Keynes, Climate, and the Sovereignty of the Good
A Review of the Price of Peace by Zachary Carter
Lately, I’ve been thinking about a quote from Marcus Aurelius who believed that meaning in life could only be found by, “not siding with the majority, but to escape finding oneself among the ranks of the insane.”
While reading Zachary Carter’s The Price of Peace, I like to think that the most consequential economist of the 20th century, John Maynard Keynes, took this bit of stoic wisdom to heart, consciously choosing sanity against the popular will of the majority. And the tension inherent to charting your own course and tangibly influencing policy fits perfectly with the litany of contradictions explored in Carter’s masterful biography. Keynes was an iconoclast thinker whose radical optimism was articulated when it would appear to be least warranted. The nature of the syntheses present in his political thinking, as Carter interprets, were so novel that few of his contemporaries could appreciate his insights, but he also did not succumb to the mass delusions of the “disciplining” austerians, such as Winston Churchill. Their insistence on the course of action recommended by the consensus opinion of Very Serious experts brought the worst instability the world has yet seen, save for what the Anthropocene may have in store for us barring significant climate action.
The reason why Keynes’ life is so compelling and his advice is worth revisiting is that much like the interwar years, the world is undeniably in an interregnum such that the old world is clearly dying, but it is not at all clear what, if anything, will replace it. Zach Carter’s motivation for this book project also strikes a chord—what would have Keynes have done to avert catastrophe? He would have certainly tried to convince President Biden that the everyday libertarianism so evident in the funding of the American Jobs Plan will not only fail to meet the urgent challenge of climate on the scale that is needed, but will give unnecessary political leverage to conservative Democrats, which could be entirely avoided if only we could overcome persistent “zombie” myths about how public budgets work.
We know this to be true because Keynes was quite literally present for two world leaders, conservative Chancellor Bruening and FDR, when they sought out his advice on the great economic problem of they day—deflation— a problem with even more potent political repercussions. Keynes understood these political repercussions perhaps better than any other contemporary. When the Germans rejected his advice and the deflation spell continued, Keynes wrote in The New Statesmen, “The result reaches, or goes beyond, what is endurable… Too many people in Germany have nothing to look forward to— nothing except a ‘change’, something wholly vague and wholly undefined, but a change.” Once Hitler rose to power, Keynes was also clear-eyed about the horrendous form of demagoguery he represented, a boast that many of his contemporaries, such as the syndicated columnist Walter Lippmann, could not claim, “The Germans broken in body and spirit, seek escape in a return backwards to the modes and manners of the Middle Ages.”
In spite of later embracing the philosophical spirit of Keynes as expressed in Economic Possibilities of Our Grandchildren in the Four Freedoms address that rallied the U.S. against Nazism, FDR was strangely dismissive of Keynes when his ideas mattered most, muttering to a close advisor that that Keynes must be an aloof mathematician not the kind of economist who was deeply immersed in political matters and statesmanship. This of course was exactly backwards, but it was illustrative of how Keynesian economic thought, soon to be vindicated by the war,1 was received as completely alien when it was first introduced. FDR, and his Treasury secretary Morgenthau, were steeped in the morality of public budgeting, believing that deficit-financed recovery and reform was “too good to be true, you can’t get something from nothing.” Interestingly, the women in Keynes’ and FDR’s professional vicinity were the least dumbfounded by the mystery of the multiplier, particularly FDR’s Labor secretary, Frances Perkins.
Keynes even took his argument to absurd lengths in his seminal text General Theory, saying it was not strictly necessary for deficit financed recovery to come in the form of public investment undertaking the vital roles which “presently are not done at all” as Keynes wrote earlier in The End of Laisse Faire:
“If the Treasury were to fill old bottles with banknotes, bury them at suitable deaths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise…to dig up again… there need be no more unemployment…..It would indeed be more sensible to build houses and the like, but if there are political and practical difficulties in the way of this, the above would be better than nothing.”
The recurring pattern in the crises he observed from the outbreak of WWI, to crushing reparations imposed on the Germans, to clinging to the nostalgia of an untenable Gold Standard, to the spiraling logic of deflation under conditions of financial panic and mass unemployment is that they were all preventable. They reflected a “malfunction in the ad hoc bookkeeping system of modern finance… only a technical problem, easily remedied. The Depression (as well as reparations and the Gold Standard) were mistakes.” In doing so, he rejected the critiques of the Marxist left that cruelty and greed of capitalists and of the aristocratic right that sloth of the masses were fundamentally to blame. Keynes also overstated his case to future followers who would distort the ambiguous, often contradictory, beauty of Keynesian philosophy to a purely technocratic economic program.
The later distortions obscured the most fascinating thing about Keynes. He may have been the last great economist who lived up to the aspiration of the profession as plainly stated by John Stuart Mill, “An economist isn’t a very good one if he is nothing else.” His activities both as a part of the Apostles group at Cambridge and as a member of the Bloomsbury set demonstrate how wonderfully strange Keynes was. He was a right-brained thinker who nonetheless sought out the insights and close friendships of literary lions, artists, and philosophers who sought to better understand the true nature of beauty and of the good.
