Wednesday, August 3, 2011

Thoughts on Keynes

I completed Skidelsky’s 3 volume biography of Keynes this week. This massive work is useful although far too long and was for me an eye opener. Clearly Keynes is a seminal figure in the evolution of thought and belief in what might be called the middle way (a section in vol. 3) in social organization, the state and individualism. Brilliant, changeable and intuitive, I have found a great deal in Keyne’s life relevant to the debates that shape policy today.

Keynes first major work dealt with probability and his ongoing analysis of risk and uncertainty is a reflection of central concern in social organizations. His awareness of these twin topics and recognition of the limits that they represented was startling to me, given the evolution of Keynsean thought. Skidelsky writes in vol. 1 - “Keynes attack of the Jevons/Edgeworth approach was in line with his general hostility to the use of mathematical methods in both probability and economics. .. . He regarded both probability theory and economics as branches of logic, not mathematics, which should employ methods of reasoning appropriate to the former, including judgment and intuition, and incorportating a wide knowledge of non-numerical facts.”(222)

This was surprising to me, given the current state of the profession and the influence that Keynes disciples have played in shaping the evolution of economics. In fact, this view, if true, echoes the Knowledge problem in Hayek and is a further connection between the two.

A second surprise, although upon reflection I should not have been, was the attitude that Keynes took toward WW1. Keynes considered himself a pacifist and wrote:

I do not say that there are circumstances in which I should voluntarily offer myself for military service. But after having regard to all the actually existing circumstances, I am certain that it is not my duty to offer myself, . . . I am not prepared on such an issue as this to surrender my right of decision, as to what is or is not my duty, to any other person and I think it is morally wrong to do so. (318)

Wow, this is amazing – both the clear belief in individualism and tying that belief to a morality of individualism. If one thinks of the Boom and Bust videos as a reasonable representation of the debate between Hayek and Keynes on the locus of decision making, this passage suggests that the debate is more complex than liberals might think. In fact, Keynes considered himself a liberal, if not 19th century then 20th and later wrote in the General Theory:

The authoritarian state systems of today seem to solve the problem of unemployment at the expense of efficiency and freedom. It is certain that the world will not much longer tolerate the unemployment which, apart from brief intervals of excitement is associated-and, in my opinion inevitably associated with present day capitalist individualism. But it may be possible by right analysis to cure the disease whilst preserving efficiency and freedom. (vol. 2 p 571)

This passage underscores Keynes optimism in the face of very, very daunting current events, what I read as his commitment to freedom and individualism and a recognition of the Schumpterian claim that capitalism lays the seeds of destruction in an emergent pervasive desire for security, social support and social justice. The middle way that Keynes advocated was an effort to preserve the dignity of the individual in the face of the social tradeoff for security. This, to me, is the crux of today’s debate in the developed world, and the balance of public opinion rests in the mirage of social justice and a utolpian belief in abundance. Both of these contemporary beliefs would have been dismissed by Keynes, nonetheless they are real today. Boyes and I have blogged on the dynamic of this belief – that “justice” demands social security, egalitarianism and provision of an increasing array of “public” goods. Keynes would appear to be closer to opposition to these views than support as advocated by contempoprary ideologues on the right or left. Moreover, Keynes would find much to support in Higgs’ analysis of and condemnation of the warfare state. That said, Keynes spent a great deal of time working from the recognition that both the informal institutional support for the state and the dynamic of the warfare state were realities to be confronted and his method of confrontation was pragmatic not ideological. So, the middle way worked to incorporate actions by the state to preserve freedom. I have learned a great deal about the cultural and social landscape of the 20s and 30s from this biography – the threat of totalitarianism is remote to most today – first Italy, then Germany and later the USSR “seemed” to respond to and recover from the Great Depression and presented not only an alternative but a higher order alternative to the decision making of a liberal society.

Concurrent with this deceptive but pervasive “evidence” of the superiority of planning was a change in the informal institutional matrix that Skidlesky describes:
From the start ‘scientific’ economics had been strongly normative. By increasing understanding of ‘economi laws’ it hoped to shift economic arrangements toward the competitive ideal which would maximize the creation of wealth; hence the strong association between 19th century economics and the policy of laissez-faire. Adam Smith and his followers were chiefly preoccupied with the failures of government. Their idea was that government should keep law and order, and get out of economic life.

By the last quarter of the 19th century the mood had changed. The failures of laissez were palpable, the competence and integrity of governments were much improved; the growth of democracy had increased pressure on the state to ‘solve’ or at least alleviate social problems. What Dicy called the ‘age of collectivism’ dawned. (vol 2 p406)

Skidelshy uses “mood” to capture this emergent (and now prevelant) norm, belief or faith. I am not convinced that Keynes supported this view, after all his origins in Victorian England grounded himg in views that, early in his professional life were expressed in free trade, no social reform by the government and a confidence in markets born of his active participation in currency, commodity and equity markets as an investor and speculator. That said, Keynes was keenly aware of this shift in sentiment and the threat represented to freedom, individualism and capitalism by the manifestation of this belief system in the state.

Like Smith, much in what is attributed to Keynes is wrong and this widespread misconception of the philosophy and thought of these to seminal thinkers is based upon a lack of familiarity with their work – I would guess much use of both thinkers has been made by those who have not read the work or who have not contextualized or understood the work.

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