John Maynard Keynes was a product of the late Victorian and Edwardian eras, a period when stability, prosperity, and peace were assumed and when Britain ruled the world economy. Keynes never lost the self-confidence, self-assurance, and indeed the optimism of that time. But his intellectual career, and his profound impact, arose from his efforts to make sense of the disruptions and crises that began with the first world war and continued through the Great Depression. Descended from a knight who had crossed the English Channel with William the Conqueror, Keynes was the son of a Cambridge University economist. Educated at Eton and Cambridge, he demonstrated from his early years a dazzling, wide-ranging intellect, along with an arrogance and what seemed to some a dismissive elitism. His establishment habits (including the signature homburg normally associated with a City of London stockbroker) and his pride in being a member of what he called the "educated bourgeoisie" were combined with chronic social and intellectual rebellion, orneriness, and the lifestyle of a Bloomsbury bohemian and aesthete. His daunting mathematical dexterity was complemented by a considerable literary grace, whether the subject was the subtleties of economic thought or his obsession with the hands of statesmen. He celebrated "vigilant observation" of the real world as one of the requirements of a good economist, and he loved to pore through statistics. His best ideas, he liked to say, came "from messing about with figures and seeing what they must mean." Nevertheless, he could not resist endlessly toying with ideas, and he compulsively sought to spin out all-encompassing theories and generalizations from particulars. As an economic advisor to the British delegation at the Versailles conference in 1919, he became convinced that the Carthaginian peace that the Allies were imposing on Germany would undermine European economic recovery and guarantee new crises. Disgusted, he resigned and retired to the English countryside, where, in a matter of weeks, he brought together his searing criticisms in The Economic Consequences of the Peace. That book made him famous. In the 1920s, he focused mostly on monetary issues. He lambasted the decision by Winston Churchill, at the time chancellor of the exchequer, to return Britain to the gold standard with an overvalued pound in a work entitled "The Economic Consequences of Mr. Churchill." Persistent unemployment in Britain, and then the mass unemployment of the Great Depression, redirected Keynes's intellectual agenda from monetary affairs to unemployment and led to his most influential work, The General Theory of Employment, Interest, and Money, published in 1936. Here was Keynes as vigilant observer, keen mathematician, self-confident rebel, and grand generalizer. The book constituted a vast assault on the classical economics tradition in which he had been raised. The era that had nurtured classical economics had been destroyed by the first world war, and for Keynes the cataclysms since had demonstrated the tradition's inadequacies. A new synthesis was necessary, and that is what Keynes, working with his "kindergarten" of disciples in Cambridge, sought to create. Keynes had worked on The General Theory with feverish intensity, convinced that new apocalypses were waiting close in the wings even as the world struggled with the Depression. The alternative to reform was totalitarianism. And it was not only the new vistas of macroeconomics but also the dangers of the time that helped explain the fervor with which others embraced the argument. As one of his students explained, "Finally what Keynes supplied was hope: hope that prosperity could be restored and maintained without the support of prison camps, executions, and bestial interrogations." In one of the most famous passages of The General Theory, Keynes had written, "The power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas." There was nothing gradual, however, in the encroachment of Keynesianism or in its conquest of the commanding heights of economic thinking. Within a few years of his death, it was already taking a dominant place in economic policy making both in Britain and in the United States. How far-reaching its impact, or at least the perception of its impact, was demonstrated by a history of economic thought published in the mid-1960s: "In most Western economies Keynesian theory has laid the intellectual foundations for a managed and welfare-oriented form of capitalism. Indeed, the widespread absorption of the Keynesian message has in large measure been responsible for the generally high levels of employment achieved by most Western industrial countries since the second world war and for a significant reorientation in attitudes toward the role of the state in economic life." Keynes's self-confidence lived on in his thought. From Commanding Heights by Daniel Yergin and Joseph Stanislaw. Copyright © 1998 by Daniel A. Yergin and Joseph Stanislaw. Reprinted by permission of Simon & Schuster, Inc., N.Y. |