While future economists would assume utilitarian calculations as fundamental to microeconomic analysis—more was better and getting more with less was better still (the precise mantra my ECON 101 professor repeated at UCSD)—Keynes was skeptical that a central organizing principle could bring about the good society. He was a follower of Moore’s Principia Ethica, which applied an essential bit of Greek wisdom on the sovereignty of the good—“simple, indefinable, unanalyzable”—to attack Bentham’s utilitarianism. Moore would go on to write that the purpose of the good life ought to be to enjoy the highest goods that correspond to the most fundamental human needs—that of human intercourse and creativity—independent of whether they maximize pleasure in the moment. In contrast to his aristocratic adversaries who would later challenge his ideas but shared his assessment on the futility of methodological analysis of complex phenomenon, namely Frederick von Hayek, Keynes (and another member of the Bloomsbury intellectual milieu, Bertrand Russell) believed that democratizing these highest goods to the poor and working class did not debase them, instead they elevated the potential for greater human flourishing.
The word “democratize”, especially as it applies to the control of economic life so the working classes can be allowed to enjoy the fruits of high leisure, inevitably leads to the question of whether Keynes was a socialist. The question is not as absurd as it may seem given his biographical details. After all, the Bloomsbury set, in its rejection of conventional Victorian values and promotion of free love, may best be described as an aristocratic British version of the counter culture movement in the U.S. in the 1960’s. In the postwar era, many of Keynes’ most enthusiastic followers would fall victim to Cold War hysteria surrounding the McCarthy hearings. Indeed, Keynes actively recruited from the scores of young Marxists who arrived at Cambridge radicalized by the events of the 1930’s.
Nonetheless, the definitive answer is no because the purpose of his program was not because he believed that socializing of investment was inherently virtuous but for its stabilizing effects. He had little good to say of the socialists of his day who preached solidarity to demonstrate virtue devoid of practical content, “Socialism, whatever that may mean,… is merely a word, only useful so long as it cloaks decently the nakedness of Labor policy.” Keynes would have much to say about modern progressives who appear to be more infatuated with labels and appearances than actual sacrifice.
In other words, Keynes was a social democrat in ways appreciated by the neo-Keynesian economist, Arthur Okun, “Capitalism and democracy need each other—to put some rationality into equality and humanity into efficiency.” Keynes’ original portrayal of this tension was less eloquent—how to strike the balance between ethically tolerable and economically not intolerable, at least until postscarcity assigns ethical considerations to their proper formative role and relegates economists “to that of dentists”, who perform technical operations but are not sought after as arbiters of enlightened wisdom.
The implication that Keynes was somehow a malign socialist belies the fundamental conservativism of his thought, and indeed of social democratic ideology. To be sure, Keynes’ ethical orientation was borderline utopian. But his comfortable background led him naturally to the paragon of conservative thought, Edmund Burke, the subject of his undergraduate thesis at Cambridge. His primary problem with the established orthodoxy was not that it was unduly exploitive—though it certainly was—but that laissez faire was left in a position without a manager such that all the inherited traditions of civilization are vulnerable to dissolution when society unravels. The synthesis he attempted in order to resolve the tension between rights and scarcity was truly unprecedented—“how to make the practical, risk-averse, anti-revolutionary conservatism of Burke fit the radical democratic ideals advanced by Rousseau.” But it was enabled by the secular progress made since the 18th century.
He ultimately failed, mainly because he had little control of his ideas after his death in 1946. The neo-Keynesian economics profession practiced selectivity on which ideas they chose to package as their own. With the exception of a few heterodox journals where the margins of the profession published, including Keynes’ contemporary who pioneered work on imperfect competition and monopsony theory, Joan Robinson, they discarded messy ideas that were not attuned to equilibrium analysis. On the other hand, they eagerly embraced the portions of General Theory which implied that the effect of a crisis could be greatly blunted with light touch technical intervention to manage aggregate demand and ensure full employment, which included the mutated form of Keynesianism that Keynes himself would have detested most—the build-up of the military industrial complex. The tragedy of the Keynesian Revolution was simply:
Samuelites had “taken Keynes’ theory and constructed a system that, just like the orthodoxy of the 1920’s, dismissed the significance of human agency. One government spending was as good as another, as long as the result was full employment. And so the economics profession and the Keynesian tradition had lent their prestige to horrific political choices: the Cold War and ecological destruction,” Robinson said in a prophetic crescendo of a speech delivered to AEA in 1971.
The great strengths of Keynesian thinking, its ambiguity and emphasis on radical uncertainty, were subverted so thoroughly as to render the origin of neo-Keynesian ideas unrecognizable. The reason is in part directly the result of Keynes’ academic trick in General Theory to make his prose dense so as to give off the impression of profundity as well as excluding explicit policy directives with respect to public investment. But it also reveals something deep about human nature that the economics profession took ambiguous, but actionable, messaging and systematically converted it into macroeconomic models with methodological individualism as the basis. It is almost as if we desire overstructured playgrounds to the bombed out junkyards that are more conducive to our innate predilections for novelty and growth. The task of the economics profession in the age of climate crisis and pandemic is to reclaim the true spirit of Keynes. That is, to recognize the limits of what is knowable but to nonetheless make ethical judgments on how to best foster the stabilizing environment that will usher the end of scarcity and enable humans everywhere to enjoy those things that are simply good.
Keynes was aware that his ideas would soon be proven correct. He wrote in a letter to the playwright, George Bernard Shaw, in 1935, “I believe myself to be writing a book on economic theory which will largely revolutionize – not, I suppose, at once but in the course of the next ten years – the way the world thinks about its economic problems.” Precisely ten years later after the end of the war, his ideas were completely vindicated. A philosopher at heart, he also knew that the public could sadly only arrive at his enlightened insights through the wanton destruction of war, “It is, it seems, politically impossible for a capitalist democracy to organize expenditure on the scale necessary to make the grand experiment that would prove my case—except in war conditions,” (Quoted in Post-Monetary Plans by John H. Williams p. 80).