisexual rather than homesexual. What’s important to keep in mind: At root, what Keynes saw as the key failing of the orthodox economics of his day (and with the orthodoxy of our own day, they are one and the same) was the assumption that in response to any change introduced to the system (say, for example, a sharp drop in confidence) market economies would quickly tend to absorb the impact of these changes rather than amplify them. Before Keynes’s time, markets were thought capable of creating compensatory changes in some variables as disturbing changes take place in other parts of the system. For example, in response to the disturbing change of rising unemployment (caused perhaps by lower spending created by financial panic) the orthodox idea was that wages and prices would fall enough to compensate for lower demand. If markets were working properly no intervention was needed. However, as Keynes argued if the drop in spending (created by things such as a drop in the confidence of financial investors) created further drops in spending, rather than markets absorbing the impact of the disturbing changes they would amplify them. Badly bruised by the fall it would be unreasonable to expect any one entrepreneur or financial investor or group of same to be willing to get up without help. Most would, quite rationally be waiting for others to make the first move. The positive role government could play in breaking this deadlock is what Keynes identified. He also was clearly made the obvious point it is best not fall in the first place. Over the last several months of this crisis, I have repeatedly heard reporters on NPR draw attention the important role that restoration in confidence plays in our recovering from the mess we have collectively fallen into. What is missing in these discussions is Keynes’s insight that the dilemma we face in a market economy is that while we can all see that this is the solution to our difficulties is to be found in the restoration of confidence we are unable, acting in our self-interest, to do anything about it. For example, what sort of measurable effect has Warren Buffet’s efforts to swim against the tide made? Cooperative/collective action is needed; in short, government intervention. For a thoughtful and extended discussion of Keynes's relevance today see Tom Ashbrook's interview with Lord Robert Skidelsky December 18th 2008 On Point