Skidelsky quote on Keynes versus the 'Keynesians'
Source Sandwichman
Date 09/08/06/10:44

Another Skidelsky quote, this time on Keynes versus the 'Keynesians'.

"What emerges from these comments [Keynes's wartime thoughts on 'full
employment'] is a distinct bias against deficit finance and fine
tuning. The emphasis should be placed on prevention, not cure, on
maintaining a steady stream of employment, not offsetting
fluctuations. If--and here Keynes reverts to his ideas of the
1920s--"two-thirds or three-quarters of total investment is carried
out or can be influenced by public or semi-public bodies, a long-term
programme of a stable character should be capable of reducing the
range of fluctuations to much narrower limits than formerly. ... If
this is successful it should not be too difficult to offset small
fluctuations by expediting or retarding some items in this long-term
programme" ("The Long Term Problem of Full Employment," May 25, 1943,
CW, XXVII, p. 322).

"My final section can best be introduced by quoting from a letter
Keynes wrote to T.S. Eliot on April 5, 1945: "The full employment
policy by means of investment," he wrote, "is only one particular
application of an intellectual theorem. You can produce the result
just as well by consuming more or working less" (CW, XXVII, p. 384).
To make sense of this mysterious remark, one has to go back to Keynes'
essay, "Economic Possibilities for our Grandchildren," first read to
Winchester schoolboys in 1928, or even further back to G.E. Moore's
Principia Ethica, the bible of his youth and the source of his ideas
about the good life. Economics, Keynes always insisted, is only useful
if it can get us over the hump of scarcity, as quickly as possible,
into the realm of plenty, when man would confront his "real, his
permanent problem--how to use his freedom from pressing economic cares
... to live wisely and agreeably and well" (CW, IX, p. 328). "The full
employment policy by means of investment" is Keynes' method of
accelerating through the barrier. From this perspective, the mass
unemployment of the interwar years was not just the result of a random
collapse of confidence, but the precursor of what can happen to rich
societies that fail to make adequate preparations for the good life
which wealth makes possible.

"It is typical of Keynes that he should have returned to this vision
during the war itself, as soon as it became clear that the Allies
would win. The core of it is contained in a memorandum he wrote on May
25, 1943, entitled "The Long-Term Problem of Full Employment." He saw
three phases after the war. In phase I, which he thought might last
five years, investment demand would exceed full employment saving,
leading to inflation in the absence of rationing and other controls.
In this phase, the emphasis should be on securing a high rate of
saving in order to reconstruct the war damaged economy. In phase 2,
which he thought might last between five and ten years, he foresaw a
rough equilibrium between investment and full employment saving "in
conditions of freedom," with the state active in varying the pace of
investment projects. In phase 3, investment demand is so saturated
that it cannot be brought up to the level of full employment saving
without embarking on wasteful and unnecessary programmes. In this
phase, the aim of policy should be to encourage consumption and
discourage saving, and so absorb some of the unwanted surplus by
increasing leisure, with shorter hours and more frequent holidays.
This will mark the entrance to the "golden age," the age of capital
saturation. Eventually, Keynes thought, "depreciation funds should be
almost sufficient to provide all the gross investment that is
required" (CW, XXVII, pp. 321-324; also see Keynes to Josiah Wedgwood,
July 7, 1943, p. 350). It is the age, foreshadowed in the General
Theory, of the "euthanasia of the rentier," since there will be no
demand for new capital.

"The same objection can raised against this essay in prophecy that was
raised against Keynes' earlier "Economic Possibilities for our
Grandchildren": that it assumes that all material wants in the wealthy
nations will be quickly saturated, and that it completely ignores the
capital needs of the poor countries. In these respects Keynes was a
child of his times. He did not foresee that technology would
constantly create new products and underestimated the ability of
advertising constantly to create new wants. Above all, he did not
foresee the postwar population explosion in the developing countries.
This factor, more than anything else, has rendered his prophecy

"Nevertheless, it does raise some pretty fundamental questions about
what economics is for, as well as the distinctly awkward question of
how far the peoples of wealthy nations should continue postponing
their own "golden age" until everyone in the world has caught up with
them. What is certain is that Keynes would never have worshipped at
the altar of GDP. The rate of per-capita income growth was only
important to him as an indication of the speed at which societies were
approaching material abundance. Beyond that point, he expected that
rates of growth would and should slow down. One can surmise that he
would have had little sympathy for "endogenous growth theory" which
promises to postpone the slowdown of rich countries, and thus the
"catch up" of poorer countries, into a far distant future.

"My purpose in this paper has not been to enter into an argument with
Keynes. It has been to show that his thought, from whatever period of
his life one chooses to take it, is richer, more suggestive, and more
unexpected than the textbook Keynesianism that still flourishes, or
the administrative Keynesianism that ruled policy in the 1950s and
1960s. His views on the minimum sustainable rate of unemployment and
his fiscal philosophy still have a great deal to offer governments.
His reminder that economics needs to retain its connection with the
non-economic ends of life as these have been conceived by moralists
and ethical philosophers remains a necessary warning against blind
worship of the golden calf, and against marketization carried to
extreme lengths. So I say: Down with Keynesianism, and up with

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