Keynes: The Return of the Master
Encyclopedia
Keynes: The Return of the Master is a 2009 book by economic historian Robert Skidelsky. The work discusses the economic theories and philosophy of John Maynard Keynes
, and argues about their relevance to the world following the Financial crisis of 2007–2010. In contrast to the 30 years he needed to write his prize winning biography on Keynes, the author was able to write this 240 page book in only three months.
Chapter 2 is about economics as its been practised in the years leading up to 2009. The author refers to Keynes's view that an over-reliance on maths is a mistake, because mathematical models will always depend on the validity of their underlying assumptions. Skidelsky says that modern mainstream macroeconomics has become closely integrated with maths, at the expense of other disciplines such as political economy and history, and that this is partly why it became so unreliable at making accurate predictions or offering good advice. Various schools of thought within modern economics are briefly discussed, such as rational expectations
, real business cycle theory
and efficient market theory.
Chapter 4 focuses on Keynes's economics, in particular in the evolution of his thinking and how he challenged mainstream thinking. There is emphasis on the high importance Keynes placed on the role of uncertainty; his central insight that demand, not supply, is the key factor governing unemployment; and Keynes's principal policy recommendation that the rate of interest be kept permanently low so that a high proportion of savings will be channelled into job-creating investment.
Chapter 5 begins with a discussion of the displacement of Keynesian economics
by rival theories promoted by Milton Friedman
and others. The chapter goes on to compare the Golden Age of Capitalism (1951–1973), where Keynesian policy was widely followed by the world's governments, with the Washington Consensus
(1980–2009) period. Skidelsky finds that the golden age benefited from considerably higher economic growth, lower unemployment and inequality, without significantly higher inflation. The author discusses various arguments concerning to what extent the exceptional global conditions of the golden age were due to Keynes's influence, and concludes that to a large degree the "old coach" was responsible.
- the idea that society and those who govern it ought not to make any judgement about what is desirable for people, but just leave individuals as free as possible to pursue their own aims, what ever those may be. With relation to the economy, the current mainstream view sees capitalism as an end in itself, the expression of a population's will relayed via the market. This is contrasted with Keynes's view that capitalism is a means rather than an end, and ought to aim at allowing populations the leisure to pursue the "good life" chiefly living ethically, and having time for the appreciation of beauty and the pleasures of human intercourse.
Chapter 7 is about Keynes's political thinking. In particular it focuses on his doctrine of prudence, which follows on from Keynes's views on uncertainty. Keynes held that, as the long-term future is very hard to predict, it is very rarely justified for politicians to implement policies that cause short-term pain to their populations for possible long-term gains.
Chapter 8 sums up Keynes's relevance to the current age as of 2009. The author suggests that Keynes would likely advise us to rethink macroeconomic policy, with a greater emphasis on balanced growth and with a somewhat large role for government in ensuring there is a smooth flow of investment to help protect the economy from unpredictable shocks. Macroeconomics should be reformed so that it again recognises the role of uncertainty and so it draws on other areas of knowledge such as history and International political economy
, with a less central role for maths. The global savings glut needs to be addressed. Ethics should once again have a role in guiding capitalism, as should Keynes's vision of harmony, where differences are cherished rather than pressured to conform, as can be the case with current concepts of "social cohesion" and "consensus".
in The Guardian describes the work as a "wonderfully lucid exposition of complicated ideas" and says that it "ought to be required reading for every prospective minister". Hattersley sums up the book's theme as follows: "The message is that Keynes is back, not just as a name to be invoked when convenient, but as a guide through the perilous years that lie ahead."
Dwight Garner
in the New York Times writes a positive review but notes that the pace can slow down when figures are introduced. He adds that the book can be considered as aimed at the general reader only "if that general reader owns excellent reading glasses and enthusiastically devours the daily business section from front to back."
Carlos Lozada agrees with one of the book's premises by stating:
However Lozada also suggests that the ideas of economists might not be as central to running the world as members of the profession like to think.
Some reviewers cast doubts on Skidelsky's hopes that lasting changes based on Keynes's works will occur. Sean O'Grady from The Independent says that Skidelsky lacks the exceptional persuasive appeal that Keynes himself had while alive.
The Scotsman's Bill Jamieson writes that there could be no better champion for Keynes and his relevance to the current age than Robert Skidelsky. But he suggests that some of the solutions currently required demand an understanding of how to micro-manage risk-taking by bankers, a subject on which Keynes had little to say, and also of the "risk-taking entrepreneur". The latter topic was better covered by Joseph Schumpeter
, who Jamieson says should rank at least equal to Keynes as our guide to future economic thinking.
Writing for the New Statesman, Cambridge professor Andrew Gamble says that the book is "very valuable for reminding us of Keynes's towering contribution as a political economist, the breadth of his interests and the subtlety of his thought." But he goes on to say that "the political conditions for a real return of Keynes still seem quite distant."
N. Gregory Mankiw
in The Wall Street Journal praises Skidelsky for biographical work, but finds his economic knowledge "pedestrian and imprecise".
