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Why the world needs Keynes

by William Keegan

Why the world needs Keynes

If ever a non-fiction paperback was worth a tenner – or slightly more – it is The Essential Keynes, edited with an introduction and commentary by Robert Skidelsky.

John Maynard Keynes was an intellectual giant of the 20th century, and, to my mind, Robert Skidelsky’s and many others, the most important economist of that century, his vital contribution and influence live on.

Alas there were times in the last century when his wisdom was ignored – over post-first world war reparations, the return to the gold standard in 1925, and the response to the Great Depression. He had some influence on President Roosevelt in the 1930s, but not enough.

There is more recent evidence in this country and the euro area of some very un-Keynesian approaches to policy. During and after the second world war Keynes’ essential insights were accepted and acted upon.

Keynes paid tribute to the wisdom of Adam Smith in one of his last writings. But he established that the invisible hand and the classical economists who paid obeisance to that hand were capable of producing so called ‘equilibrium’ in the economy at dismally low levels of employment for a considerably long time. This was economically and socially wasteful. As Keynes wrote during the economic horrors of 1929, ‘There is work to do; there are men to do it. Why not bring them together?’ Fiscal policy Keynes developed his thoughts on how to run an economy more successfully in voluminous writings, with an initial emphasis on the importance of low interest rates, and an increasing concentration on fiscal policy.

Fiscal policy came to embrace changes in the level of taxation and public expenditure, but the Master’s main interest was in public spending as a tool for boosting aggregate, or ‘effective’ demand. There could be an interaction between an initial boost to public spending, which would have ‘multiplier’ effects – an insight attributed to Keynes’ disciple Richard Kahn – on the private sector.

Keynes was no socialist, but he recognised the importance of what he called the ‘animal spirits’ of businessmen. There were times when confidence was so low that a low interest rate did not necessarily produce the boost to private sector investment that was needed to boost output and employment. That was when the state came in.

One way of explaining the Keynesian approach is to point out that what makes good sense for the individual household does not, at a time of recession, make sense for the entire economy. If everyone cuts their expenditure, that only makes the recession worse. Unfortunately it appears from modern focus groups that the Keynesians, among whose number I count myself, have been putting people’s backs up by referring somewhat contemptuously to ‘household economics.’

We must be more careful. This is a very important area. Time and time again, in pubs and coffee shops, I found during the recent recession that otherwise highly intelligent people do not distinguish between ‘household economics’ and the macro approach.

To them, and indeed to every reader, I commend this wonderful book, as good holiday reading to accompany all those of Le Carré and Montalbano. Robert Skidelsky, with his lifetime devotion to Keynes, has distilled the essence of the work of a many-sided genius, with carefully chosen extracts and a truly impressive commentary.

There are no fewer than 30 volumes of Keynes’ collected works in the series produced by Macmillan. And there are wonderful biographies by Roy Harrod, Skidelsky himself (three volumes plus a one column summary) and Don Moggridge (who edited most of the Macmillan series as well). But for those who are never going to get round to such volumes, this edition is something to be dipped into and treasured. It also contains a handy section of quotable excerpts and gives the lie to the idea that Keynes ever said: ‘When the facts change, I change my mind. What do you do, sir?’

On top of everything else, Keynes founded the Arts Council of Britain and was a strong supporter of the BBC. In a broadcast in 1945 about the new body he said: ‘Do not think of the Arts Council as a schoolmaster. Your enjoyment will be our first aim.’

This volume provides much enjoyment as well as elucidation. Facts do not change. But new information may persuade people to change their minds.

■ William Keegan, Advisory Board William Keegan is Senior Economics Commentator at the Observer.