In The Long Run: Keynes and the Legacy of British Liberalism

Walter Russell Mead

From Foreign Affairs, January/February 2002

Summary:  Was John Maynard Keynes a Keynesian? The third volume of Robert Skidelsky's magisterial biography answers this question by arguing that the economist's legacy is the promotion of, not opposition to, classical British liberalism.

Walter Russell Mead is Senior Fellow in U.S. Foreign Policy at the Council on Foreign Relations.

Skidelsky believes that Keynes was not, in this sense, a Keynesian. On reading The Road to Serfdom, Hayek's greatest and perhaps most controversial work, Keynes wrote Hayek that it was "a grand book. ... Morally and philosophically I find myself in agreement with virtually the whole of it; and not only in agreement, but in a deeply moved agreement." The regard was mutual: Hayek said of Keynes after his death that "he was the one really great man I ever knew, and for whom I had unbounded admiration."

Skidelsky argues that Keynes preferred economic freedom to state control in general and in principle, but believed that the special circumstances (first the Depression, then World War II) of the day required a more active state role. But then, some of Keynes' "statist" proposals sought to minimize interference with markets. During World War II, for example, Keynes preferred high taxes on wartime earnings and compulsory savings plans to curb inflation because the only alternatives were uncontrolled price increases and rationing. Even during war, Keynes believed, a market-based price system would allocate resources more efficiently than could a rationing and planning system.

The basic disagreement between Hayek and Keynes, Skidelsky argues, was that Hayek believed that any deviations in the direction of state planning and control would begin an unstoppable momentum toward ever greater losses of freedom and ever tighter controls. Keynes disagreed, arguing that the (temporary) measures required first by the Depression and then by war and reconstruction would strengthen the hold of classical liberal values in British life.

If we accept this distillation of Keynes, then the revival of classical liberal economics since the 1970s is evidence for Keynes' position, not Hayek's. That is, the exceptional degree of state intervention required to win the war and establish a prosperous peace did not result in a grim slide to state socialism. Instead, when the need for the "Keynesian" remedies passed, British (and American) society returned to liberal economics and values. The triumph of liberal economics in the New Labour government of British Prime Minister Tony Blair would have satisfied, not horrified, Keynes.

For most of Keynes' adult life, the dominant fact of British politics was the collapse of the Liberal Party and the rise of Labour. Keynes could not find a comfortable home in either the Labour or the Conservative parties -- he saw little choice between the socialism of Clement Attlee and Arthur Greenwood and the mindless traditionalism of Stanley Baldwin and Neville Chamberlain. Skidelsky powerfully argues that Keynes' career (like Winston Churchill's) should be understood as a series of attempts to perpetuate the values of the Pax Britannica at a time when the empire was dying and liberalism, assaulted from left and right, was close to eclipse.

A SPECIAL RELATIONSHIP?

Keynes served as the point man for Churchill's government in its economic negotiations with Washington. For most people, the story of Anglo-American relations during World War II is still wrapped in the public haze of bonhomie and solidarity with which Franklin Roosevelt and Churchill covered over the sometimes sordid transactions between the two allies. Although Fighting for Freedom is not the full history we need of how the United States replaced British hegemony with an international system of its own, Skidelsky sheds considerable light on some dark but important events in the most important geopolitical shift of the twentieth century.

World War II opened with U.S.-British relations at a nadir. The Democratic Party -- to some degree, a coalition of British-hating Irish immigrants, Southerners still bitter about the United Kingdom's perfidious failure to support the Confederacy, and farmers angry about the British role in imposing the deflationary gold standard on the United States in the generations after the Civil War -- was a less than sympathetic partner. London's failure to pay its World War I debts to the U.S. government and the increasingly brutal character of British repression in restless possessions like India only served to powerfully reinforce the party's Anglophobia. A widespread consensus in Washington held that, in World War I, the United States had done little more than "pull Britain's chestnuts out of the fire" and that the unscrupulous British had taken advantage of the Americans' naivete and goodwill. Keynes himself had contributed to this impression, describing Prime Minister David Lloyd George in The Economic Consequences of the Peace as a "Welsh witch" who had bamboozled the foolish Woodrow Wilson.

Up until 1940, Franklin Roosevelt was perhaps the most persistently anti-British president in American history. Early on, he torpedoed the London Economic Conference to wild applause from Democrats, who believed that a treacherous British plot had been scuttled. The appointment of the notoriously Anglophobic Joseph P. Kennedy as ambassador to the Court of St. James was a deliberate and public slap in the lion's face. Roosevelt also stood aside as Congress passed a series of Neutrality Acts whose only effect could be to hamper British access to U.S. markets in the event of renewed warfare.

The Roosevelt administration in general and officials such as Treasury Secretary Henry Morgenthau in particular were determined that America would eat any and all chestnuts pulled out of the fire this time around. As emergency wartime munitions orders poured into U.S. factories, London's dollar reserves plummeted. In October 1940, the British ambassador told American reporters, "Well, boys, Britain's broke; it's your money we want."