Robert Skidelsky on Keynes

Let’s start with the Roy Harrod.

The Harrod is the first biography and, actually, the only official biography of Keynes. Harrod had the great advantage of having known him and was, of course, an admirer. The book was written six years after Keynes’s death but it still has its virtues. He has the virtue of intimacy and of knowing Keynes very well and knowing the time very well. The downsides of the book are its omissions. There are three big omissions. The first is that Harrod leaves out any references to Keynes’s conscientious objection to the First World War. Keynes basically disapproved of it, though he served it in the Treasury, but if he hadn’t he would have been a conscientious objector. The second omission is Keynes’s homosexuality. For most of his life Keynes had boyfriends, the main one being Duncan Grant, the painter. They remained friends though their sexual relationship ceased. But when Keynes was middle-aged, in fact he was 40, he met and fell in love with the ballerina Lydia Lopokova and they married. Any hint of his homosexuality is missing from the Harrod book. The third omission is Keynes’s quarrel with the United States over the reparations from Germany after the war, which Keynes felt had too many strings attached and compromised independence. Harrod essentially omits anything that might muddy Keynes’s reputation as the great saviour. The homosexuality he probably had to leave out since he was writing before the kiss-and-tell biography and people didn’t discuss that kind of thing much in those days. My own biography of Keynes has superseded this one, he says arrogantly, but not entirely. I didn’t know the character, of course.

So Harrod’s book is more of a hagiography, really?

It is a bit of a hagiography, yes, but he did the economics very well. I wouldn’t decry its virtues.

What, in a nutshell, are the economics?

Keynes attacked the classical economists who believed that economies are essentially fully employed such that government intervention is unnecessary. He said that economies are subject to slumps and crises and that if crises happen then we must pump air into the leaky balloon, much like the stimulus package now. His realisation was that economies are unstable, that they deflate and slide, that unemployment can go up and people suddenly don’t spend as much, that this is likely to happen from time to time and governments should prevent it from happening because the costs are so huge. For the past 30 years Keynes has been largely ignored because Reagan and Thatcher thought the markets were essentially stable and under control. People are realising now that this was a very one-sided view.

And the Davidson book?

Ah, yes. Well, Davidson is a bit of a lonely pioneer. His book on Keynes is a straight, honest, succinct statement of what Keynes was about and it has the great merit of putting uncertainty at the centre of Keynesian theory. This was something people ignored even when Keynes was at the height of his popularity. Why? Because people don’t like uncertainty. Mainstream economists think that people have correct expectations about the future. It’s mad really if you think about it. I mean, you can perhaps be certain about tomorrow but if you are thinking about investing in a new plant or a new process you have to think in years, you have to acknowledge that things can go wrong, people make mistakes. Uncertainty is very central to Keynes, but even when he was in the ascendant it was rather omitted. But Davidson held fast and has, I think, been vindicated. When an economy has a big shock people don’t redirect their spending; they stop spending.

That the future is uncertain is obviously true. I don’t understand how anybody could oppose that view.

Ah, well, it’s very mathematical and the classical economists do their maths so that the equation comes out right. Most non-economists would see it as a lot of nonsense, but it goes back to the Newtonian view of economics, which is that a pendulum swings to the left and right but ends up back in the middle. It is basing economics on natural science, but in order to do that you have to assume that human beings are like robots, that they are just a collection of atoms. I don’t think that’s how you do economics and nor does Paul Davidson. When there is a shock or uncertainty we like to keep our money, not just under the bed, but we don’t like to spend it. Davidson was outside mainstream Keynesian economics but I follow his view in my books and I give him credit for focusing on the uncertain expectations.

What about Minsky?

Minsky. Minsky died in 1986 and he taught at an obscure university in St Louis. When he died there were some reverential notices but he was not generally well-known. However, he made a very important contribution to Keynesian economics. He thought that financial systems ought to be a way of transforming money, a conduit between people who had a bit of money to invest and others who needed to borrow that money. But what he pointed out was that, in fact, financial systems are just speculation, that some people are making huge amounts of money for themselves by speculating. So, suddenly now people are asking: Is this a Minsky moment? And I think it is.