Alberto Mingardi  

Keynes for limited government?

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The Free Exchange Economist blog recently published a nice celebration of Hayek's "The Road to Serfdom", that was published some 70 years ago. It might not be Hayek's best book, but it is still the most popular one. It enjoyed a tremendous success, largely thanks to the abridged, Reader's Digest version. It is appropriate to remember that Keynes had nice words for his old friend/foe's work, not least because the book was not welcomed with great enthusiasm by many academics (just check the transcript of the radio discussion Hayek had with Maynard Krueger and Charles Merriam, in "Hayek on Hayek").
The Free Exchange Economist blog quotes a letter Keynes sent to Hayek on June 28, 1944. Keynes' letter was friendly and by and large complimentary. He suggested Hayek should not have deprecated "all the talk about plenty just round the corner". He recognised the two of them have "a different view about the facts" (think about Keynes' "Economic Possibilities for our Grandchildren"), but he also tried to "nudge" Hayek in his direction with the following argument:

The line of argument you yourself take depends on the very doubtful assumption that planning is not more efficient. Quite likely from the purely economic view it is efficient. That is why I say that it would be more in line with your general argument to point out that even if the extreme planners can claim their technique to be the more efficient, nevertheless technical advancement even in a less planned community is so considerable that we do not today require the superfluous sacrifice of liberties which they themselves would admit to have some value.

Here Keynes seems to maintain that there is a trade off between liberty and planning: we could preserve individual freedom at the cost of some economic efficiency, and we could do so just because, after all, the age of scarcity is going to be over soon. All in all, it is hard to think of a less Hayekian argument than this one.
The conclusion of the letter deserves to be quoted in full:
What we need therefore, in my opinion, is not a change in our economic programmes, which would only lead in practice to disillusion with the results of your philosophy; but perhaps even the contrary, namely, an enlargement of them. Your greatest danger ahead is the probable practical failure of the application of your philosophy in the US in a fairly extreme form. No, what we need is the restoration of right moral thinking - a return to proper moral values in our social philosophy. If only you could turn your crusade in that direction you would not look of feel quite so much like Don Quixote. I accuse you of perhaps confusing a little bit the moral and the material issues. Dangerous acts can be done safely in a community which thinks and feels rightly, which would be the way to hell if they were execute by those who think and feel wrongly.

Keynes' problem was not, thus, to decide where to "draw the line" and set a reasonable limit to state action. His problem was to make sure the best were in charge. Government can be unlimited, insofar as the best people are in charge. This is enough to make sure that "dangerous acts can be done safely". Hayek, in "The Road to Serfdom", tried to figure out "why the worst get on top".
In their masterful treatment of Keynes's political legacy, Buchanan and Wagner showed how he always held dear "the presuppositions of Harvey road" - that is, the "idea that the government of Britain was and could continue to be in the hands of an intellectual aristocracy using the method of persuasion" (Harrod). A well-meaning paternalism on one hand, an appreciation for freedom also in its less predictable off-springs: it is very difficult to reconcile these two attitudes, that have often (and understandably) been identified respectively with Keynes and Hayek.


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COMMENTS (8 to date)
Alexander Severns writes:

Interesting article. Amazing to think of how Keynes suggestion very closely describes some of the Nordic countries - populations who have embraced social programmes but have nevertheless by their own "morality" and virtue (productive workers, homogeneous society with low crime, etc.) have done alright for themselves. I think Hayek, and many modern libertarian thinkers would claim in response that such an "enlightened" population would do even better in a society unfettered by social programmes.
Funny too, to see Keynes the classic political realist addressing how unpopular sudden reforms towards economic and political freedom would be in the short run, which is indeed what we see all over the world now.

Daniel Kuehn writes:

No hold on a minute. Where do you get "Government can be unlimited, insofar as the best people are in charge" from "Dangerous acts can be done safely in a community which thinks and feels rightly"?

The two essential elements of your version - "unlimited" and "are in charge" appear nowhere in Keynes's claim.

I take it to be more of a Tocquevillian point, not one that Hayek was generally inclined to make but not one that is so at odds with Hayek as you suggest here either.

And, as I've recommended before, the antidote to Keynes' belief is a 1959 Peter Sellers-Terry Thomas movie, 'I'm All Right, Jack.'

Roger McKinney writes:

Alexander, before concluding that the Nordic countries "have done alright for themselves," check out the writing of the Nordic economist Per Byland at http://perbylund.com/opinion/. They were very free market until after WWII and then turned socialist. As a result, they lived off the capital accumulated before going socialist. Since the 1990's they have rapidly rolled back their socialism as their wealth began to run out. Also, check out Stephan Karlsson at http://stefanmikarlsson.blogspot.com/

There are still alot of myths in the US about how well the economies of the Nordic countries are doing.

Also, keep in mind that Denmark has eliminated corporate taxes in order to boost exports.

Roger McKinney writes:

Anyone who has read the chapter in GT that describes Keynes' ideal economy in which the state directs all investment knows that Keynes saw no limits to state. And he was every bit the aristocrat in thinking that all would be well as long as people like him were in power.

Gary Mullennix writes:

Plato, and so many other great Utopian thinkers, like Keynes, were absolutists who created a grand scheme of a perfect society which only depended upon having selfless, sacrificing, persuasive, extra ordinary intelligence and deep wisdom whose life's task was to plan and execute a perfect society through the mechanics of government. As I consider that description, images of Hitler, Mussolini, Stalin come to mind. It seems that generally, the worst and not the best, come to power. While not in the same league of ruthless power-use, today's line up, Biden, Obama, Lois Lerner, Ezekial Emanuel, Pelosi, McConnel, et al are profound reminders of Madison's observation that men are not angels. Indeed.

John Csekitz writes:

Maybe “the curious task” will always be pitted against the “man of system” and vise versa.

Roger McKinney writes:

Here's another good article on Sweden:

Sweden’s public spending as a proportion of GDP was at 67%; today it’s at 49%. The nation also embarked on an aggressive tax reform program, cutting marginal tax rates to 57%—still high by American standards, but 27 percentage points lower than in 1983.
Across a wide range of fiscal and policy categories, Sweden has opted for reforms, including reducing the corporate tax rate; embracing school vouchers; moving toward defined-contribution pensions; tightening eligibility for unemployment; and privatizing health care and other social services.
Swedish economist Anders Aslund writes of attending a spring 2012 conference on the Swedish economy and witnessing how far the intellectual center of gravity has shifted—and not just among traditional advocates of free markets.
“I was amazed to hear how far the consensus had moved to the free-market right, even among Social Democrats and trade-union leaders,” Aslund writes on Bloomberg.com. “The values are competition, openness, and efficiency, while social and environmental values remain—a social-welfare society without the social-welfare state. The idea is to make it more efficient through competition among private providers.”

http://www.freeenterprise.com/government/did-sweden-just-make-case-free-market-policies

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