David R. Henderson  

Keynes a la Mode

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From the Handbook of the So... Psychiatry's Disorders...
Backhouse and Bateman argue, as the book's title implies, that although Keynes wanted a substantial amount of government intervention, he did believe in preserving large elements of capitalism. This part of the book is somewhat persuasive, although their discussion of Keynes's famous "socialization of investment" advocacy was not completely convincing. But the authors also have another important theme: They argue against the classical liberal view that government should basically keep its hands off the economy. Their attempt fails. They get some basic and important facts wrong, have trouble accounting for the stagflation of the early 1970s that persuaded many economists to abandon the Keynesian model, often misstate the views of Keynes's critics, and occasionally use subtle shifts in language and even ad hominem attacks to undercut the views of free-market economists, most notably Milton Friedman.
This is the summary paragraph from my review of Roger E. Backhouse's and Bradley Bateman's book, Capitalist Revolutionary: John Maynard Keynes.

Here's an excerpt on one major fact that they got wrong:

A major component of Roosevelt's first New Deal, they write, was his plan "to raise industrial output by diminishing the monopoly power of big business." In fact, the opposite was true. Roosevelt's National Industrial Recovery Act, enforced by the National Recovery Administration (NRA), cartelized the major industries, forcing them to raise their prices. In short, FDR's goal was to increase monopoly power. At the higher monopoly prices, customers wanted less output, not more, and the NRA "succeeded" in slowing the recovery.

There is one thing, though, that the authors pointed out that I found quite admirable about Keynes. I wrote:
The book does leave one strongly positive impression of Keynes. A failing of many economists nowadays who work for high-level politicians is that in their later careers, they pull their punches. Criticisms they would have made of other politicians for bad policies are criticisms they tend not to make of the politician they previously worked for. Keynes did not have that failing. The authors write:

[D]espite his long commitment to the Liberal Party, he was willing to point his pen at people and policies regardless of the party from which they originated. . . . Keynes's Essays in Biography, published in 1938, contained a portrait of the Liberal leader Lloyd George, with whom Keynes had recently worked, that was very unflattering. . . . Keynes worked first and foremost to achieve what he believed was in the best interests of Britain, which was not always the same thing as what was best for particular parties or individual politicians.

Good for Keynes.


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CATEGORIES: Macroeconomics



COMMENTS (2 to date)
david writes:

Do you know of any exposition of how New Deal-era progressives thought about monopolies? Certainly it seems to have differed from how 20s progressives thought about, say, trusts.

The modern conception of monopoly as restricting output to raise price is the Marshallian account of it, but the 40s progressives seemed to have been operating on different understandings of what monopolies were or did - lots of invocations of destabilizing competition and so on. Today we can look back and say: aha, this is symptomatic of a deflationary environment in which businesses resist nominal adjustment and so shut down instead; the problem was really monetary, not real. But I am curious what the New Deal thinkers thought.

Mark Brady writes:

Too bad. We might have expected a better book. Roger Backhouse is perhaps the most renowned historian of economic thought in the UK.

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