Keynes, the Man

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published in Dissent
on Keynes: A Critical Appraisal of Keynesian Economics
, edited
by Mark Skousen. New York: Praeger (1992). Pp. 171–198.

John Maynard
Keynes, the man — his character, his writings, and his actions throughout
life — was composed of three guiding and interacting elements. The
first was his overweening egotism, which assured him that he could
handle all intellectual problems quickly and accurately and led
him to scorn any general principles that might curb his unbridled
ego. The second was his strong sense that he was born into, and
destined to be a leader of, Great Britain’s ruling elite.

Both of these
traits led Keynes to deal with people as well as nations from a
self-perceived position of power and dominance. The third element
was his deep hatred and contempt for the values and virtues of the
bourgeoisie, for conventional morality, for savings and thrift,
and for the basic institutions of family life.

Born to
the Purple

Keynes was
born under special circumstances, an heir to the ruling circles
not only of Britain but of the British economics profession as well.
His father, John Neville Keynes, was a close friend and former student
of Alfred Marshall, Cambridge professor and unchallenged lion of
British economics for half a century. Neville Keynes had disappointed
Marshall by failing to live up to his early scholarly promise, producing
only a bland treatise on the methodology of economics, a subject
disdained as profoundly “un-English” (J. N. Keynes [1891] 1955).

The classic
refuge for a failed academic has long been university administration,
and so Neville happily buried himself in the controllership and
other powerful positions in Cambridge University administration.
Marshall’s psyche compelled him to feel a moral obligation toward
Neville that went beyond the pure loyalty of friendship, and that
sense of obligation was carried over to Neville’s beloved son Maynard.
Consequently, when Maynard eventually decided to pursue a career
as an economist at Cambridge, two extremely powerful figures at
that university — his father and Alfred Marshall — were more than
ready to lend him a helping hand.

The Cambridge

The most favored
education available to the English elite was secured for Maynard
by his doting father. First, he was a scholarship student at “College”
in Eton, the intellectual subdivision of England’s most influential
public school. From there, Maynard went on to King’s College, which,
along with Trinity, was one of the two dominant colleges at Cambridge

At King’s,
Maynard was soon tapped for coveted membership in the secret society
of the Apostles, an organization that rapidly shaped his values
and his life. Keynes grew to social and intellectual maturity within
the confines of this small, incestuous world of secrecy and superiority.
The Apostles were not simply a social club, in the manner of Ivy
League secret fraternities. They were also a self-consciously intellectual
elite, especially interested in philosophy and its applications
to aesthetics and life.

Apostle members
were chosen almost exclusively from King’s and Trinity, and they
met every Saturday evening behind locked doors to deliver and discuss
During the rest of the week, members virtually lived in each others’
rooms. Moreover, Apostleship was not simply an undergraduate affair;
it was membership for life and cherished as such. For the rest of
their lives, adult Apostles (known as “Angels”), including Keynes,
would often return to Cambridge for meetings, and they participated
actively in recruiting new undergraduates.

In February
1903, at the age of 20, John Maynard Keynes took his place as Apostle
number 243 in a chain that stretched back to the society’s founding
in 1820. For the next five or six formative years, Maynard spent
almost all his private life among the Apostles, and his values and
attitudes were shaped accordingly. Furthermore, most of his adult
life was spent among older and newer Apostles, their friends, or
their relations.

An important
reason for the potent effect of the Society of the Apostles on its
members was its heady atmosphere of secrecy. As Keynes’s biographer,
Robert Skidelsky, writes,

One should
never underestimate the effect of secrecy. Much of what made
the rest of the world seem alien sprang from this simple fuel.
Secrecy was a bond which greatly amplified the Society’s life
relative to its members’ other interests. It is much easier,
after all, to spend one’s time with people from whom one does
not have to keep large secrets; and spending much time with
them reinforces whatever it was that first drew them together.
(Skidelsky 1983: p. 118; see also Deacon 1986)

The extraordinary
arrogance of the Apostles is best summed up in the Society’s Kantian
half joke: that the Society alone is “real,” whereas the rest of
the world is only “phenomenal.” Maynard himself would refer to non-Apostles
as “phenomena.” What all this meant was that the world outside was
regarded as less substantial, less worthy of attention than the
Society’s own collective life.

It was a joke
with a serious twist (Skidelsky, 1983: p. 118). “It was owing to
the existence of the Society,” wrote Apostle Bertrand Russell in
his Autobiography, “that I soon got to know the people
best worth knowing.” Indeed, Russell remarked that when the adult
Keynes left Cambridge, he traveled the world with a feeling of being
the bishop of a sect in foreign parts. “True salvation for Keynes,”
remarked Russell perceptively, “was elsewhere, among the faithful
at Cambridge” (Crabtree and Thirlwall 1980: p. 102). Or, as Maynard
himself wrote during his undergraduate days in a letter to his friend
and co-leader, Giles Lytton Strachey, “Is it monomania — this colossal
moral superiority that we feel? I get the feeling that most of the
rest [of the world outside the Apostles] never see anything at all
— too stupid or too wicked” (Skidelsky 1983: p. 118).[2]

Two basic attitudes
dominated this hermetic group under the aegis of Keynes and Strachey.
The first was their overriding belief in the importance of personal
love and friendship, while scorning any general rules or principles
that might limit their own egos; and the second, their animosity
toward and contempt for middle-class values and morality. The Apostolic
confrontation with bourgeois values included praise for avant-garde
aesthetics, holding homosexuality to be morally superior (with bisexuality
a distant second[3]),
and hatred for such traditional family values as thrift or any emphasis
on the future or long run, as compared to the present. (“In the
long run,” as Keynes would later intone in his famous phrase, “we
are all dead.”)


After graduation
from Cambridge, Keynes and many of his Apostle colleagues took up
lodgings in Bloomsbury, an unfashionable section of north London.
There they formed the now-famous Bloomsbury Group, the center of
aesthetic and moral avant-gardism that constituted the most influential
cultural and intellectual force in England during the 1910s and

The formation
of the Bloomsbury Group was inspired by the death of that eminent
Victorian philosopher and classical liberal, Sir Leslie Stephen,
in 1904. The young Stephen children, who felt liberated by the departure
of their father’s stern moral presence, promptly set up house in
Bloomsbury and began to hold Thursday evening salons. Thoby Stephen,
while not an Apostle, was a close friend at Trinity of Lytton Strachey.
Strachey and other Apostles, as well as another of Strachey’s good
friends from Trinity, Clive Bell, became regular salon guests.

After Thoby
died in 1906, Vanessa Stephen married Bell, and Bloomsbury gatherings
divided into two groups. Since Clive was a budding art critic and
Vanessa a painter, they established the Friday Club salons, concentrating
on the visual arts. Meanwhile, Virginia and Adrian Stephen resumed
the Thursday emphases on literature, philosophy, and culture. Eventually,
Trinity Apostle Leonard Woolf, a friend and contemporary of Keynes,
married Virginia Stephen. In late 1909, Keynes moved to a Bloomsbury
house very close to the Stephens’, sharing a flat there with Bloomsbury
artist Duncan Grant, a cousin of Strachey’s.

values and attitudes were similar to those of the Cambridge Apostles,
albeit with more of an artistic twist. With a major emphasis on
rebellion against Victorian values, it is no wonder that Maynard
Keynes was a distinguished Bloomsbury member. One particular emphasis
was pursuit of avant-garde and formalistic art — pushed by art critic
and Cambridge Apostle Roger Fry, who later returned to Cambridge
as Professor of Art. Virginia Stephen Woolf would become a prominent
exponent of formalistic fiction. And all of them energetically pursued
a lifestyle of promiscuous bisexuality, as was brought to light
in Michael Holroyd’s (1967) biography of Strachey.

As members
of the Cambridge cultural coterie, the Bloomsbury Group enjoyed
inherited, although modest, wealth. But, as time went on, most of
the financing for the various Bloomsbury exhibits and projects came
from their loyal member Maynard Keynes. As Skidelsky writes, Keynes
“came to give Bloomsbury financial muscle, not just by making a
great deal of money himself [largely through investment and financial
speculation], which he spent lavishly on Bloomsbury causes, but
by his ability to organize financial backing for their enterprises.”
Indeed, from the first World War onwards it was almost impossible
to find any enterprise, cultural or domestic, in which members of
Bloomsbury were involved, which did not benefit in some way from
his largesse, his financial acumen, or his contacts. (1983: p. 250;
see also pp. 242–51).

The Moorite

The greatest
impact on Keynes’s life and values, the great conversion experience
for him, came not in economics but in philosophy. A few months after
Keynes’s initiation into the Apostles, G.E. Moore, a professor of
philosophy at Trinity who had become an Apostle a decade earlier
than Keynes, published his magnum opus, Principia Ethica
(1903). Both at the time and in reminiscence three decades later,
Keynes attested to the enormous impact that the Principia
had had upon him and his fellow Apostles.

In a letter
at the time of its publication, he wrote that the book “is a stupendous
and entrancing work, the greatest on the subject” [Keynes’s
italics], and a few years later he wrote to Strachey, “It is impossible
to exaggerate the wonder and originality of Moore…. How
amazing to think that only we know the rudiments of a true theory
of ethic[s].” And, in a 1938 paper to the Bloomsbury Group, entitled
“My Early Beliefs,” Keynes recalls that the Principia’s
“effect on us, and the talk which preceded and followed
it, dominated and perhaps still dominates, everything else.” He
added that the book “was exciting, exhilarating, the beginning of
a new renaissance, the opening of a new heaven on earth” (Skidelsky
1983: pp. 133–34; Keynes [1951] 1972: pp. 436–49). Very strong words
about a book on technical philosophy!

