Brad DeLong has made available a class lecture of his of 09/29/2009, John Maynard Keynes:
For the litterati [sic] it is Keynes of Bloomsbury—his loves, enthusiasms, acts of patronage, and wit—who is the most interesting. For economists like myself, it is Keynes the academic who is the real Keynes: he was the founder of the half-science half-witchcraft discipline of macroeconomics. For those interested in the political and economic history of the twentieth century, it is Keynes the author and politician who is primary. In either case, John Maynard Keynes is the man who has the best claim to be the architect of our modern world—whether it is how our central banks think about economic policy, what our governments believe that they must try to do, the institutions through which they work, or the habit of thought that views the economy not as Adam Smith's "system of natural liberty" but as a complicated machine that needs adjustment and governance by trained professional technocrats, all of these trace large parts of their roots to the words and deeds of John Maynard Keynes.Galbraith relates some of the havoc caused by the gold standard in the 1920s. When Winston Churchill became Chancellor of the Exchequer, he convinced Parliament that Britain should go back on the gold standard. Keynes warned that there would be unpleasant consequences. But, as Galbraith explains in the companion volume:
Why the mistake? To go back to the old rate of exchange of pounds for gold and dollars was to show that British financial management was again as solid, as reliable, as in the nineteenth century. It proved that the war had changed nothing. It was a thought to which Winston Churchill, historian and professional custodian of the British past, was highly susceptible. Also, bnly a few people partic;ipate in such decisions, and the instinct is strongly conformist. The man of greatest public prestige states his position at a meeting; the others hasten to praise his wisdom. Those who have a reputation for dissent, like Keynes, are not invited . They a re not responsible, serious, effective. It follows that financial decisions, like those on foreign policy, are carefully orchestrated to protect error.Galbraith in 1977 already knew what Paul Krugman learned more recently through his own experience as a pundit and economist who was saying things the Very Serious People didn't want to hear: that it's generally better for one's reputation to be conventionally wrong than to be unconventionally right. And Keynes was right in that instance. Galbraith:
Asthe mines of the Ruhr came back into production after 1924, world prices of coal fell. To meet this competition with the more expensive pound, the British coal-owners proposed a three-point program: longer hours in the pits, abolition of the minimum wage, lower wages for all. (Let Enoch Powell, Ronald Reagan and Milton Friedman take comfort; there was a day when such actions could be urged. Who knows, maybe their sun will shine again.) A Royal Commission agreed that the lower wage was necessary. The miners refused; the owners then locked them out. On the fourth of May, 1926, the transport, printing, iron and steel, electricity and gas and most of the building-trades unions came out in support of the miners. This, with some slight exaggeration, was called the General Strike. For quite a few workers it didn't make too much difference; they were already on the dole, for unemployment, the other remedy, was by then well advanced. In these years unemployment ranged between ten and twelve percent of the British labor force.And, of course, the sun of austerity, of austericide economics, is shining once again in the current North Atlantic depression. And Galbraith relates that the historical predecessor of the austerity obsession of German Chancellor Angela "Frau Fritz" Merkel, Heinrich Brüning, was one of "the most devoted exponents of" austericide during the Great Depression:
The General Strike lasted only nine days. Those who had most ardently applauded the return to gold were the first to see the strike as a threat to constitutional government, a manifestation of anarchy. Churchill took an especially principled stand. The miners remained on strike through most of 1926 but were eventually defeated. Keynes's judgment was redeemed but he was not forgiven. It had happened again: when the men of great reputation are wrong, it is the worst of personal tactics to be right. [my emphasis]
Bruning's remedial action in 1931 was especially memorable. Wages were cut; prices were cut; salaries were cut; taxes were raised. All this was done at a time when around a quarter of all German industrial workers were unemployed. Not many have wanted to ask the question .which some millions of German workers did ask themselves. If this is democracy, can Hitler be worse? Andrew Mellon, Hoover's Secretary of the Treasury, had a similar proposal: "Liquidate labor, liquidate stocks, liquidate the farmers ..." After Mellon was finished, there would, it is true, be no way left but up.In 1977, it was still widely assumed that not even conservatives would be so foolish as to again embrace such a view in a depression. But today we have conservatives like Frau Fritz and David Cameron, the French Socialist François Hollande and the American Democrat Barack Obama all following the same Herbert Hoover/Heinrich Brüning austerity policies. It didn't work out happily then, and it's not working out very well now. We can still hope the consequences for democratic governance won't be as drastic in our time as back then.
Galbraith also relates something of his biographical relationship to Keynes' ideas. Keynes' work offered the possibility of meaningful reform to mitigate the effects of depression in a major way without revolutionary change:
It was the young who were captured. Economists are economical, among other things, of ideas. It is still so. They make those they acquire as graduate students do for a lifetime. Change in economics comes only with the changing generations. The great economists of that day read and reviewed Keynes and uniformly found him wrong.That part is not so different today, either. As Arlo Guthrie once put it, "Some things change, you know. Some things don't."
But so influential was Keynes among the young at Harvard that in later years an association of alumni was formed to combat his influence. They threatened to cease financial support to the university unless his ideas were repressed or expunged, although it is not clear that many had given much before. Conservatives regularly extend their faith to the management of their personal resources. I was singled out for attack as the Crown Prince of "Keynesism." I was greatly pleased and hoped that my friends would be properly resentful.
That was Keynes. You came to him out of conservatism, your desire for peaceful change. And by urging his ideas you won a reputation for being a radical.
Tags: age of uncertainty, john kenneth galbraith, keynes