How difficult it is to be right. John Maynard Keynes is “an entertaining economist whose bright but shallow dissertations on finance and political economy, when not taken seriously, always provide a source of innocent merriment to his readers.”
The remark above was published in 1933 by David Lloyd George, British prime minister during World War I, who, Keynes strenuously argued, failed the nation by demanding inhumanly harsh treatment of the defeated enemy after the conflict. Keynes supported Lloyd George’s later attempts to salvage the Liberal Party, but this apparently did not win him sufficient respect from the fading lion.
In fact, Lloyd George’s comment reflected the view held by much of the British establishment. Keynes was unorthodox and had been a thorn in the side of the powers that prevailed in England ever since 1919, when he railed against Lloyd George, Georges Clemenceau, and Woodrow Wilson. He continued to challenge the conventional wisdom again and again in the 1920s, remained an academic gadfly even when he had become a fellow at King’s College, Cambridge, and argued vehemently that government must do more for the unemployed, rid itself of its attachment to gold, and invest aggressively in public works.
Keynes was editor of the most prestigious economics journal of his time. But he was also an active journalist, commenting on public issues mostly for the Manchester Guardian, then the most distinguished of Britain’s Liberal publications. This was also held against him in serious circles. His journalistic writing, if brilliant in retrospect, and usually right, certainly lacked the hallmark of probity and dullness that merits scholarly credibility. In addition, the cautious U.K. Treasury (which had earlier employed him) was often his target.
Do not feel bad for Keynes, of course. He was from a moderately privileged academic family and had many a door open to him. He did well in the best schools, was hired by the much-admired Treasury in his thirties, became famous well before forty, grew wealthy due to his speculative proclivities in currencies, married a leading Diaghilev ballerina, and was an intimate of Virginia Woolf and others of the Bloomsbury set. By almost any standard he was on top of the world, despite his dubious reputation in the Treasury and established halls of academia.
It was crisis that transformed Keynes’s relationship to economics and the world’s relationship to Keynes. Throughout the 1920s and into the 1930s, he had largely remained a free-market economist. The Great Depression forced him to think more profoundly about how the economy worked. The book he immodestly anticipated would change the world was to be called The General Theory of Employment, Interest and Money, and he was right. It raised Keynes in terms of influence and respect above any other economist of the century. His reign lasted without serious competition a full generation.
But by the late 1970s, Keynes was the subject of ridicule and widespread dismissal. His great argument, in the American interpretation, was that governments should run deficits to raise economies from recession and assure rapid growth. He was thus firmly identified with government spending, which, thanks to the articulate proselytizing of Milton Friedman and his acolytes, became in the public eye the one certain source of inflation and economic ruin. As inflation soared in the 1970s, Keynes’s reputation suffered in the equal and opposite direction. He was not merely eclipsed by Friedman, but made into a relic.
Now crisis has resurrected him again. The world avoided a depression, or something close to it, largely because Keynes was summoned back swiftly and enthusiastically. Indeed, according to many, including even some conservative economists, he was never completely wrong. It is the times that change—and there is wide agreement that Keynes is right for these times.
Peter Clarke, the respected British historian, has written at length in the past on the Keynesian revolution. In light of the current revival, he has produced a short book on who Keynes was and what Keynesianism is. It seems designed to be a primer, but I am surprised to say he succeeds in doing more. Clarke has captured something of the character of the man that many longer and more convoluted biographies fail to convey.