What is their
source? First was the personal charisma that Moore exercised upon
the students at Cambridge. But beyond that personal magnetism, Keynes
and his friends were attracted not so much to Moore’s doctrine itself
as to the particular interpretation and twist that they themselves
gave to that doctrine. Despite their enthusiasm, Keynes and his
friends accepted only what they held to be Moore’s personal
ethics (i.e., what they called Moore’s “religion”), while they totally
rejected his social ethics (i.e., what they called his

Keynes and
his fellow Apostles enthusiastically embraced the idea of a “religion”
composed of moments of “passionate contemplation and communion”
of and with objects of love or friendship. They repudiated, however,
all social morals or general rules of conduct, totally rejecting
Moore’s penultimate chapter on “Ethics in Relation to Conduct.”
As Keynes states in his 1938 paper,

In our
opinion, one of the greatest advantages of his [Moore’s] religion
was that it made morals unnecessary…. We entirely repudiated
a personal liability on us to obey general rules. We claimed
the right to judge every individual case on its merits, and
the wisdom to do so successfully. This was a very important
part of our faith, violently and aggressively held, and for
the outer world it was our most obvious and dangerous characteristic.
We repudiated entirely customary morals, conventions and traditional
wisdom. We were, that is to say, in the strict sense of the
term, immoralists. (Keynes [1951] 1972: pp. 142–43)

Shrewd contemporary
observers perceptively summed up the attitude of Keynes and his
fellow Apostles. Bertrand Russell wrote that Keynes and Strachey
twisted Moore’s teachings; they “aimed at a life of retirement among
fine shades and nice feelings, and conceived of the good as consisting
in the passionate mutual admirations of a clique of the elite” (Welch
1986: p. 43). Or, as Beatrice Webb neatly observed, Moorism among
the Apostles was “nothing but a metaphysical justification for doing
what you like — and what other people disapprove of” (ibid.).

The question
then arises, how seriously did this immoralism, this rejection of
general rules that would restrict one’s ego, mark Keynes’s adult
life? Sir Roy Harrod, a disciple and hagiographical biographer,
insists that immoralism, as with any other unpleasant aspect of
Keynes’s personality, was only an adolescent phase, quickly outgrown
by his hero.

But many other
aspects of his career and thought confirm Keynes’s lifelong immoralism
and disdain for the bourgeoisie. Moreover, in his 1938 paper, delivered
at the age of 55, Keynes confirmed his continuing adherence to his
early views, stating that immoralism is “still my religion under
the surface…. I remain and always will remain an immoralist” (Harrod
1951: pp. 76–81; Skidelsky 1983: pp. 145–46; Welch 1986: p. 43).

In a notable
contribution, Skidelsky demonstrates that Keynes’s first important
scholarly book, A Treatise on Probability (1921), was not
unrelated to the rest of his concerns. It grew out of his attempt
to copper rivet his rejection of Moore’s proposed general rules
of morality. The beginnings of the Treatise came in a paper,
which Keynes read to the Apostles in January 1904, on Moore’s spurned
chapter, “Ethics in Relation to Conduct.” Refuting Moore on probability
occupied Keynes’s scholarly thoughts from the beginning of 1904
until 1914, when the manuscript of the Treatise was completed.

He concluded
that Moore was able to impose general rules upon concrete actions
by employing an empirical or “frequentist” theory of probability,
that is, through observation of empirical frequencies we could have
certain knowledge of the probabilities of classes of events.
To destroy any possibility of applying general rules to particular
cases, Keynes’s Treatise championed the classical a priori
theory of probability, where probability fractions are deduced purely
by logic and have nothing to do with empirical reality. Skidelsky
makes the point well:

argument, then, can be interpreted as an attempt to free the
individual to pursue the good … by means of egotistic actions,
since he is not required to have certain knowledge of the probable
consequences of his actions in order to act rationally. It is
part, in other words, of his continuing campaign against Christian
morality. This would have been appreciated by his audience,
although the connection is not obvious to the modern reader.
More generally, Keynes links rationality to expediency. The
circumstances of an action become the most important consideration
in judgments of probable rightness…. By limiting the possibility
of certain knowledge Keynes increased the scope for intuitive
judgment. (Skidelsky 1983: 153–54)

We cannot get
into the intricacies of probability theory here. Suffice it to say
that Keynes’s a priori theory was demolished by Richard von Mises
(1951) in his 1920s work, Probability, Statistics, and Truth.
Mises demonstrated that the probability fraction can be meaningfully
used only when it embodies an empirically derived law of entities
which are homogeneous, random, and indefinitely repeatable.

This means,
of course, that probability theory can only be applied to events
which, in human life, are confined to those like the lottery or
the roulette wheel. (For a comparison of Keynes and Richard von
Mises, see D.A. Gillies [1973: pp. 1–34].) Incidentally, Richard
von Mises’s probability theory was adopted by his brother Ludwig,
although they agreed on little else (L. von Mises [1949] 1966: pp.

The Burkean
Political Theorist

“If Moore was
Keynes’s ethical hero, Burke may lay strong claim to be being his
political hero,” writes Skidelsky (1983: p. 154). Edmund Burke?
What could that conservative worshiper of tradition have in common
with Keynes, the statist and rationalist central planner? Once again,
as with Moore, Keynes venerated his man with a Keynesian twist,
selecting the elements that fitted his own character and temperament.

What Keynes
took from Burke is revealing. (Keynes presented his views in a lengthy,
undergraduate, prize-winning English essay on “The Political Doctrines
of Edmund Burke.”) There is, first, Burke’s militant opposition
to general principles in politics and, in particular, his championing
of expediency against abstract natural rights. Secondly, Keynes
agreed strongly with Burke’s high time preference, his downgrading
of the uncertain future versus the existing present. Keynes therefore
agreed with Burke’s conservatism in the sense that he was hostile
to “introducing present evils for the sake of future benefits.”

There is also
the right-wing expression of Keynes’s general deprecation of the
long run, when “we are all dead.” As Keynes put it, “It is the paramount
duty of governments and of politicians to secure the wellbeing of
the community under the case in the present, and not to run risks
overmuch for the future” (ibid.: pp. 155–56).

Thirdly, Keynes
admired Burke’s appreciation of the “organic” ruling elite of Great
Britain. There were differences over policy, of course, but Keynes
joined Burke in hailing the system of aristocratic rule as sound,
so long as governing personnel were chosen from the existing organic
elite. Writing of Burke, Keynes noted, “the machine itself [the
British state] he held to be sound enough if only the ability and
integrity of those in charge of it could be assured” (Ibid.,
p. 156).

In addition
to his neo-Burkean disregard for principle, lack of concern for
the future, and admiration for the existing British ruling class,
Keynes was also sure that devotion to truth was merely a matter
of taste, with little or no place in polities. He wrote: “A preference
for truth or for sincerity as a method may be prejudice
based on some aesthetic or personal standard, inconsistent, in politics,
with practical good” (Johnson, 1978: p. 24).

Indeed Keynes
displayed a positive taste for lying in politics. He habitually
made up statistics to suit his political proposals, and he would
agitate for world monetary inflation with exaggerated hyperbole
while maintaining that “words ought to be a little wild — the assault
of thoughts upon the unthinking.” But, revealingly enough, once
he achieved power, Keynes admitted that such hyperbole would have
to be dropped: “When the seats of power and authority have been
attained, there should be no more poetic license” (Johnson and Johnson
1978: pp. 19–21).

The Economist:
Arrogance and Pseudo Originality

Maynard Keynes’s
approach in economics was not unlike his attitude in philosophy
and life in general. “I am afraid of ‘principle,'” he told a Parliamentary
committee in 1930 (Moggridge 1969: p. 90). Principles would only
restrict his ability to seize the opportunity of the moment and
would hamper his will to power. Hence, he was eager to desert his
earlier beliefs and change his mind on a dime, depending on the

His stand on
free trade serves as a blatant example. As a good Marshallian, his
one, seemingly fixed, lifelong politicoeconomic principle was a
devoted adherence to freedom of trade. At Cambridge he wrote to
a good friend, “Sir, I hate all priests and protectionists…. Down
with pontiffs and tariffs.” For the next three decades, his political
interventions were almost solely concerned with championing free
trade (Skidelsky, 1983: pp. 122, 227–29).

Then, suddenly,
in the spring of 1931, Keynes loudly called for protectionism, and
during the 1930s, he led the parade for economic nationalism and
for policies frankly designed to “beggar-thy-neighbor.” But during
World War II, Keynes swung back to free trade. Never did any soul-searching
or even hesitation seem to hobble his lightning-fast changes.

Indeed, in
the early 1930s, Keynes was widely ridiculed in the British press
for his chameleon views. As Elizabeth Johnson writes, He was Keynes
the India-rubber man: the Daily News and Chronicle of 16
March 1931, carried an article headed, “Economic Acrobatics of Mr.
Keynes” — and illustrated it by a sketch of “A Remarkable Performance.
Mr. John Maynard Keynes as the ‘boneless man,’ turns his back on
himself and swallows a draught” (1978: p. 17).

Keynes, however,
did not trouble himself about charges of inconsistency, considering
himself always right. It was particularly easy for Keynes to adopt
this conviction since he cared not a tap for principle. He was therefore
always ready to change horses in pursuit of expanding his ego through
political power.