John Maynard Keynes
John Maynard Keynes, Baron Keynes of Tilton, CB FBA , was a British economist whose ideas have profoundly affected the theory and practice of modern macroeconomics, as well as the economic policies of governments...
, and argues about their relevance to the world following the Financial crisis of 2007–2010. In contrast to the 30 years he needed to write his prize winning biography on Keynes, the author was able to write this 240 page book in only three months.
Synopsis
The book is divided into a preface, an introduction and three main parts which include a total of eight chapters. The preface introduces Skidelsky's broad themes. In addition to the relevance of Keynes's economics due to the crisis, the author talks about the newly energised questioning concerning wider issues such as the role of morality in 21st-century life and on how Keynes's philosophy and ethics might offer an answer. The introduction maps out the ground the book will cover - the rise of Keynesianism from the late 1930s; its fall in the 1970s; the subsequent rise of free-market-friendly economics, which Skidelsky considers suffers from a regressive over-reliance on maths; the discrediting of this form of economics by the late 2000s crises and the new relevance of Keynes.Part 1 - "The Crisis"
Chapter 1 includes a thumbnail sketch of the unfolding events that comprise the 2007-2009 crises, a brief discussion of the government response and an outline of the various causes, along with a summary of how they have been covered in the media. The crises is described as the deflation of the asset bubble once confidence was undermined in key underlying factors: American house prices and the credit worthiness of sub-prime mortgages. Following on from this was the liquidity crunch in the world of finance, with the knock-on effect on the real economy. Lord Skidelsky divides his discussion of the response into two sections, covering the bail-outs and the stimulus packages. He identifies the follow possible causes: financial innovation; lack of regulation; the behaviour of the bankers & hedge funds and the failings of both credit-rating agencies and governments. He finishes by asserting that all these actors are influenced by economic theories, and that it is recent trends in economics that are the real cause of the crises.Chapter 2 is about economics as its been practised in the years leading up to 2009. The author refers to Keynes's view that an over-reliance on maths is a mistake, because mathematical models will always depend on the validity of their underlying assumptions. Skidelsky says that modern mainstream macroeconomics has become closely integrated with maths, at the expense of other disciplines such as political economy and history, and that this is partly why it became so unreliable at making accurate predictions or offering good advice. Various schools of thought within modern economics are briefly discussed, such as rational expectations
Rational expectations
Rational expectations is a hypothesis in economics which states that agents' predictions of the future value of economically relevant variables are not systematically wrong in that all errors are random. An alternative formulation is that rational expectations are model-consistent expectations, in...
, real business cycle theory
Real business cycle theory
Real business cycle theory are a class of macroeconomic models in which business cycle fluctuations to a large extent can be accounted for by real shocks. Unlike other leading theories of the business cycle, RBC theory sees recessions and periods of economic growth as the efficient response to...
and efficient market theory.
Part 2 - "The Rise and Fall of Keynesian Economics"
Chapter 3 has a brief biographical sketch of Keynes's life, especially as it relates to his economics. Attention is paid especially to Keynes's direct involvement with the markets as a private investor and consultant for others, his involvement with academic economics and his dealings with government policy-makers.Chapter 4 focuses on Keynes's economics, in particular in the evolution of his thinking and how he challenged mainstream thinking. There is emphasis on the high importance Keynes placed on the role of uncertainty; his central insight that demand, not supply, is the key factor governing unemployment; and Keynes's principal policy recommendation that the rate of interest be kept permanently low so that a high proportion of savings will be channelled into job-creating investment.
Chapter 5 begins with a discussion of the displacement of Keynesian economics
Post-war displacement of Keynesianism
The Post-war displacement of Keynesianism was a series of events which from mostly unobserved beginnings in the late 1940s, had by the early 1980s led to the replacement of Keynesian economics as the leading theoretical influence on economic life in the developed world...
by rival theories promoted by Milton Friedman
Milton Friedman
Milton Friedman was an American economist, statistician, academic, and author who taught at the University of Chicago for more than three decades...
and others. The chapter goes on to compare the Golden Age of Capitalism (1951–1973), where Keynesian policy was widely followed by the world's governments, with the Washington Consensus
Washington Consensus
The term Washington Consensus was coined in 1989 by the economist John Williamson to describe a set of ten relatively specific economic policy prescriptions that he considered constituted the "standard" reform package promoted for crisis-wracked developing countries...
(1980–2009) period. Skidelsky finds that the golden age benefited from considerably higher economic growth, lower unemployment and inequality, without significantly higher inflation. The author discusses various arguments concerning to what extent the exceptional global conditions of the golden age were due to Keynes's influence, and concludes that to a large degree the "old coach" was responsible.
Part 3 - "The return of Keynes"
Chapter 6 concerns Keynes's philosophical and ethical views, and how they relate to our current conception and practice of capitalism. Skidelsky asserts that central to current thinking and praxis is Negative libertyNegative liberty
Negative liberty is defined as freedom from interference by other people, and is set in contrast to positive liberty, which is defined as an individual's freedom from inhibitions of the social structure within the society such as classism, sexism or racism and is primarily concerned with the...
