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.

"You will read your Political Economy in my absence," Miss Prism says to the Reverend Canon Chasuble in Oscar Wilde's The Importance of Being Earnest. "The chapter on the Fall of the Rupee you may omit. It is somewhat too sensational."

It was, in fact, the management of the Indian rupee that occupied John Maynard Keynes at the dawn of his career, and many chapters in the life of this distinguished economist and public servant were considered too sensational for his first biographer, Roy Harrod, to address. Now with John Maynard Keynes: Fighting for Freedom, 1937-1946, the third and last installment of his monumental biography, Lord Robert Skidelsky has brought us as close as we are ever likely to get to the whole Keynes, rupees and all.

THE ECONOMIST AS A YOUNG MAN

His was a very English life. At Cambridge, Keynes was one of the enfants terribles whose mix of philosophical idealism, undergraduate homoeroticism, and cynical disengagement from the certainties of their Victorian grandparents shocked the Edwardians and pointed to the vast cultural and social changes ahead. After helping to blaze the trail later traipsed by such bright young things as Evelyn Waugh, W. H. Auden, and Christopher Isherwood (and, for that matter, the double-agent Guy Burgess), Keynes plunged into the artistic and cultural mix of the storied Bloomsbury group, where he enjoyed the company of such betes noires of the British establishment as the author Lytton Strachey and the painter Duncan Grant.

What Bloomsbury regarded as the shades of the prison house began to close in about the growing Keynes during World War I, when he forsook the fashionable antiwar stance of many of his friends to serve in the British Treasury, ultimately accompanying the British delegation to the 1919 Versailles conference. His coruscating and still controversial account of the conference, The Economic Consequences of the Peace, remains one of the great landmarks in the history of the twentieth century and continues to shape debate over the relationship between the two great European wars of the era.

World famous in 1920 at the age of 33, Keynes in the following decades underwent an interesting shift: his private life became more orthodox as his politics moved toward the fringe. In 1925, he shocked respectable opinion by denouncing Britain's return to the gold standard at the prewar dollar-pound ratio of $4.86. (Then Chancellor of the Exchequer Winston Churchill would later confess that the return to gold at the prewar parity was one of the greatest mistakes of his life.) Eleven years later, with the publication of The General Theory of Employment, Interest, and Money, Keynes launched a revolutionary attempt to overthrow the structure of classical economic thought. Although Bloomsbury applauded his intellectual daring in these years, the group was increasingly vexed by the development of his personal life. While the fashionable intellectual world dabbled in communism and bohemian intrigue, Keynes acquired a large stock portfolio, joined Eton's board of governors, advised his college on its investments and, perhaps worst of all from the Bloomsbury point of view, wooed and, in 1925, married the Russian ballerina Lydia Lopokova.

TELLING LEFT FROM RIGHT

The first two volumes of Skidelsky's biography, Hopes Betrayed, 1883-1920, and The Economist as Savior, 1920-37, carry us this far. Fighting for Freedom takes us through the final nine years of Keynes' life. By then, his policies, if not his theories, had not only become the official basis of British economic policy but also informed the development of the International Monetary Fund and the World Bank. The concept of macroeconomic stimulus in times of recession was rapidly becoming entrenched as the orthodoxy of a new generation of economists and policymakers who believed that the Keynesian New Testament superseded the Old Testament scriptures of David Ricardo and Adam Smith.

Keynes' ascendancy makes for a great story and it is triumphantly told here, but Skidelsky has done more than tell a tale. Thanks to Skidelsky's work we can now see Keynes in something approaching true historical perspective and see how profoundly his engagement with the world was shaped by the twentieth-century crisis of the British liberal tradition.

During the 1980s it was often popular to tell the story of modern political economy as a debate between the followers of Keynes and those of Friedrich von Hayek. The Keynesians, according to this view, favored big government and central planning and argued that deficit spending was an unfailing cure for unemployment. The Hayekians, despite years of marginalization at the fringes of the profession, never lost their faith in free markets. The stagflation of the 1970s, the story concludes, ultimately exposed Keynesianism for the quackery it was and the neoclassical heirs of Hayek returned in triumph from the wilderness.