As time went
on, Elizabeth Johnson writes, Keynes “had a clear idea of his role
in the world; he was … the chief economic adviser to the world,
to the Chancellor of the Exchequer of the day, to the French minister
of finance, … to the president of the United States.” Pursuit of
power for himself and a ruling class meant, of course, increasing
adherence to the ideas and institutions of a centrally managed economy.

Among the good
men of the organic elite governing the nation, he placed himself
in the crucial role of scholar-technician, the 20th-century version
of the “philosopher-king” or, at least, the philosopher guiding
the king. It is no wonder that Keynes “hailed President [Franklin
D.] Roosevelt as the first head of state to take theoretical advice
as the basis for large-scale action” (Johnson and Johnson 1978:
pp. 17–18).

Action is what
Keynes sought from government, especially with Keynes himself making
the plans and calling the shots. As Johnson writes,

His opportunism
meant that he reacted to events immediately and directly. He
would produce an answer, write a memorandum, publish at once,
whatever the issue…. In the World War II Treasury, he nearly
drove some of his colleagues crazy with his propensity to keep
a finger in every pie. “Don’t just stand there, do something”
would have been his present-day motto. (Ibid.: p. 19)

Johnson notes
that Keynes’s “instinctive attitude to any new situation was to
assume, first, that nobody was doing anything about it, and, secondly,
that if they were, they were doing it wrong. It was a lifetime habit
of mind based on the conviction that he was armed with superior
brains … and, Cambridge Apostle that he was, gilled with superior
sensibilities” (ibid.: p. 33).

One striking
illustration of Maynard Keynes’s unjustified arrogance and intellectual
irresponsibility was his reaction to Ludwig von Mises’s brilliant
and pioneering Treatise on Money and Credit, published
in German in 1912. Keynes had recently been made the editor of Britain’s
leading scholarly economic periodical, Cambridge University’s Economic
Journal. He reviewed Mises’s book, giving it short shrift.
The book, he wrote condescendingly, had “considerable merit” and
was “enlightened,” and its author was definitely “widely read,”
but Keynes expressed his disappointment that the book was neither
“constructive” nor “original” (Keynes 1914). This brusque reaction
managed to kill any interest in Mises’s book in Great Britain, and
Money and Credit remained untranslated for two fateful

The peculiar
point about Keynes’s review is that Mises’s book was highly constructive
and systematic, as well as remarkably original. How could Keynes
not have seen that? This puzzle was cleared up a decade and a half
later, when, in a footnote to his own Treatise on Money,
Keynes impishly admitted that “in German, I can only clearly understand
what I already know — so that new ideas are apt to be veiled from
me by the difficulties of the language” (Keynes 1930a: I, p. 199
n.2). Such unmitigated gall. This was Keynes to the hilt: to review
a book in a language where he was incapable of grasping new ideas,
and then to attack that book for not containing anything new, is
the height of arrogance and irresponsibility.[4]

Another aspect
of Keynes’s swaggering conceit was his conviction that much of what
he did was original and revolutionary. His letter to G.B. Shaw in
1935 is well known: “I believe myself to be writing a book on economic
theory that will largely revolutionise … the way the world thinks
about economic problems…. For myself I don’t merely hope what I
say, in my own mind I’m quite sure” (Hession 1984: p. 279). But
this belief in his braggadocio was not confined to The General

Bernard Corry
points out that “From about the beginning of his economic work he
claimed to be revolutionising the subject.” So imbued was Keynes
with faith in his own creativity that he even proclaimed great originality
in a paper on business cycles that was based on D.H. Robertson’s
Study of Industrial Fluctuations, shortly after the book
was published in 1913. Corry links this attitude to the insistent
emphasis of the Bloomsbury Group on “originality” (by which, of
course, they mainly meant their own). Originality, he points out,
was “one of the fixations of the Bloomsbury Group” (Crabtree and
Thirlwall 1980: pp. 96–97; Corry 1986: pp. 214–15, 1978: pp. 3–34).

Keynes was
greatly aided in his claims of originality by the tradition of economics
that Alfred Marshall had managed to establish at Cambridge. As a
student of Marshall and a young Cambridge lecturer under Marshall’s
aegis, Keynes easily absorbed the Marshallian tradition.

It was not
that Marshall himself claimed blazing originality, although he did
make claims to independent inventions of marginal utility and he
was secretive, jealous of students who might steal his ideas. Marshall
developed the strategy of maintaining a hermetically sealed Marshallian
world at Cambridge (and hence in British economics generally). He
created the myth that in his 1890 magnum opus, the Principles
of Economics, he had constructed a higher synthesis, incorporating
the valid aspects of all previously competing and clashing theories
(deductivism and inductivism, theory and history, marginal utility
and real cost, short run and long run, Ricardo and Jevons).[5]

Because he
successfully pushed this myth, he therefore spawned the universal
view that “it’s all in Marshall,” that, after all, there was no
need to read anyone else. For if Marshall had harmonized all the
one-sided, one-eyed economic views, there was no longer any reason
except antiquarianism to bother to read them. As a result, the modal
Cambridge economist read only Marshall, spinning out and elaborating
on cryptic sentences or passages in the Great Book. Marshall himself
spent the rest of his life reworking and elaborating The Text, publishing
no less than eight editions of the Principles by 1920.

For the rest,
there was the legendary Cambridge “oral tradition,” in which Marshall’s
students and disciples were delighted to listen to and pass on the
“Great Man’s” words, as well as to read his lesser seminal writings
in manuscript or in commission hearings, for Marshall kept most
of his shorter writings out of publication until near the end of
his life. Thus, the Cambridge Marshallians could take unto themselves
the aura of a priestly caste, the only ones privy to the mysteries
of the sacred writings denied to lesser men.

The tightly
sealed world of Marshallian Cambridge soon dominated Great Britain;
there were few challengers in that country. This dominance was accelerated
by the unique role of Cambridge and Oxford in British social and
intellectual life, especially in the years before the educational
explosion that followed World War II. Since the days of Adam Smith,
David Ricardo, and J.S. Mill, Great Britain had managed to dominate
economic theory throughout the world, so Marshall and his sect managed
to assume hegemony not only of Cambridge economics but of the world
(see Crabtree 1980: pp. 101–5).[6]

“The Swindler”

The young Keynes
displayed no interest whatsoever in economics; his dominant interest
was philosophy. In fact, he completed an undergraduate degree at
Cambridge without taking a single economics course. Not only did
he never take a degree in the subject, but the only economics course
Keynes ever took was a single-term graduate course under Alfred

He found that
spell of economics exciting, however, as it appealed both to his
theoretical interests and to his thirst for cutting a giant swath
through the real world of action. In the fall of 1905, he wrote
to Strachey, “I find economics increasingly satisfactory, and I
think I am rather good at it. I want to manage a railroad or organise
a Trust or at least swindle the investing public” (Harrod 1951:
p. 111).[7]

Keynes, in
fact, had recently embarked on his lifelong career as investor and
speculator. Yet Harrod was constrained to deny vigorously that Keynes
had begun speculating before 1919.

Asserting that
Keynes had “no capital” before then, Harrod explained the reason
for his insistence in a book review six years after the publication
of his biography: “It is important that this should be clearly understood,
since there were many ill-wishers … who asserted that he took advantage
of inside information when in the Treasury (1915–June 1919) in order
to carry out successful speculations” (Harrod 1957). In a letter
to Clive Bell, author of the book under review and an old Bloomsburyite
and friend of Keynes, Harrod pressed the point further: “The point
is important because of the beastly stories, which are very widespread
… about his having made money dishonourably by taking advantage
of his Treasury position” (ibid.; cf. Skidelsky 1983: pp. 286–88).

Despite Harrod’s
insistence to the contrary, however, Keynes had indeed set up his
own “special fund” and had begun to make investments by July 1905.
By 1914, Keynes was speculating heavily in the stock market and,
by 1920, had accumulated £16,000, which would amount to about
$200,000 at today’s prices. Half of his investment was made with
borrowed money.

It is not clear
at this point whether his fund was used for investment or for more
speculative purposes, but we do know that his capital had increased
by more than threefold. Whether Keynes used inside Treasury information
to make such investment decisions is still unproven, although suspicions
certainly remain (Skidelsky 1983: pp. 286–88).

Even if we
cannot prove the charge of swindling against Keynes, we must consider
his behavior in the light of his own bitter condemnation of financial
markets as “gambling casinos” in The General Theory. It
seems probable, therefore, that Keynes believed his successes
at financial speculation to have swindled the public, although there
is no reason to think he would have regretted that fact. He did
realize, however, that his father would disapprove of his activity.[8]

Keynes and

While at Eton,
young Keynes (aged 17 and 18) witnessed a wave of anti-imperialist
sentiment in the wake of Britain’s war against the Boers in South
Africa. Yet he was never influenced by that sentiment. As Skidelsky
notes, “Throughout his life he assumed the Empire as a fact of life
and never showed the slightest interest in discarding it…. He never
much deviated from the view that, all things being considered, it
was better to have Englishmen running the world than foreigners”
(Skidelsky 1983: p. 91).

In late 1905,
despite Marshall’s importuning, Keynes abandoned graduate studies
in economics after one term and, the following year, took Civil
Service exams, gaining a clerkship in the India Office. In the spring
of 1907, Keynes was transferred from the Military Department to
the Revenue, Statistics, and Commerce Department. While he was to
become an expert on Indian affairs, he nevertheless blithely assumed
that British rule was not to be questioned: Britain simply disseminated
good government in places which could not develop it on their own.