- the idea that society and those who govern it ought not to make any judgement about what is desirable for people, but just leave individuals as free as possible to pursue their own aims, what ever those may be. With relation to the economy, the current mainstream view sees capitalism as an end in itself, the expression of a population's will relayed via the market. This is contrasted with Keynes's view that capitalism is a means rather than an end, and ought to aim at allowing populations the leisure to pursue the "good life" chiefly living ethically, and having time for the appreciation of beauty and the pleasures of human intercourse.
Chapter 7 is about Keynes's political thinking. In particular it focuses on his doctrine of prudence, which follows on from Keynes's views on uncertainty. Keynes held that, as the long-term future is very hard to predict, it is very rarely justified for politicians to implement policies that cause short-term pain to their populations for possible long-term gains.
Chapter 8 sums up Keynes's relevance to the current age as of 2009. The author suggests that Keynes would likely advise us to rethink macroeconomic policy, with a greater emphasis on balanced growth and with a somewhat large role for government in ensuring there is a smooth flow of investment to help protect the economy from unpredictable shocks. Macroeconomics should be reformed so that it again recognises the role of uncertainty and so it draws on other areas of knowledge such as history and International political economy
International political economy
International political economy , also known as global political economy, is an academic discipline within the social sciences that analyzes international relations in combination with political economy. As an interdisciplinary field it draws on many distinct academic schools, most notably ...
, with a less central role for maths. The global savings glut needs to be addressed. Ethics should once again have a role in guiding capitalism, as should Keynes's vision of harmony, where differences are cherished rather than pressured to conform, as can be the case with current concepts of "social cohesion" and "consensus".
Reception
Roy HattersleyRoy Hattersley
Roy Sydney George Hattersley, Baron Hattersley is a British Labour politician, author and journalist from Sheffield. He served as Deputy Leader of the Labour Party from 1983 to 1992.-Early life:...
in The Guardian describes the work as a "wonderfully lucid exposition of complicated ideas" and says that it "ought to be required reading for every prospective minister". Hattersley sums up the book's theme as follows: "The message is that Keynes is back, not just as a name to be invoked when convenient, but as a guide through the perilous years that lie ahead."
Dwight Garner
Dwight Garner (critic)
Dwight Garner is an American journalist, now a literary critic for The New York Times. Prior to that he was senior editor at the New York Times Book Review, where he worked from 1999 to 2009...
in the New York Times writes a positive review but notes that the pace can slow down when figures are introduced. He adds that the book can be considered as aimed at the general reader only "if that general reader owns excellent reading glasses and enthusiastically devours the daily business section from front to back."
Carlos Lozada agrees with one of the book's premises by stating:
However Lozada also suggests that the ideas of economists might not be as central to running the world as members of the profession like to think.
Some reviewers cast doubts on Skidelsky's hopes that lasting changes based on Keynes's works will occur. Sean O'Grady from The Independent says that Skidelsky lacks the exceptional persuasive appeal that Keynes himself had while alive.
The Scotsman's Bill Jamieson writes that there could be no better champion for Keynes and his relevance to the current age than Robert Skidelsky. But he suggests that some of the solutions currently required demand an understanding of how to micro-manage risk-taking by bankers, a subject on which Keynes had little to say, and also of the "risk-taking entrepreneur". The latter topic was better covered by Joseph Schumpeter
Joseph Schumpeter
Joseph Alois Schumpeter was an Austrian-Hungarian-American economist and political scientist. He popularized the term "creative destruction" in economics.-Life:...
, who Jamieson says should rank at least equal to Keynes as our guide to future economic thinking.
Writing for the New Statesman, Cambridge professor Andrew Gamble says that the book is "very valuable for reminding us of Keynes's towering contribution as a political economist, the breadth of his interests and the subtlety of his thought." But he goes on to say that "the political conditions for a real return of Keynes still seem quite distant."
N. Gregory Mankiw
N. Gregory Mankiw
Nicholas Gregory "Greg" Mankiw is an American macroeconomist and Professor of Economics at Harvard University. Mankiw is known in academia for his work on New Keynesian economics....
in The Wall Street Journal praises Skidelsky for biographical work, but finds his economic knowledge "pedestrian and imprecise".
See also
- Commanding HeightsCommanding Heights: The Battle for the World EconomyThe Commanding Heights: The Battle for the World Economy is a book by Daniel Yergin and Joseph Stanislaw, first published as The Commanding Heights: The Battle Between Government and the Marketplace That Is Remaking the Modern World in 1998...
- 2008–2009 Keynesian resurgence2008–2009 Keynesian resurgenceIn 2008 and 2009, there was a resurgence of interest in Keynesian economics among policy makers in the world's industrialized economies. This has included discussions and implementation of economic policies in accordance with the recommendations made by John Maynard Keynes in response to the Great...