Economist John Maynard Keynes (1883–1946) is one of the major intellectuals of the 20th century, whose ideas bestrode the world like a colossus. After 1930, he was easily the most influential economist in the world at a time when everyone was looking for a savior to show the way out of financial and economic disaster.
The core of his message was to reject the wisdom of the past and embrace his “new economics” as outlined in his 1936 book “The General Theory of Employment, Interest, and Money.”
Few today have read it at all. Even at the height of its fame, it was not seriously investigated with a critical eye. It was just assumed to be the book that refuted all that came before and forged a new and more scientific path.
Yes, it had its critics, but they existed on the margins of the profession. There was a sense in the air that everyone wanted it to be true, because it was this book that presented the scientific rationale for government policies in the United States, the UK, and Europe generally.
So firm and exalted was his reputation that not even that damning passage seemed to hurt his reputation. I mean, Keynes here was siding with Nazism even as his apologists said: No, no, he is merely saying that a planned society is to be preferred to the anarchy of freedom.
As the war was ending, it was Keynes who was called up to be the leading intellectual architect of the international monetary and trade system that came to be embodied in the Bretton Woods Agreement that eventually fell apart.
His intellectual fame was earned much earlier in life. He hailed from the British upper class and attended all the best schools, cultivating vast contacts and credibility backed by an impeccable social manner and dashing looks. Every report from the period suggests that it was his personal magnetism and refined wit as much as his theoretical rigor that bolstered his fame and influence.
I had known a colleague of his, Gottfried Haberler, a Harvard economist who had a hand in the construction of the postwar trading system. Haberler was a respectful critic of Keynes but never really an opponent, even if Haberler was more inclined toward classical thinking. I would visit Haberler in his home during his last years.
In his last months of life, Haberler would have me by his bedside to read works of economics to him. His favorite reading, I’m sorry to report, was a book of Keynes’s letters. He would tell me the page of the book and ask me to read it, and I would comply. He was lying there with a happy smile on his face as I read, sometimes for up to an hour. It was, for me, a fascinating look into a time in which Keynes the man held the whole world enthralled by his charm and mastery.
But what about his theories themselves? They were never stable. He was a defender of free trade and then not, a champion of fiscal prudence and then not, a critic of inflation and then not. He moved with the political trends of the time and developed an uncanny knack for anticipating them and speaking out at just the right occasion.
His greatest work in his early years was “The Economic Consequences of the Peace” from 1919. He had done the math on the reparations being asked of Germany in the Versailles Treaty. He saw that gold would be outflowing from Germany, risking inflation in the United States, at the same time putting untenable fiscal pressure on Germany that would prevent its reindustrialization and recovery.
His book was both ferocious and fearless—and it turned out to be exactly right. Germany ended up printing the money to comply with Allied demands. That destroyed the German currency and sent the country into total upheaval. It fueled the rise of Hitler and the Nazi Party and thereby created the exact conditions that led to a second and more devastating war. This period illustrated the catastrophic failure of expert opinion at the time, and Keynes was seen as its prophet.
Regardless, Keynes came to be appraised by the world elites, whereas Mises was sidelined within Austrian academia and eventually driven out of the country. This might have been due to the accidents of culture and birth. Keynes was British and upper class, whereas Mises wrote and published in German, and his book was not translated until many decades later.
In any case, it was that book that made Keynes’s reputation as a truth teller. When the depression hit, his voice was the one that rose to the top. Even from 1930, he was announcing the end of liberalism—which, in those days, meant the old understanding of freedom—and recommending government management of the business cycle.
His book that codified his schemes did not appear until six years later. By that time, his reputation approached demigod levels, so much so that even the obvious gibberish of his new vocabulary and deeply questionable theorizing wasn’t given the close examination that it deserved. Indeed, one of Keynes’s biggest critics in the UK, F.A. Hayek, didn’t even bother with a systematic critique. The reason? Hayek presumed that the wily Keynes would change his mind in a couple of years, so there was not much point in taking the book apart.
One of Keynes’s many lasting legacies is his valorization of low-to-zero interest rates as a method of spurring spending by both business and consumers. He saw no downside to this path. His dream of zero interest rates was eventually realized in the policies of Japan in the 1990s and the United States during and after 2008. The creation of vast fake money only had the effect of distorting production structures. In the U.S. case, the policy addicted financial and lending markets to cheap money, thus creating zombie banks and corporations. It’s no longer clear whether and to the extent there is any distinction between leverage and genuine productivity.
One can only marvel at the influence of Keynes on government policy around the world, as he once wrote: “The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.”
Keynes had uttered a truth and also a telling confession and prediction. The world is still ruled by this defunct economist and academic scribbler who unleashed the madmen of the world. At the same time, long before the world grew weary of the pronouncements of the COVID potentates, Keynes became the world’s most important contributor to the discredit of the expert class. Like few men in history, he wielded enough influence to mold the world to the shape of his personal vision, which was implemented and failed. He was the greatest and possibly the last of the old-world intellectuals.
My mind often races back to that lonely room of Haberler and the broad smile that came across his face as I read Keynes’s letters to him. His mind was filled with nostalgia for the better days—from his point of view—when the world revered the experts. They are not likely ever to return in our lifetimes.