Skidelsky points out, “always saw the Raj from Whitehall; he never
considered the human and moral implications of imperial rule or
whether the British were exploiting the Indians.” In the grand imperialist
tradition of the Mills and Thomas Macaulay in 19th-century England,
moreover, Keynes never felt the need to travel to India, to learn
Indian languages, or to read any books on the area except as they
dealt with finance (ibid.: p. 176).

Despite his
rise to high levels of the Civil Service, Keynes soon grew tired
of his quasi sinecure and tried to return to Cambridge by way of
a teaching post. Finally, in the spring of 1908, Marshall wrote
to Keynes, offering him a lectureship in economics. Although Marshall
was on the point of retirement, he easily persuaded his friend,
favorite student, and handpicked successor, Arthur C. Pigou, to
follow Marshall’s practice of paying for the lectureship out of
his own salary; Neville Keynes promptly offered to match the stipend.

In 1908, Keynes
happily took up the insular role of lecturing in Marshallian economics
at his old school, King’s College, Cambridge. But most of his time
and energy were spent as a busy man of affairs in London (Corry
1978: p. 5). One of his functions was to be an informal but valued
adviser to the India Office; indeed, his association with the office
actually expanded after 1908 (Keynes 1971: p. 17). As a result,
he played an important role in Indian monetary affairs, writing
his first major journal article on India for the Economic Journal
in 1909; writing influential memoranda out of which grew his first
book, the brief monograph on Indian Currency and Finance
in 1913; and playing an influential role on the Royal Commission
on Indian Finance and Currency, to which distinguished post he was
appointed before the age of 30.

Keynes’s role
in Indian finance was not only important but also ultimately pernicious,
presaging his later role in international finance. Upon converting
India from a silver to a gold standard in 1892, the British government
had stumbled into a gold-exchange standard, instead of the full
gold-coin standard that had marked Britain and the other major Western
nations. Gold was not minted as coin or otherwise available in India,
and Indian gold reserves for rupees were kept as sterling balances
in London rather than in gold per se.

To most government
officials, this arrangement was only a halfway measure toward an
eventual full gold standard; but Keynes hailed the new gold-exchange
standard as progressive, scientific, and moving toward an ideal
currency. Echoing centuries-old inflationist views, he opined that
gold coin “wastes” resources, which can be “economized” by paper
and foreign exchange.

The crucial
point, however, is that a phony gold standard, as a gold-exchange
standard must be, allows far more room for monetary management and
inflation by central governments. It takes away the public’s power
over money and places that power in the hands of the government.
Keynes praised the Indian standard as allowing a far greater “elasticity”
(a code word for monetary inflation) of money in response to demand.
Moreover, he specifically hailed the report of a US government commission
in 1903 advocating a gold-exchange standard in China and other Third
World silver countries — a drive by progressive economists and politicians
to bring such nations into a US-dominated and -managed gold-dollar
bloc (Keynes 1971: pp. 60–85; see also Parrini and Sklar 1983; Rosenberg

Indeed, Keynes
explicitly looked forward to the time when the gold standard would
disappear altogether, to be replaced by a more “scientific” system
based on a few key national paper currencies. “A preference for
a tangible reserve currency,” Keynes opined, is “a relic of a time
when governments were less trustworthy in these matters than they
are now” (1971: p. 51). Here was the foreshadowing of Keynes’s famous
dismissal of gold as a “barbarous relic.” More broadly, Keynes’s
early monetary views presaged the disastrous gold-exchange standard
engineered by Britain during the 1920s, as well as the deeply flawed
Bretton Woods scheme of a managed gold-dollar imposed by the United
States — with the help of Britain and Lord Keynes — at the end of
World War II.

Cambridge economist, however, was not content to defend the gold-exchange
status quo in India. Believing that the march toward managed inflation
was not proceeding rapidly enough, he urged the creation of a central
bank (or “State Bank”) for India, thus enabling centralization of
reserves, far greater monetary elasticity, and far more monetary
expansion and inflation. Although he was unable to convince the
Royal Commission to come out in support of a central bank, he was
highly influential in its final report.

The report
included his central-bank view in an appendix, and Keynes also led
the harsh cross-examination of pro–gold coin standard and anti–central
bank witnesses. An interesting footnote to the affair was the reaction
to Keynes’s central-bank appendix by his old teacher, Alfred Marshall.
Marshall wrote Keynes that he was “entranced by it as a prodigy
of constructive work” (ibid.: p. 268).

Keynes generally
liked to tackle economic theory in order to solve practical problems.
His primary motivation for plunging into the Indian currency question
was to defend the record of his first and most important political
patron, Edwin Samuel Montagu, of the influential Montagu and Samuel
families of London international banking. Montagu had been president
of the Cambridge Union, the university debating society, when Keynes
was an undergraduate, and Keynes had become a favorite of his. In
the 1906 general elections, Keynes had campaigned for Montagu’s
successful bid for a Parliamentary seat as a Liberal.

In late 1912,
when Montagu was Undersecretary of State for India, a scandal developed
in Indian finance. The Indian government, of which Montagu was second-in-command,
had contracted secretly with the banking firm of Samuel Montagu
and Company to purchase silver. It turned out that nepotism had
figured strongly in this contract. Lord Swaythling, a senior partner
in the firm, was the father of undersecretary Edwin S. Montagu;
another partner, Sir Stuart Samuel, was the brother of Herbert Samuel,
postmaster general of the Asquith government (see Skidelsky 1983:
p. 273).

the General Theory

Keynes’s General
Theory was, at least in the short run, one of the most dazzlingly
successful books of all time. In a few short years, his “revolutionary”
theory had conquered the economics profession and soon had transformed
public policy, while old-fashioned economics was swept, unhonored
and unsung, into the dustbin of history.

How was this
deed accomplished? Keynes and his followers would answer, of course,
that the profession simply accepted a starkly self-evident truth.
And yet The General Theory was not truly revolutionary
at all but merely old and oft-refuted mercantilist and inflationist
fallacies dressed up in shiny new garb, replete with newly constructed
and largely incomprehensible jargon. How, then, the swift success?

Part of the
reason, as Schumpeter has pointed out, is that governments as well
as the intellectual climate of the l930s were ripe for such conversion.
Governments are always seeking new sources of revenue and new ways
to spend money, often with no little desperation; yet economic science,
for over a century, had sourly warned against inflation and deficit
spending, even in times of recession.

— whom Keynes was to lump into one category and sneeringly disparage
as “classical’ in The General Theory — were the grouches
at the picnic, throwing a damper of gloom over attempts by governments
to increase their spending. Now along came Keynes, with his modern
“scientific” economics, saying that the old “classical” economists
had it all wrong: that, on the contrary, it was the government’s
moral and scientific duty to spend, spend, and spend; to incur deficit
upon deficit, in order to save the economy from such vices as thrift
and balanced budgets and unfettered capitalism; and to generate
recovery from the depression. How welcome Keynesian economics was
to the governments of the world!

In addition,
intellectuals throughout the world were becoming convinced that
laissez-faire capitalism could not work and that it was responsible
for the Great Depression. Communism, fascism, and various forms
of socialism and controlled economy became popular for that reason
during the 1930s. Keynesianism was perfectly suited to this intellectual

But there were
also strong internal reasons for the success of The General
Theory. By dressing up his new theory in impenetrable jargon,
Keynes created an atmosphere in which only brave young
economists could possibly understand the new science; no economist
over the age of thirty could grasp the New Economics. Older economists,
who, understandably, had no patience for the new complexities, tended
to dismiss The General Theory as nonsense and refused to
tackle the formidably incomprehensible work. On the other hand,
young economists and graduate students, socialistically inclined,
seized on the new opportunities and bent themselves to the rewarding
task of figuring out what The General Theory was all about.

Paul Samuelson
has written of the joy of being under 30 when The General Theory
was published in 1936, exulting, with Wordsworth, “Bliss was it
in that dawn to be alive, but to be young was very heaven.” Yet
this same Samuelson who enthusiastically accepted the new revelation
also admitted that The General Theory “is a badly written
book; poorly organized…. It abounds in mares’ nests of confusions….
I think I am giving away no secrets when I solemnly aver — upon
the basis of vivid personal recollection — that no one else in Cambridge,
Massachusetts, really knew what it was all about for some twelve
to eighteen months after publication” (Samuelson [1946] 1948: p.
145; Hodge 1986: pp. 21–22).

It must be
remembered that the now-familiar Keynesian cross, IS-LM diagrams,
and the system of equations were not available to those trying desperately
to understand The General Theory when the book was published;
indeed, it took 10 to 15 years of countless hours of manpower to
figure out the Keynesian system. Often, as in the case of both Ricardo
and Keynes, the more obscure the content, the more successful the
book, as younger scholars flock to it, becoming acolytes.

Also important
to the success of The General Theory was the fact that,
just as a major war creates a large number of generals, so did the
Keynesian revolution and its rude thrusting aside of the older generation
of economists create a greater number of openings for younger Keynesians
in both the profession and the government.

Another crucial
factor in the sudden and overwhelming success of The General
Theory was its origin in the most insular university of the
most dominant economic national center in the world. For a century
and a half, Great Britain had arrogated to itself the role of dominance
in economics, with Smith, Ricardo, and Mill all aggrandizing this
tradition. We have seen how Marshall established his dominance at
Cambridge and that the economics he developed was essentially a
return to the classical Ricardo/Mill tradition.

