The History of Economic Thought is far and away the most interesting part of economics. Unlike the history of other disciplines, the history of chemistry for example, it can only be studied by someone with an economics background, but is also a very good medium through which to learn economics itself. And with modern economics courses drenched in junk science, HET is perhaps the only way to learn about how an economy works. A couple of days ago, the moderator at the Societies for the History of Economics online discussion forum (the SHOE list) put up a brief note:
Here is a second review of Zachary Carter’s The Price of Peace: Money, Democracy, and the Life of John Maynard Keynes, in The New York Times from Jennifer Szalai [the first one was from the WSJ]. This reviewer says it is “outstanding” and “brilliantly incisive.”
Which led me to this reply:
I am grateful again to the moderator for putting up another review of The Price of Peace, subtitled, “Money, Democracy and the Life of John Maynard Keynes. The review was from The New York Times. Its title, “John Maynard Keynes Died in 1946. An Outstanding New Biography Shows Him Relevant Still”. More of the usual mythology.
“The General Theory” aside, the rough outline of the Keynes story is that nobody with any power listened to his visionary proposals before the crisis of the Depression hit; after that, almost everyone did. Keynes’s ideas were radical, Carter writes, but he was staunchly anti-revolutionary: Having been traumatized by World War I, Keynes was at pains to persuade some of his Marxist students at Cambridge that a more just and equitable society didn’t have to come at the point of a gun. An activist government and deficit spending could alleviate suffering and spur growth, he reasoned, and the world eventually obliged. As much as Franklin Roosevelt didn’t like running a deficit, his New Deal offered one version of how Keynesianism worked; World War II offered another.
Of course, Harry Truman offered a third version on how things should be done. At the end of World War II, Truman immediately “sacked” all of the millions who had been in the armed forces while virtually the entire armaments industry was closing, thus creating perhaps the largest potential increase in mass unemployment in history. At the same time, and immediately the war was over, Truman balanced the budget, eliminating the largest deficit as a proportion of GDP in American history. And the result, as we all know, was the largest and most sustained period of growth in history with full employment continuing almost year after year through until the 1970s.
I might contrast The Price of Peace and its review with this: The Politics of Fear, whose sub-title is, “For economist Robert Higgs, Covid-19 is just the latest emergency justifying expanded government power”. Lots there to ponder, but will merely quote this:
“I foresee the worst depression since the Great Depression right around the corner. That alone would be enough to bring forth a host of bad government policies with long-lasting consequences. Many such policies have already been adopted. But much more awaits us along these lines.”
There have been so many breakages in the way our economies knit together in the past few months there is nothing that might not yet happen, and there is no telling how bad it might get. We are so far beyond anything that Keynes ever wrote about or dealt with that calling up his name is more than just a total irrelevance, it is an astonishing distraction. Yet the reviewer writes, in her very first paragraph, that this new biography of Keynes “offers a resonant guide to our current moment, even if he finished writing it in the time before Covid-19”.
Does it no longer occur to most economists to leave things to the market to sort themselves out? With Keynesian economics we are not only fighting the last war, we are fighting a war that had ceased in 1933 when the Great Depression ended (everywhere, it might be noted but in FDR’s USA), using classical economic theory to bring the Depression to an end. How inappropriate would Keynesian theory be in trying to deal with problems associated with our present government-engineered downturn that cannot in any sense be attributed to a deficiency of aggregate demand and an excess of saving.
The moderator has now added this:
To avoid any potential confusion, I just want to say that I posted these two reviews to point out that this bio of Keynes is getting a great deal of mainstream attention. It’s nice to see the history of economic thought in the WSJ and NYT. I have not read it and I do not have an opinion on it.
I thank Steve for his view and if any of our many other SHOE experts on Keynes has a reaction to the book, I hope they will share it with us.
There are 1200 who link into the SHOE list. Will let you know if anyone does.