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Review: Keynes, the return of the master


It’s good practice to pick up a book, from time to time, that you know you’re going to disagree with. Knowing why you favor one idea over another requires knowing both. This was the reason why I read Keynes: The return of the master by Robert Skidelsky.

Having already written a three volume biography of Keynes, Skidelsky covers a lot of territory in 193 pages. In order to understand how Keynesianism might help us today, one must first understand Keynes the man, the times in which he lived, and his historical role. Skidelsky does an excellent job with the grand sweep of history and fleshing out Keynes the man. It is only when he is trying to explain today’s muddled situation, with floating exchange rates and complex international savings/investment relationships that the book loses its rhythm.

Keynes was not just an economist. He was a philosopher whose main interest was economics. His moral philosophy was conventional, even Victorian by today’s standards. He was an unapologetic capitalist who set out to solve what he saw as capitalism’s biggest problem; unemployment. He lived at the dawn of modernity, the industrial revolution was in full swing, and the rise of communism and fascism were real threats to capitalist democracies. If a way could be found to maintain low unemployment, it would lead to a more harmonious world.

Among economists, both then and now, Keynes’s greatest, and most controversial insight, was realizing the difference between risk and uncertainty. Risk is quantifiable. Risk can be managed using math and science. Our reasoning abilities can be used to predict the future with a fair degree of accuracy. But scientific risk management will only get us so far. Uncertainty is more like an enveloping fog, thick in some parts, thinner in others, always obscuring our expectations of what the future will bring. In a world of uncertainty, we make progress by trial and error, reverting to convention to get us through the mysterious shroud. When the most logical path is hidden and unknowable, scientific reason is of no practical benefit.

This does much to explain our present situation. Our computer models have failed us. Our reasoning abilities have become useless at predicting what is to come next, and so we revert to Keynes. He got us through this before, he can do it again.

There is a lot to like about Keynes. He seems to have been a kindly old gent, a revolutionary and independent thinker. Skidelsky points out that all the schools of economic thought have some amount of real world truth. The economics of capitalism is very much a work in progress. I still think my disagreements with Keynes are still valid, like a high savings rate represents a failure of growth, rather than an increase in real wealth, or that flooding the markets with depreciating cash will produce an overall good. Most of all, like all people of the political left, Keynes tends to assign greed, avarice, and self-interest only to the business class. The political class is assumed to be altruistic and working for the benefit of all. I have to think that if Keynes were alive today, he would be reconsidering that assumption.

I recommend this book for the general reader. Skidelsky writes in plain language and for the most part, treats his adversaries fairly. I would have liked it more if he had spent more time on the collapse of the Bretton-Woods Agreement and the resulting inflation, but maybe he’ll have more to say about that in the next one.