As a prominent
Cambridge economist and student of Marshall, Keynes had an important
advantage in furthering the success of the ideas in The General
Theory. It is safe to say that if Keynes had been an obscure
economics teacher at a small, Midwestern American college, his work,
in the unlikely event that it even found a publisher, would have
been totally ignored.

In those days
before World War II, Britain, not the United States, was the most
prestigious world center for economic thought. While Austrian economics
had flourished in the United States before World War I (in the works
of David Green, Frank A. Fetter, and Herbert J. Davenport), the
1920s to early 1930s was largely a barren period for economic theory.
Antitheoretical institutionalists dominated American economics during
this period, leaving a vacuum that was easy for Keynes to fill.

Also important
to his success was Keynes’s tremendous stature as an intellectual
and politicoeconomic leader in Britain, including his prominent
role as a participant in, and then severe critic of, the Versailles
treaty. As a Bloomsbury member, he was also important in British
cultural and artistic circles.

Moreover, we
must realize that in pre–World War II days only a small minority
in each country went to college and that the number of universities
was both small and geographically concentrated in Great Britain.
As a result, there were very few British economists or economics
teachers, and they all knew each other. This created considerable
room for personality and charisma to help convert the profession
to Keynesian doctrine,

The importance
of such external factors as personal charisma, politics, and career
opportunism was particularly strong among the disciples of F.A.
Hayek at the London School of Economics. During the early 1930s,
Hayek at the LSE and Keynes at Cambridge were the polar antipodes
in British economics, with Hayek converting many of Britain’s leading
young economists to Austrian (that is, Misesian) monetary, capital,
and business-cycle theory.

Hayek, in a series of articles, had brilliantly demolished Keynes’s
earlier work, his two-volume Treatise on Money, and many
of the fallacies Hayek exposed applied equally well to The General
Theory (see Hayek 1931a, 1931b, 1932). For Hayek’s students
and followers, then, it must be said that they knew better. In the
realm of theory, they had already been inoculated against The
General Theory. And yet, by the end of the 1930s, every one
of Hayek’s followers had jumped on the Keynesian bandwagon, including
Lionel Robbins, John R. Hicks, Abba P. Lerner, Nicholas Kaldor,
G.L.S. Shackle, and Kenneth E. Boulding.

Perhaps the
most astonishing conversion was that of Lionel Robbins. Not only
had Robbins been a convert to Misesian methodology as well as to
monetary and business-cycle theory, but he had also been a diehard
pro-Austrian activist. A convert since his attendance at the Mises
privatseminar in Vienna in the 1920s, Robbins, highly influential
in the economics department at LSE, had succeeded in bringing Hayek
to LSE in 1931 and in translating and publishing Hayek’s and Mises’s

Despite being
a longtime critic of Keynesian doctrine before The General Theory,
Robbins’s conversion to Keynesianism was apparently solidified when
he served as Keynes’s colleague in wartime economic planning. There
is in Robbins’s diary a decided note of ecstatic rapture that perhaps
accounts for his astonishing abasement in repudiating his Misesian
work, The Great Depression (1934).

Robbins’s repudiation
was published in his 1971 Autobiography: “I shall always
regard this aspect of my dispute with Keynes as the greatest mistake
of my professional career, and the book, The Great Depression,
which I subsequently wrote, partly in justification of this attitude,
as something which I would willingly see forgotten.” (Robbins 1971:
p. 154). Robbins’s diary entries on Keynes during World War II can
only be considered an absurdly rapturous personal view. Here is
Robbins at a June 1944 pre–Bretton Woods draft conference in Atlantic

was in his most lucid and persuasive mood: and the effect was
irresistible….Keynes must be one of the most remarkable men
that have ever lived — the quick logic, the wide vision, above
all the incomparable sense of the fitness of words, all combine
to make something several degrees beyond the limit of ordinary
human achievement. (Ibid.: p. 193)

Only Churchill,
Robbins goes on to say, is of comparable stature. But Keynes is
greater, for he

uses the
classical style of our life and language, it is true, but it
is shot through with something which is not traditional, a unique
unearthly quality of which one can only say that it’s pure genius.
The Americans sat entranced as the godlike visitor sang and
the golden light played all around. (Ibid.: p. 208–12 cf. Hession
1984: p. 342)

This sort of
fawning can only mean that Keynes possessed some sort of strong
personal magnetism to which Robbins was susceptible.[9]

Central to
Keynes’s strategy in putting The General Theory over were
two claims: first, that he was revolutionizing economic theory,
and second, that he was the first economist — aside from a few “underworld”
characters, such as Silvio Gesell — to concentrate on the problem
of unemployment. All previous economists, whom he lumped together
as “classical,” he said, assumed full employment and insisted that
money was but a “veil” for real processes and was therefore not
a truly disturbing presence in the economy.

One of Keynes’s
most unfortunate effects was his misconceiving of the history of
economic thought, since his devoted legion of followers accepted
Keynes’s faulty views in The General Theory as the last
word on the subject. Some of Keynes’s highly influential errors
may be attributed to ignorance, since he was little trained in the
subject and mostly read work by his fellow Cantabrigians. For example,
in his grossly distorted summary of Say’s law (“supply creates its
own demand”), he sets up a straw man and proceeds to demolish it
with ease (1936: p. 18).

This erroneous
and misleading restatement of Say’s law was subsequently repeated
(without quoting Say or any of the other champions of the law) by
Joseph Schumpeter, Mark Blaug, Axel Leijonhufvud, Thomas Sowell,
and others. A better formulation of the law is that the supply of
one good constitutes demand for one or more other goods
(see Hutt 1974: p. 3).

But ignorance
cannot account for Keynes’s claim that he was the first economist
to try to explain unemployment or to transcend the assumption that
money is a mere veil exerting no important influence on the business
cycle or the economy. Here we must ascribe to Keynes a deliberate
campaign of mendacity and deception — what would now be called euphemistically

Keynes knew
all too well of the existence of the Austrian and LSE Schools, which
had flourished in London as early as the 1920s and more obviously
since 1931. He himself had personally debated Hayek, the chief Austrian
at LSE, in the pages of Economica, the LSE journal. The
Austrians in London attributed continuing large-scale unemployment
to wage rates kept above the free-market wage by combining union
and government action (e.g., in extraordinarily generous unemployment-insurance

and business cycles were ascribed to bank credit and monetary expansion,
as fueled by the central bank, which pushed interest rates below
genuine time-preference levels and created overinvestment in higher-order
capital goods. These then had to be liquidated by a recession, which
in turn would emerge as soon as the credit expansion stopped. Even
if he had not agreed with this analysis, it was unconscionable for
Keynes to ignore the very existence of this school of thought then
prominent in Great Britain, a school which could never be construed
as ignoring the impact of monetary expansion on the real state of
the economy.[10]

In order to
conquer the world of economics with his new theory, it was critical
for Keynes to destroy his rivals within Cambridge itself. In his
mind, he who controlled Cambridge controlled the world. His most
dangerous rival was Marshall’s handpicked successor and Keynes’s
former teacher, Arthur C. Pigou. Keynes began his systematic campaign
of destruction against Pigou when Pigou rejected his previous approach
in the Treatise on Money, at which point Keynes also broke
with his former student and close friend, Dennis H. Robertson, for
refusing to join the lineup against Pigou.

The most glaring
misstatement in The General Theory, and one which his disciples
accepted without question, is the outrageous presentation of Pigou’s
views on money and unemployment in Keynes’s identification of Pigou
as the major contemporary “classical” economist who allegedly believed
that there is always full employment and that money is merely a
veil causing no disruptions in the economy — this about a man who
wrote Industrial Fluctuations in 1927 and Theory of
Unemployment in 1933, which discuss at length the problem of
unemployment! Moreover, in the latter book, Pigou explicitly repudiates
the money-veil theory and stresses the crucial centrality of money
in economic activity.

Thus, Keynes
lambasted Pigou for allegedly holding the “conviction … that money
makes no real difference except frictionally and that the theory
of unemployment can be worked out … as being based on ‘real’ exchanges.”
An entire appendix to chapter 19 of The General Theory
is devoted to an assault on Pigou, including the claim that he wrote
only in terms of real exchanges and real wages, not money wages,
and that he assumed only flexible wage rates (Keynes 1936: pp. 19–20,
pp. 272–79).

But, as Andrew
Rutten notes, Pigou conducted a “real” analysis only in the first
part of his book; in the second part, he not only brought money
in, but pointed out that any abstraction from money distorts the
analysis and that money is crucial to any analysis of the exchange
system. Money, he says, cannot be abstracted away and cannot act
in a neutral manner, so “the task of the present part must be to
determine in what way the monetary factor causes the average amount
of, and the fluctuation in, employment to be different from what
they otherwise would have been.”

added Pigou, “it is illegitimate to abstract money away [and] leave
everything else the same. The abstraction proposed is of the same
type that would be involved in thinking away oxygen from the earth
and supposing that human life continues to exist” (Pigou 1933: pp.
185, 212).[11]
Pigou extensively analyzed the interaction of monetary expansion
and interest rates along with changes in expectations, and he explicitly
discussed the problem of money wages and “sticky” prices and wages.

