John Maynard Keynes,
who died of a heart attack 75 years ago today, may be best known for the school
of economics named after him, which holds that, because free markets lack the
self-balancing mechanisms to produce full employment, state intervention is
necessary to stimulate demand and stabilize the economy.
That notion, in its different forms, guided mainstream
U.S. economic thinking from the New Deal to the rise of Reaganism, and has been
enjoying something of a revival not only in the Biden administration’s economic
program but even the tax cut passed under Donald Trump (as noted by David J.
Berger in a May 2019 article for The Hill).
Keynes’ American disciple John Kenneth Galbraith, in a
1984 essay for The New York Review of Books, called him “by far
the most influential economist of this century and, with [Adam] Smith, [Karl] Marx,
and possibly [David] Ricardo, one of the three or four greatest economists who
ever lived.”
But long before he formulated this influential theory, Keynes had become famous for immediately grasping how the vengeful and power-obsessed victors of WWI were sowing the seeds for an even more devastating conflict. He had attended the peace conference at Versailles for ending World War I as the senior Treasury member of the British delegation.
But
the more he watched, the more appalled he became at the blindness of the “Big
Four” allied victors in imposing punitive war reparations on Germany.
Having failed to scale back this insistence on what he
termed a “Carthaginean peace,” Keynes departed the proceedings in disgust, then
worked furiously in a farmhouse for two months on what became the bestselling The
Economic Consequences of the Peace.
Time has not dimmed the power of his fury at the
madness of the allies’ four leaders—Britain’s David Lloyd George, America’s
Woodrow Wilson, France’s Georges Clemenceau, and Italy’s Vittorio Emanuele
Orlando—for not recognizing “the fundamental problems of a Europe starving and
disintegrating before their eyes.”
Virginia Woolf’s husband Leonard wittily but aptly
dubbed the economist “Keynessandra.” The problems of the following two decades
after his manifesto—hyperinflation (“There is no subtler, no surer means of
overturning the existing basis of society than to debauch the currency”), periodic
economic failures, nationalist resentment, political extremism, and another
war—proved the wisdom of his vision.
It is also worth remembering Keynes’ unheeded call for
an America that would resist the urge to retreat into postwar isolationism:
“But if America recalls for a moment what Europe has
meant to her and still means to her, what Europe, the mother of art and of
knowledge, in spite of everything, still is and still will be, will she not
reject these counsels of indifference and isolation, and interest herself in
what may prove decisive issues for the progress and civilization of all
mankind?”
Keynes is the bane of libertarian economists for his belief in activist government. (You can find a succinct, and sometimes on-target, summary of such skepticism in Madsen Pirie's June 5, 2019 blog post on the Web site of the Adam Smith Institute.)
But the economist was hardly opposed to investing in
markets. At the time of his death, his assets totaled $30 million in today’s
money, with much of that derived not from his decent-selling books but through
value investing.
As noted in Philip Delves Broughton’s recent Wall
Street Journal review of Justyn Walsh’s Investing With Keynes,
Keynes was “a kind of proto-Warren Buffett, a diligent savant who could crunch
the numbers, discern the qualitative aspects of a toothsome investment and
remain unflustered by the churn of the markets.” Not a bad prescription for
surviving a bubble prosperity.
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