Chapter 25. Did Keynes recant?
The Classical Medicine
There is a persistent belief among many non-Keynesians that Keynes recanted the doctrines expounded in the General Theory toward the end of his life.
The belief is based in part on reported conversations with friends, but the only public evidence
I can think of is an article which appeared in the June 1946 edition of The Economic Journal
called The Balance of Payments of the United States.
Fifteen of its seventeen pages are concerned precisely with the subject of the title.
They are a sympathetic study of the balance of payments of the United States and an attempt
to forecast what it will be over the next five to ten years.
We need not analyze either the arguments or the forecasts in these fifteen pages, which
are either irrelevant to our present purpose or outdated.
What concerns us are the final two pages.
Here, Keynes declares,
I find myself moved, not for the first time, to remind contemporary economists that the
classical teaching embodied some permanent truth of great significance, which we are
liable today to overlook because we associate them with other doctrines which we cannot
now accept without much qualification.
There are in these matters deep undercurrents at work, natural forces, one can call them,
or even the invisible hand, which are operating towards equilibrium.
If it were not so, we could not have got on even so well as we have for many decades past.
This passage discloses a dawning suspicion on Keynes's part that the general theory may
may have gone too far.
But it still fails to show a real understanding of the classical teaching.
For there is nothing mysterious or occult about the forces which operate toward equilibrium.
They are simply the result, in a system of freedom, of the efforts of producers to maximize
Adam Smith's invisible hand was a brilliant metaphor but, rightly interpreted, nothing
more than a metaphor.
If the individual producer is free to try to maximize his profits but legally and morally
The result of this free competition among producers and freedom of choice of consumers is to bring
Admittedly, if the classical medicine is to work, Keynes continues, it is essential
that import tariffs and export subsidies should not progressively offset its influence.
This surely looks like a withdrawal of his advocacy of mercantilist restrictions, economic
nationalism and management of the domestic price level at whatever cost to foreign trade.
Praising the sincere and thoroughgoing proposals advanced on behalf of the United States, expressed
It shows how much modernist stuff, gone wrong and turned sour and silly, is circulating in our system, also incongruously mixed, it seems, with age-old poisons, that we, the British, should have given so doubtful a welcome to this magnificent objective approach.
This looks like an almost savage rejection of the doctrines of the general theory.
But, Keynes goes on,
I must not be misunderstood.
I do not suppose that the classical medicine will work by itself or that we can depend on it.
We need quicker and less painful aids of which exchange variation and overall import control are the most important.
The Great Virtue of the Bretton Woods and Washington Proposals, taken in conjunction,
is that they marry the use of the necessary expedience to the wholesome long-run doctrine.
It is for this reason that, speaking in the House of Lords, I exclaimed that here is an
attempt to use what we have learnt from modern experience and modern analysis not to defeat,
but to implement the wisdom of Adam Smith.
No one can be certain of anything in this age of flux and change.
Decaying standards of life at a time when our command over the production of material
satisfactions is the greatest ever, and a diminishing scope for individual decision
and choice at a time when more than before we should be able to afford these satisfactions
are sufficient to indicate an underlying contradiction in every department of our economy.
The Underlying Contradictions
The greatest underlying contradiction, however, as this passage so clearly reveals, was in
Keynes's own thought.
In 1946, as in 1936, he was still trying to reconcile irreconcilables by the classical
medicine he could have only meant what Lionel Robbins has called the system of economic
Economic Freedom, which Robbins defines as an urgent demand that hampering and antisocial
impediments should be removed and that the immense potential of free pioneering individual
initiative should be released.
But Keynes wanted both freedom and controls.
He wanted free trade and he wanted exchange variation and overall import control.
That is, he wanted government currency manipulation, exchange control, import quotas and prohibitions
which are the very negation of free trade and a free economy.
He deplored diminishing scope for individual decision and choice, at the same time as he
continued to advocate all these restrictions on individual decision and choice and failed
explicitly to repudiate even his scheme for government control and socialization of investment.
He wanted to implement the wisdom of Adam Smith and yet to ignore the wisdom of Adam
Smith.
What then can we say about this recantation?
The great difficulty with Keynes is how to tell his recantations from his contradictions.
His contradictions consisted of incompatible views that he held simultaneously.
His recantations consisted of incompatible views that he recognized as incompatible and
hence held only successively.
We saw in chapter 23 that he swung from free trade to hyperprotectionism, almost to autarky,
and back again.
In his 1946 article, he seems to wish a little of each.
In his treatise on money, he gave definitions of saving and investment which he explicitly
repudiated in the general theory and then tacitly adopted anyway, because they were
essential to his arguments.
In The Economic Consequences of the Peace in 1919, he wrote one of the most eloquent
Warnings Against Inflation on Record, only to advocate inflation, in the general theory,
as the standard recourse to cure all unemployment, if not as a permanent way of life.
And in the general theory itself, perhaps the central contention of which is that a
cut in money wage rates cannot cure unemployment and will probably increase it, he blurts out
When we enter on a period of weakening effective demand, a sudden large reduction of money
wages to a level so low that no one believes in its indefinite continuance would be the
event most favorable to a strengthening of effective demand.
page 265.
So the 1946 article in the Economic Journal might be set down as just one more contradiction.
True, Cain says some patronizing things in it in favor of the classical medicine, but
he had already paid, as we have seen, many patronizing compliments to the classical system
even in the general theory.
And yet, there is that phrase in the Economic Journal article about much modernist stuff
gone wrong and turned sour and silly.
What could this refer to except Keynesian theory itself, as interpreted and applied
by his more zealous disciples?
Was Keynes then, in the last years of his life, at least on the verge of recantation?
I spoke at the beginning of this chapter of reported conversations with friends or other
economists.
I shall cite but one.
In my last talk with Keynes, a few months before his death, it was clear that he had
got far away from his euthanasia of the rentier.
He complained that the easy money policy was being pushed too far, both in England and
here and emphasized interest as an element of income and its basic importance in the
structure and functioning of private capitalism.
He was amused by my remark that it was time to write another book because the all-out
easy money policy was being preached in his name, and replied that he did think he ought
to keep one jump ahead.
The situation reminds one of that in the Brothers Karamazov, in which Ivan Karamazov, who has
preached a purely philosophical atheism and immoralism, everything is permissible, finds
to his horror that his half-brother, Smerdyakov, taking him at his word, has murdered and robbed
their father.
I was only your instrument, says Smirdikoff, your faithful servant, and it was following
your words I did it.
All things are lawful.
That was quite right what you taught me, for if there's no everlasting God, there's no
such thing as virtue, and there's no need of it.
Keynes was a brilliant man.
Much of what he wrote, he wrote with tongue in cheek, for the pleasure of paradox, to
by Épeter Le Bourgeois in the spirit of Wild, Shaw and the Bloomsbury Circle.
Perhaps the whole of the general theory was intended as a huge, four-hundred page joke,
and Keynes was appalled to find disciples who took it all literally.
Credit and satire are dangerous weapons when not used in the service of good sense.