Thus, it is
clear that Keynes seriously misrepresented Pigou’s position and
that this misrepresentation was deliberate, since, if Keynes read
any economists carefully, he certainly read such prominent Cantabrigians
as Pigou. Yet, as Rutten writes, “These conclusions should not come
as a surprise, since there is plenty of evidence that Keynes and
his followers misrepresented their predecessors” (Rutten 1989: p.
14). The fact that Keynes engaged in this systematic deception and
that his followers continue to repeat the fairy tale about Pigou’s
blind “classicism” shows that there is a deeper reason for the popularity
of this legend in Keynesian circles. As Rutten writes,

There is
one plausible explanation for the repetition of the story of
Keynes and the classics…. This is that the standard account
is popular because it offers simultaneously an explanation of,
and a justification for, Keynes’s success: without the General
Theory, we would still be in the economic dark ages. In other
words, the story of Keynes and the Classics is evidence for
the General Theory. Indeed, its use suggests that it may be
the most compelling evidence available. In this case, proof
that Pigou did not hold the position attributed to him is …
evidence against Keynes…. [This conclusion] raises the … serious
question of the methodological status of a theory that relies
so heavily on falsified evidence (Ibid.: p. 15).

In his review
of The General Theory, Pigou was properly scornful of Keynes’s
“macédoine of misrepresentations,” and yet such was the power
of the tide of opinion (or of the charisma of Keynes) that, by 1950,
after Keynes’s death, Pigou had engaged in the sort of abject recantation
indulged in by Lionel Robbins, which Keynes had long tried to wrest
from him (Pigou 1950; Johnson and Johnson 1978: p. 179; Corry 1978:
p. 11–12).

But Keynes
used tactics in the selling of The General Theory other
than reliance on his charisma and on systematic deception. He curried
favor with his students by praising them extravagantly, and he set
them deliberately against non-Keynesians on the Cambridge faculty
by ridiculing his colleagues in front of these students and by encouraging
them to harass his faculty colleagues. For example, Keynes incited
his students with particular viciousness against Dennis Robertson,
his former close friend.

As Keynes knew
all too well, Robertson was painfully and extraordinarily shy, even
to the point of communicating with his faithful, longtime secretary,
whose office was next to his own, only by written memoranda. Robertson’s
lectures were completely written out in advance, and because of
his shyness he refused to answer any questions or engage in any
discussion with either his students or his colleagues. And so it
was a particularly diabolic torture for Keynes’s radical disciples,
led by Joan Robinson and Richard Kahn, to have baited and taunted
Robertson, harassing him with spiteful questions and challenging
him to debate (Johnson and Johnson 1978: p. 136ff.).

Political Economy

In The
General Theory, Keynes set forth a unique politicoeconomic
sociology, dividing the population of each country into several
rigidly separated economic classes, each with its own behavioral
laws and characteristics, each carrying its own implicit moral evaluation.
First, there is the mass of consumers: dumb, robotic, their behavior
fixed and totally determined by external forces. In Keynes’s assertion,
the main force is a rigid proportion of their total income, namely,
their determined “consumption function.”

Second, there
is a subset of consumers, an eternal problem for mankind: the insufferably
bourgeois savers, those who practice the solid puritan virtues of
thrift and farsightedness, those whom Keynes, the would-be aristocrat,
despised all of his life. All previous economists, certainly including
Keynes’s forbears Smith, Ricardo, and Marshall, had lauded thrifty
savers as building up long-term capital and therefore as responsible
for enormous long-term improvements in consumers’ standard of living.
But Keynes, in a feat of prestidigitation, severed the evident link
between savings and investment, claiming instead that the two are

In fact, he
wrote, savings are a drag on the system; they “leak out” of the
spending stream, thereby causing recession and unemployment. Hence
Keynes, like Mandeville in the early 18th century, was able to condemn
thrift and savings; he had finally gotten his revenge on the bourgeoisie.

By also severing
interest returns from the price of time or from the real economy
and by making it only a monetary phenomenon, Keynes was able to
advocate, as a linchpin of his basic political program, the “euthanasia
of the rentier” class: that is, the state’s expanding the quantity
of money enough so as to drive down the rate of interest to zero,
thereby at last wiping out the hated creditors. It should be noted
that Keynes did not want to wipe out investment: on the contrary,
he maintained that savings and investment were separate phenomena.
Thus, he could advocate driving down the rate of the interest to
zero as a means of maximizing investment while minimizing (if not
eradicating) savings.

Since he claimed
that interest was purely a monetary phenomenon, Keynes could then
also sever the existence of an interest rate from the scarcity of
capital. Indeed, he believed that capital is not really
scarce at all. Thus, Keynes stated that his preferred society “would
mean the euthanasia of the rentier, and consequently, the euthanasia
of the cumulative oppressive power of the capitalist to exploit
the scarcity-value of capital.”

But capital
is not really scarce: “Interest today rewards no genuine
sacrifice, any more than does the rent of land. The owner of capital
can obtain interest because capital is scarce, just as the owner
of land can obtain rent because land is scarce. But whilst there
may be intrinsic reasons for the scarcity of land, there are no
intrinsic reasons for the scarcity of capital.” Therefore, “we might
aim in practice … at an increase in the volume of capital until
it ceases to be scarce, so that the functionless investor [the rentier]
will no longer receive a bonus.” Keynes made it clear that he looked
forward to a gradual annihilation of the “functionless” rentier,
rather than to any sort of sudden upheaval (Keynes 1936: pp. 375–76;
see also Hazlitt [1959] 1973: pp. 379–84).[12]

Keynes then
came to the third economic class, to whom he was somewhat better
disposed: the investors. In contrast to the passive and robotic
consumers, investors are not determined by an external
mathematical function. On the contrary, they are brimful of free
will and active dynamism. They are also not an evil drag on the
economic machinery, as are the savers. They are important contributors
to everyone’s welfare.

But, alas,
there is a hitch. Even though dynamic and full of free will, investors
are erratic creatures of their own moods and whims. They are, in
short, productive but irrational. They are driven by psychological
moods and “animal spirits.” When investors are feeling their oats
and their animal spirits are high, they invest heavily, but too
much; overly optimistic, they spend too much and bring about inflation.
But Keynes, especially in The General Theory, was not really
interested in inflation; he was concerned about unemployment and
recession, caused, in his starkly superficial view, by pessimistic
moods, loss of animal spirits, and hence underinvestment.

The capitalist
system is, accordingly, in a state of inherent macroinstability.
Perhaps the market economy does well enough on the micro-, supply-and-demand
level. But in the macro world, it is afloat with no rudder; there
is no internal mechanism to keep its aggregate spending from being
either too low or too high, hence causing recession and unemployment
or inflation.

enough, Keynes came to this interpretation of the business cycle
as a good Marshallian. Ricardo and his followers of the Currency
School correctly believed that business cycles are generated by
expansions and contractions of bank credit and the money supply,
as generated by a central bank, whereas their opponents in the Banking
School believed that expansions of bank money and credit were merely
passive effects of booms and busts and that the real cause of business
cycles was fluctuation in business speculation and expectations
of profit — an explanation very close to Pigou’s later theory of
psychological mood swings and to Keynes’s focus on animal spirits.

John Stuart
Mill had been a faithful Ricardian except in this one crucial area.
Following his father, Mill had adopted the Banking School’s causal
theory of business cycles, which was then adopted by Marshall (Trescott
1987; Penman 1989: pp. 88–89).

To develop
a way out, Keynes presented a fourth class of society. Unlike the
robotic and ignorant consumers, this group is described as full
of free will, activism, and knowledge of economic affairs. And unlike
the hapless investors, they are not irrational folk, subject to
mood swings and animal spirits; on the contrary, they are supremely
rational as well as knowledgeable, able to plan best for society
in the present as well as in the future.

This class,
this deus ex machina external to the market, is of course the state
apparatus, as headed by its natural ruling elite and guided by the
modern, scientific version of Platonic philosopher kings. In short,
government leaders, guided firmly and wisely by Keynesian economists
and social scientists (naturally headed by the great man himself),
would save the day. In the politics and sociology of The General
Theory, all the threads of Keynes’s life and thought are neatly
tied up.

And so the
state, led by its Keynesian mentors, is to run the economy, to control
the consumers by adjusting taxes and lowering the rate of interest
toward zero, and, in particular, to engage in “a somewhat comprehensive
socialisation of investment.” Keynes contended that this would not
mean total state Socialism, pointing out that

it is not
the ownership of the instruments of production which it is important
for the State to assume. If the State is able to determine the
aggregate amount of resources devoted to augmenting the instruments
and the basic rate of reward to those who own them, it will
have accomplished all that is necessary. (Keynes 1936: p. 378)

Yes, let the
state control investment completely, its amount and rate of return
in addition to the rate of interest; then Keynes would allow private
individuals to retain formal ownership so that, within the overall
matrix of state control and dominion, they could still retain “a
wide field for the exercise of private initiative and responsibility.”
As Hazlitt puts it,

is a key decision in the operation of any economic system. And
government investment is a form of socialism. Only confusion
of thought, or deliberate duplicity, would deny this. For socialism,
as any dictionary would tell the Keynesians, means the ownership
and control of the means of production by government. Under
the system proposed by Keynes, the government would control
all investment in the means of production and would own
the part it had itself directly invested. It is at best mere
muddleheadedness, therefore, to present the Keynesian nostrums
as a free enterprise or “individualistic” alternative to
socialism. (Hazlitt [1959] 1973: p. 388; cf. Brunner 1987: pp.
30, 38)

There was a
system that had become prominent and fashionable in Europe during
the 1920s and 1930s that was precisely marked by this desired Keynesian
feature: private ownership, subject to comprehensive government
control and planning. This was, of course, fascism.

