Still in thrall to John Maynard Keynes

Steven Pearlstein

THE WASHINGTON POST – “Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.”

As defunct economists go, perhaps none has had more influence than the one who prophetically penned those words back in 1936: John Maynard Keynes. And if there were ever a time when that influence was on display, surely now would be it.

When governments lavishly borrow and spend to prop up an economy in the midst of a pandemic, they are in the thrall of John Maynard Keynes. When central banks print seemingly unlimited amounts of paper currency to buy up government and corporate bonds, they are following the playbook of John Maynard Keynes.

When we worry that uncertainty and fear will turn a momentary downturn into a prolonged recession, we are channelling John Maynard Keynes.

It is our good fortune, then, that at this most Keynesian of moments, Zachary Carter has produced a spectacular new biography that paints a rich and textured portrait of the great economist and locates his ideas within the broad sweep of economic and intellectual history.

Although Carter is known for his reporting on economic policy for HuffPost, he has found an even higher calling as a writer who can explain economic concepts with such clarity and simplicity that we digest them with the same ease and satisfaction as a plump oyster sliding down our gullet.

With his first book, Carter establishes himself as the rare writer who can weave compelling narrative, insightful analysis and explication of complex phenomena in prose that is accessible, elegant, almost lyrical at times. The Price of Peace should be required reading for every economics major and anyone who struggles to understand the interplay of money, markets and economic policy.

Although a prodigious researcher, Carter owes much to the British economist Robert Skidelsky, whose authoritative three-volume biography was the first to proclaim that Keynes had done for economics what Einstein had done for physics.

Carter’s contribution is to chronicle the development of Keynesian economics in the decades since, both in England, where it retains a more socialist patina, and in the United States, where it has been moulded by economists such as John Kenneth Galbraith, Paul Samuelson, James Tobin and Robert Solow into a theory that is more respectful of markets and tolerant of the inequality, insecurity and monopoly power that they produce.

Carter’s perspective is that of a 21st-century American who sees a parallel between Britain’s decline and fall as an economic superpower, starting in 1914, and a similar fall from economic grace that he fears has begun in his own country.

In Carter’s telling, everything Keynes did as an economist, journalist and public official was motivated by his determination to preserve Britain’s place in the global hierarchy. The tragic irony of his remarkable career was that his ideas were rejected before they were belatedly embraced.

At the Paris Peace Conference that convened at the end of World War I, Keynes failed to persuade his own delegation, and those of the other Allied powers, not to saddle Germany with reparations so large that they would crush the German economy. Not only would the money never be paid, Keynes warned prophetically, but the punishment would invite social unrest and a nationalist resurgence that could lead to another war.

Dejected, he returned to London early and penned The Economic Consequences of the Peace – a “furious tirade against autocracy, war and weak politicians,” as Carter describes it – which became an instant bestseller and established Keynes as Britain’s best-known and most influential economist.

If I have any quibble with The Price of Peace, it is with Carter’s critique of “neoliberal” economists and policymakers who strayed from the true Keynesian path over the past 40 years by embracing globalisation, deregulation and fiscal austerity. Keynes would have surely understood that the job of each generation is to adjust to changing circumstances and technologies, preserving whatever arrangements deliver broadly shared prosperity and fixing those that don’t.

And by the early 1980s, there was a lot about the old Keynesian consensus that needed fixing. While it may have made sense for a British economist in 1946 to focus on the need for government to steer public and private investment to rebuild a war-ravaged economy, an economist in 1980 would have seen how too much government management had eroded economic efficiency and competitiveness, stifled innovation, and opened the door to rent-seeking and crony capitalism.