As the world stands in the thrall of multiple crises in the first quarter of the 21st Century - "polycrisis" to use a trendy word, it's worthwhile to go back and look at how the governments withstood "the world crisis" of the first half of the 20th Century. Few figures influenced the course of those years more than the British economist John Maynard Keynes (1883-1946). Zachary D. Carter's 2020 book reevaluates Keynes through a 21st century lens and examines how Keynesian economics continues to provide a guidepost for navigating uncertainty.
Keynes first became known outside academic circles with the publication of his polemic on the 1919 Paris Peace Conference, The Economic Consequences of the Peace. Keynes served as an advisor for the British delegation who joined the other victor nations of the First World War to dictate peace terms to determine the future of Europe.
The conference convened as the 1918-1919 Spanish influenza was spreading like wildfire, Keynes became stricken with the virus and was bedridden for weeks. With the United States, Great Britain, and France all working to serve their own self-interests, Keynes developed an antipathy towards all the Allied powers, especially the push to punish Germany with heavy war reparations that he believed would ill serve the world economy. He predicted that a Germany paralyzed with war debts would lead to anger among the people who would turn to politicians advocating vengeance.
History proved Keynes correct on the war debts issue and their tragic ramifications for Europe. Economic chaos plagued Europe during the 1920s as governments dealt with the fallout from unemployment and inflation. Meanwhile, Keynes continued to develop his ideas towards more international cooperation in his journalism and economic treatises. Known for his uncanny ability to find solutions to a financial crisis, Keynes helped save the British Treasury in 1914 on the eve of the war and worked out ingenious solutions during the 1920s to manage the war reparations by negotiating loans to Germany. Yet he found his ideas failing to get traction in his native Great Britain.
Always the insider/outsider, Keynes enjoyed the privileges of the British upper class and moved freely between power brokers and artistic circles. One of the few non-artists among the Bloomsbury Group, a group of creatives who despised Victorian morays including writers Virginia Woolf and Lytton Strachey, they brought a spirit of experimentation to art and life. Beneath all of Keynes's dense treatises on modern economics was a humanism to improve the quality of life for everyone.
For most who've taken a college economics class, one learns about Keynes through charts and graphs. Carter argues that compassion, "the good life" in JMK's words, stood at the core of his economic theories. Through the Depression and world wars that Keynes helped the world to navigate, there was a respect for individual freedom and social justice beneath all theory and policies. He became even more Utopian towards the end of his life. Through his theoretical works, impenetrable to anyone outside the field of economics, he developed stratagems to avoid economic catastrophes. Pamphlets explaining his approach to economics were also made available to the public with great success.
A main insight of Keynesian economics is that governments are the true managers of economies. Leaving market forces alone to repair themselves in the classical economics mode was no longer tenable, government intervention was essential to maintaining the health of a modern financial system. Deficit spending to "prime the pump" would kickstart economies and help maintain full employment and keep inflation in check. Keynes argued this was always the case throughout history, governments always set currencies and managed economic activity. Keynes advocated that economic policies should expand prosperity and be aimed at enhancing the culture, not the 19th century Darwinian economy of winners and losers. His definitive 1936 work, completed with his staff of students at Cambridge, The General Theory of Employment, Interest, and Money proved a magnum opus in shaping modern economic theory and policy.
It was in the United States where his ideas took hold. President Franklin Roosevelt's New Deal policies of increased government intervention in banking, monetary policy regulation, and public works were practical Keynesian solutions to the economic crisis. FDR's administration was filled with acolytes of Keynes during the 1940s, guiding the economy through the Second World War. At the Bretton Woods conference in 1944, Keynes helped shape post-war policies.
Keynes was not a Marxist, although he took much inspiration from their critiques of capitalism. He wanted to synthesize classical economics with Marxism, "how to make the practical, risk-averse, anti-revolutionary conservatism of Burke for the radical democratic ideals advanced by Rousseau." (55). A tall order, perhaps an impossibility, but his iconoclastic approach attracted many disciples and fierce critics.
Keynesians felt vindicated by America's astounding turnaround in the post-war years. But as his ideas gained ascendency in academia, a counter movement began to take shape. The business class in America generally despised FDR and the New Deal and envisioned a return to unregulated/Gilded Age type capitalism. F.A. Hayek's 1944 book The Road to Serfdom was greeted as the conservative response to Keynes, arguing more government intervention in economic policy led to totalitarianism. In the climate of McCarthyism, Carter documents the widespread efforts to ban Keynes's teachings from colleges - as communist propaganda. William F. Bickley's debut book God and Man at Yale railed against Keynes.
Price of Peace is also a unique biography in that it devotes the last section of the book to the legacy of its subject. Keynes died in 1946 and did not live to see these debates play out. His life reminded me of Hari Seldon from the Isaac Asimov Foundation novels. In the books Seldon was a visionary who plotted a long term strategy for the galaxy to recover from a decline into a dark age. In the generations after his death, disciples debated his legacy. Much of the same thing happened with Keynes in the afterlife of his ideas. John Kenneth Galbraith in many ways took up the mantle of Keynes in American politics with mixed results, the book almost serves as a short biography of Galbraith.
Different variations of Keynesian policies evolved over the decades. Paul Samuelson wrote the standard economics textbook with a Keynesian approach, but it was highly technical and dry. Many consider the textbook Lorie Tarshis far superior and more accessible. In time American policy drifted. Keynes failed to foresee the Military-Industrial Complex that came to dominate American foreign policy. Eventually, classical capitalism revived and culminated with the 1980 election of Ronald Reagan who set out to gut social services and government spending (only criticism of the book is that Carter tends to move too fast through these sections).
Carter's chapter on the Bill Clinton (1993-2001) administration is especially scathing. Clinton's embrace of Neo-Liberal policies of lower taxes, balanced budgets, and deregulation were catastrophic for the American economy - culminating in 2008 crash and near demise of the banking system (saved by government bailout). Keynes believed the primary cause of fascism was unemployment. The damaging trade deals of the 90s did not serve America nor the world, a main cause for democracy's decline in recent decades.
The book concludes with:
Keynesianism [in its) simplest form is not so much a school of economic thought as a spirit of radical optimism, unjustified by most of human history and extremely difficult to conjure up precisely when it is most needed: during the depths of depression or amid the fevers of war. (533)
To bring things full circle, in our current moment of spiraling crises ranging from political, economic, to the ecological Keynes offers a model of recovery through defining the problem and finding creative solutions. Boldness of vision and radical intellectual curiosity are perhaps the best prescription. Price of Peace is engaging and well written, a journey through economic history and roads not taken.
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