Where did Keynes
stand on overt fascism? From the scattered information now available,
it should come as no surprise that Keynes was an enthusiastic advocate
of the “enterprising spirit” of Sir Oswald Mosley, the founder and
leader of British fascism, in calling for a comprehensive “national
economic plan” in late 1930. By 1933, Virginia Woolf was writing
to a close friend that she feared Keynes was in the process of converting
her to “a form of fascism.” In the same year, in calling for national
self-sufficiency through state control, Keynes opined that “Mussolini,
perhaps, is acquiring wisdom teeth” (Keynes 1930b, 1933: p. 766;
Johnson and Johnson 1978: p. 22; on the relationship between Keynes
and Mosley, see Skidelsky 1975: pp. 241, 305–6; Mosley 1968: pp.
178, 207, 237–38, 253; Cross 1963: pp. 35–36).

But the most
convincing evidence of Keynes’s strong fascist bent was the special
foreword he prepared for the German edition of The General Theory.
This German translation, published in late 1936, included a special
introduction for the benefit of Keynes’s German readers and for
the Nazi regime under which it was published. Not surprisingly,
Harrod’s idolatrous Life of Keynes makes no mention of
this introduction, although it was included two decades later in
volume seven of the Collected Writings along with forewords
to the Japanese and French editions.

The German
introduction, which has scarcely received the benefit of extensive
commentary by Keynesian exegetes, includes the following statements
by Keynes: “Nevertheless the theory of output as a whole, which
is what the following book purports to provide, is much more easily
adapted to the conditions of a totalitarian state, than is the theory
of production and distribution of a given output produced under
conditions of free competition and a lance measure of laissez-faire.”
(Keynes 1973 [1936]: p. xxvi. Cf. Martin 1971: pp. 200–5; Hazlitt
[1959] 1973: p. 277; Brunner 1987: p. 38ff.; Hayek 1967: p. 346)

As for communism,
Keynes was less enthusiastic. On the one hand, he admired the young,
intellectual, English Communists of the late 1930s because they
reminded him, oddly enough, of the “typical nonconformist English
gentlemen who … made the Reformation, fought the Great Rebellion,
won us our civil and religious liberties, and humanized the working
classes last century.” On the other hand, he criticized the young
Cambridge Communists for the other side of the Reformation/Great
Rebellion coin: they were puritans. Keynes’s lifelong antipuritanism
emerged in the question, Are Cambridge undergraduates disillusioned
when they go to Russia, when they “find it dreadfully uncomfortable?
Of course not. That is what they are looking for” (Hession 1984:
p. 265).

Keynes firmly
rejected communism after his own visit to Russia in 1925. He did
not like the mass terror and extermination, caused partly by the
speed of the revolutionary transformation and partly too, Keynes
opined, by “some beastliness in the Russian nature — or in the Russian
and Jewish natures when, as now, they are allied together.” He also
had strong doubts that “Russian communism” would be able to “make
Jews less avaricious” (Keynes 1925: pp. 37, 15).

Indeed, Keynes
had long been anti-Semitic.[13]
At Eton, Maynard wrote an essay titled “The Differences Between
East and West,” in which he condemned the Jews as an Eastern people
who, because of “deep-rooted instincts that are antagonistic and
therefore repulsive to the European,” can no more be assimilated
to European civilization than cats can be forced to love dogs (Skidelsky,
1986: p. 92). Later, as a British official at the Paris peace conference,
Keynes wrote of his great admiration of Lloyd George’s brutal anti-Semitic
attack on the French Finance Minister, Louis-Lucien Klotz, who had
tried to squeeze the defeated Germans for more gold in exchange
for relieving the Allied food blockade.

First, there
was Keynes’s description of Klotz: “A short, plump, heavy-moustached
Jew, well groomed, well kept, but with an unsteady, roving eye,
and his shoulders a little bent with instinctive deprecation.” Keynes
then described the dramatic moment:

Lloyd George
had always hated him and despised him; and now saw in a twinkling
that he could kill him. Women and children were starving, he
cried, and here was M. Klotz prating and prating of his “goold.”
He leant forward and with a gesture of his hands indicated to
everyone the image of a hideous Jew clutching a money bag. His
eyes flashed and the words came out with a contempt so violent
that he seemed almost to be spitting at him. The anti-Semitism,
not far below the surface in such an assemblage as that one,
was up in the heart of everyone. Everyone looked at Klotz with
a momentary contempt and hatred; the poor man was bent over
his seat, visibly cowering. We hardly knew what Lloyd George
was saying, but the words “goold” and Klotz were repeated, and
each time with exaggerated contempt.

At that point,
Lloyd George came to the climax of his performance: turning to the
French premier, Clemenceau, he warned that unless the French ceased
their obstructive tactics against feeding the defeated Germans,
three names would go down in history as the architects of Bolshevism
in Europe: Lenin and Trotsky and … as Keynes wrote, “The Prime Minister
ceased. All around the room you could see each one grinning and
whispering to his neighbor, ‘Klotsky'” (Keynes 1949: p. 229; Skidelsky
1986: 360, 362).

The point is
that Keynes, who had never particularly liked Lloyd George before,
was won over by his display of George’s savage anti-Semitic pyrotechnics.
“He can be amazing when one agrees with him,” declared Keynes. “Never
have I more admired his extraordinary powers” (1949: p. 225).[14]

But the major
reason for Keynes’s rejection of communism was simply that he could
scarcely identify with the grubby proletariat. As Keynes wrote after
his trip to Soviet Russia: “How can I adopt such a creed which,
preferring the mud to the fish, exalts the boorish proletariat above
the bourgeoisie and the intelligentsia who … are the quality in
life and surely carry the seeds of all human advancement?” (Hession
1984: p. 224).

Rejecting the
proletarian socialism of the British Labour Party, Keynes made a
stark and similar point: “It is a class war and the class is not
my class…. The class war would find me on the side of the educated
bourgeoisie” (Brunner 1987: p. 28). John Maynard Keynes was a lifelong
member of the British aristocracy, and he was not about to forget


Was Keynes,
as Hayek maintained, a “brilliant scholar”? “Scholar” hardly, since
Keynes was abysmally read in the economics literature: he was more
of a buccaneer, taking a little bit of knowledge and using it to
inflict his personality and fallacious ideas upon the world, with
a drive continually fueled by an arrogance bordering on egomania.
But Keynes had the good fortune to be born within the British elite,
to be educated within the top economics circles (Eton/Cambridge/Apostles),
and to be specially chosen by the powerful Alfred Marshall.

is scarcely an apt word either. Clearly, Keynes was bright enough,
but his most significant qualities were his arrogance, his unlimited
self-confidence, and his avid will to power, to domination, to cutting
a great swath through the arts, the social sciences, and the world
of politics.

Keynes was scarcely a “revolutionary” in any real sense. He possessed
the tactical wit to dress up ancient statist and inflationist fallacies
with modern, pseudoscientific jargon, making them appear to be the
latest findings of economic science. Keynes was thereby able to
ride the tidal wave of statism and socialism, of managed and planned
economies. Keynes eliminated economic theory’s ancient role as spoilsport
for inflationist and statist schemes, leading a new generation of
economists on to academic power and to political pelf and privilege.

A more fitting
term for Keynes would be “charismatic” — not in the sense of commanding
the allegiance of millions but in being able to con and seduce important
people — from patrons to politicians to students and even to opposing
economists. A man who thought and acted in terms of power and brutal
domination, who reviled the concept of moral principle, who was
an eternal and sworn enemy of the bourgeoisie, of creditors, and
of the thrifty middle class, who was a systematic liar, twisting
truth to fit his own plan, who was a Fascist and an anti-Semite,
Keynes was nevertheless able to cajole opponents and competitors.

Even as he
cunningly turned his students against his colleagues, he was still
able to cozen those same colleagues into intellectual surrender.
Harassing and hammering away unfairly at Pigou, Keynes was yet able,
at last and from beyond the grave, to wring an abject recantation
from his old colleague. Similarly, he inspired his old foe Lionel
Robbins to muse absurdly in his diary about the golden halo around
Keynes’s “godlike” head. He was able to convert to Keynesianism
several Hayekians and Misesians who should have known — and undoubtedly
did know — better: in addition to Abba Lerner, John Hicks, Kenneth
Boulding, Nicholas Kaldor, and G.L.S. Shackle in England, there
were also Fritz Machlup and Gottfried Haberler from Vienna, who
landed at Johns Hopkins and Harvard, respectively.

Of all the
Misesians of the early 1930s, the only economist completely uninfected
by the Keynesian doctrine and personality was Mises himself. And
Mises, in Geneva and then for years in New York without a teaching
position, was removed from the influential academic scene. Even
though Hayek remained anti-Keynesian, he too was touched by the
Keynesian charisma. Despite everything, Hayek was proud to call
Keynes a friend and indeed promoted the legend that Keynes, at the
end of his life, was about to convert from his own Keynesianism.

Hayek’s evidence
for Keynes’s alleged last-minute conversion is remarkably slight
— based on two events in the final years of Keynes’s life. First,
in June 1944, upon reading The Road to Serfdom, Keynes,
now at the pinnacle of his career as a wartime government planner,
wrote a note to Hayek, calling it “a great book … morally and philosophically
I find myself in agreement with virtually the whole of it.” But
why should this be interpreted as anything more than a polite note
to a casual friend on the occasion of his first popular book?

Moreover, Keynes
made it clear that, despite his amiable words, he never accepted
the essential “slippery slope” thesis of Hayek, namely, that statism
and central planning lead straight to totalitarianism. On the contrary,
Keynes wrote that “moderate planning will be safe if those carrying
it out are rightly oriented in their minds and hearts to the moral
issue.” This sentence, of course, rings true, for Keynes always
believed that the installation of good men, namely, himself and
the technicians and statesmen of his social class, was the only
safeguard needed to check the powers of the rulers (Wilson 1982:
p. 64ff.).

Hayek proffers
one other bit of flimsy evidence for Keynes’s alleged recantation,
which occurred during his final meeting with Keynes in 1946, the
last year of Keynes’s life. Hayek reports,

A turn
in the conversation made me ask him whether or not he was concerned
about what some of his disciples were making of his theories.
After a not very complimentary remark about the persons concerned
he proceeded to reassure me: those ideas had been badly needed
at the time he had launched them. But I need not be alarmed:
if they should ever become dangerous I could rely upon him that
he would again quickly swing round public opinion — indicating
by a quick movement of his hand how rapidly that would be done.
But three months later he was dead. (Hayek 1967b: p. 348)[15]

Yet this was
hardly a Keynes on the verge of recantation. Rather, this was vintage
Keynes, a man who always held his sovereign ego higher than any
principles, higher than any mere ideas, a man who relished the power
he held. He could and would turn the world, set it right with a
snap of his fingers, as he presumed to have done in the past.

Moreover, this
statement was also vintage Keynes in terms of his long-held view
of how to act properly when in or out of power. In the 1930s, prominent
but out of power, he could speak and act “a little wild”; but now
that he enjoyed the high seat of power, it was time to tone down
the “poetic license.” Joan Robinson and the other Marxo-Keynesians
were making the mistake, from Keynes’s point of view, of not subordinating
their cherished ideas to the requirements of his prodigious position
of power.

And so Hayek
too, while never succumbing to Keynes’s ideas, did fall under his
charismatic spell. In addition to creating the legend of Keynes’s
change of heart, why did Hayek not demolish The General Theory
as he had Keynes’s Treatise on Money? Hayek admitted to
a strategic error, that he had not bothered to do so because Keynes
was notorious for changing his mind, so Hayek did not think then
that The General Theory would last. Moreover, as Mark Skousen
has noted in chapter 1 of this volume, Hayek apparently pulled his
punches in the 1940s in order to avoid interfering with Britain’s
Keynesian financing of the war effort — certainly an unfortunate
example of truth suffering at the hands of presumed political expediency.

Later economists
continued to hew a revisionist line, maintaining absurdly that Keynes
was merely a benign pioneer of uncertainty theory (Shackle and Lachmann),
or that he was a prophet of the idea that search costs were highly
important in the labor market (Clower and Leijonhufvud). None of
this is true. That Keynes was a Keynesian — of that much-derided
Keynesian system provided by Hicks, Hansen, Samuelson, and Modigliani
— is the only explanation that makes any sense of Keynesian economics.

Yet Keynes
was much more than a Keynesian. Above all, he was the extraordinarily
pernicious and malignant figure that we have examined in this chapter:
a charming but power-driven statist Machiavelli, who embodied some
of the most malevolent trends and institutions of the 20th century.


Asking himself why the eminent constitutional historian Frederic
W. Maitland had no influence over the Apostles in this era, even
though a member, Derek Crabtree answers that Maitland was unfortunate
enough to hold his chair at Downing College, one of the lesser,
uninfluential colleges at Cambridge (see Crabtree 1980: 18–19).

When the philosopher John E. McTaggart, a lecturer at Trinity
who had been an Apostle since the 1880s, got married late in life,
he assured the Apostles that his wife was merely “phenomenal”
(Skidelsky 1983: 118).

Bertrand Russell, who was a decade older than Keynes, did not
like the Keynes/Strachey group that dominated undergraduate members
during the first decade of the 20th century, largely because of
their conviction that homosexuality was morally superior to heterosexuality.

In view of his friendship with Keynes, Hayek’s account of this
episode characteristically misses Keynes’s arrogance and gall,
treating the story as if it were merely unfortunate that Keynes
did not know German better: “The world might have been saved much
suffering if Lord Keynes’s German had been a little better” (Hayek
[1956] 1984: 219; see also Rothbard 1988: 28).

There is no space here to elaborate my conviction that this was
a false and even pernicious myth, that what Marshall really did
was not to synthesize but to reestablish the dominance of Ricardo
and Mill and their long-run equilibrium and cost-of-production
theories, overlaying them with a thin veneer of trivialized marginal-utility

Thus, as late as World War II and shortly thereafter, my honors
seminar at Columbia College consisted of a chapter-by-chapter
reading and analysis of Marshall’s Principles. And when
I was preparing for my doctoral oral examination in the history
of thought, the venerable John Maurice Clark told me that there
was no real need for me to read Jevons because “all his contributions
are in Marshall.”

As Skidelsky points out, it is typical of Roy Harrod’s whitewashing
biography that, in quoting this letter, he leaves out his hero’s
remark about “swindling the investing public” (Skidelsky 1983:

In a letter to his mother on September 3, 1919. Keynes wrote of
his speculation in foreign exchange, “which will shock father
but out of which I hope to do very well” (Harrod 1951: 288). For
a penetrating critique of Keynes’s views on speculation as gambling,
see Hazlitt ([1959] 1973: 179–85).

Harry Johnson put the strategy perceptively: “In this process,
it helps greatly to give old concepts new and confusing names
… [T]he new theory had to have the appropriate degree of difficulty
to understand. This is a complex problem in the design of new
theories. The new theory had to be so difficult to understand
that senior academic colleagues would find it neither easy nor
worthwhile to study, so that they would waste their efforts on
peripheral theoretical issues, and so offer themselves as easy
market for criticism and dismissal by their younger and hungrier
colleagues. At the same time, the new theory had to appear both
difficult enough to challenge the intellectual interest of young
colleagues and students, but actually easy enough for them to
master adequately with a sufficient investment of intellectual
endeavor. These objectives Keynes’s General Theory managed
to achieve: it neatly shelves the old and established scholars,
like Pigou and Robertson, enabled the most enterprising middle-and
lower-middle-aged like Hansen, Hicks, and Joan Robinson to jump
on and drive the bandwagon, and permitted a whole generation of
students … to escape from the slow and soul-destroying process
of acquiring wisdom by osmosis from their elders and the literature
into an intellectual realm in which youthful iconoclasm could
quickly earn its just reward (in its own eyes at least) by the
demolition of the intellectual pretensions of its academic seniors
and predecessors. Economics, delightfully, could be reconstructed
from scratch on the basis of a little Keynesian understanding
and a lofty contempt for the existing literature — and so it was”
(1978: pp. 188–89).

Robbin’s biographer, D.P. O’Brien, labors hard to maintain that,
despite what he admits is Robbins’s “elaborate” and “exaggerated
contrition,” Robbins never really, deep down, converted to Keynesianism.
But O’Brien is unconvincing, even after he tries to show how Robbins
waffled on some issues. Moreover, O’Brien admits that Robbins
dropped his Misesian macro approach, and he fails to mention Robbins’s
astonishing treatment of Keynes as “godlike” (O’Brien 1988: pp.
14–16, 117–20).

Keynes’s only reference to Mises in The General Theory
does not concern his business-cycle theory or monetary analysis,
which were most relevant to the book, but expresses Keynes’s surprise
at Mises’s “peculiar” theory of interest, which “confused” the
“marginal efficiency of capital” (essentially Keynes’s term for
the rate of return on investment) with the ratio of consumers’
to capital goods’ prices and with the rate of interest. If Keynes
had known anything about capital theory, he would have recognized
Mises’s position as a Böhm-Bawerkian one, similar to much
19th-century capital theory, which concentrated on the long-run
rate of profit as the rate of interest. One of Keynes’s
greatest fallacies was his belief that interest was a purely monetary
phenomenon, making only the loan rate of interest important (Keynes
1936: pp. 192–93; cf. Rothbard [1962] 1970: I, pp. 454–55).

See also the illuminating article by Andrew Rutten (1989). I am
indebted to Dr. Rutten for calling this article to my attention.

Earlier, Keynes had called for a “transformation of society,”
which “may require a reduction in the rate of interest toward
the vanishing point within the next thirty years” (Keynes 1933:
p. 762).

Keynes could rise above his generally anti-Semitic attitude, especially
when a wealthy international banker, capable of conferring favors,
was involved. Thus, we have seen that Edwin Samuel Montagu was
Keynes’s earliest and most important political patron; and Keynes
also became fond of Germany’s representative at the Paris peace
conference, Dr. Carl Melchior: “In a sort of way I was in love
with him” (Keynes 1949: p. 222). The fact that Melchior was a
partner in the prominent international banking firm of M.M. Warburg
and Company might have had something to do with Keynes’s benign

Harry Johnson recorded a similar impression, at Keynes’s presentation
of his posthumously published paper on the balance of payments,
in which Johnson concludes that Keynes’s reference to “how much
modernist stuff, gone wrong and turned sour and silly, is circulating
in our system,” refers to the left-Keynesian, or Marxo-Keynesian,
Joan Robinson (Johnson 1978: p. 159n).

This appeared

N. Rothbard
(1926–1995) was the author of Man,
Economy, and State
, Conceived
in Liberty
, What
Has Government Done to Our Money
, For
a New Liberty
, The
Case Against the Fed
, and many
other books and articles
He was also the editor – with Lew Rockwell – of
Rothbard-Rockwell Report
, and academic vice president
of the Ludwig von Mises Institute.

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