When governments lavishly borrow and spend to prop up an economy in the midst of a pandemic, they are in the thrall of John Maynard Keynes.
When central banks print seemingly unlimited amounts of paper currency to buy up government and corporate bonds, they are following the playbook of John Maynard Keynes.
When we worry that uncertainty and fear will turn a momentary downturn into a prolonged recession, we are channeling John Maynard Keynes.
It is our good fortune, then, that at this most Keynesian of moments, Zachary Carter has produced a spectacular new biography that paints a rich and textured portrait of the great economist and locates his ideas within the broad sweep of economic and intellectual history.
Although Carter is known for his reporting on economic policy for HuffPost, he has found an even higher calling as a writer who can explain economic concepts with such clarity and simplicity that we digest them with the same ease and satisfaction as a plump oyster sliding down our gullet. With his first book, Carter establishes himself as the rare writer who can weave compelling narrative, insightful analysis and explication of complex phenomena in prose that is accessible, elegant, almost lyrical at times. “The Price of Peace” should be required reading for every economics major and anyone who struggles to understand the interplay of money, markets and economic policy.
(Full disclosure: While I’ve never met Carter, his wife was once a reporter and editor in The Washington Post’s Business section.)
Although a prodigious researcher, Carter owes much to the British economist Robert Skidelsky, whose authoritative three-volume biography was the first to proclaim that Keynes had done for economics what Einstein had done for physics. Carter’s contribution is to chronicle the development of Keynesian economics in the decades since, both in England, where it retains a more socialist patina, and in the United States, where it has been molded by economists such as John Kenneth Galbraith, Paul Samuelson, James Tobin and Robert Solow into a theory that is more respectful of markets and tolerant of the inequality, insecurity and monopoly power that they produce.
Carter’s perspective is that of a 21st-century American who sees a parallel between Britain’s decline and fall as an economic superpower, starting in 1914, and a similar fall from economic grace that he fears has begun in his own country. In Carter’s telling, everything Keynes did as an economist, journalist and public official was motivated by his determination to preserve Britain’s place in the global hierarchy. The tragic irony of his remarkable career was that his ideas were rejected before they were belatedly embraced.
At the Paris Peace Conference that convened at the end of World War I, Keynes failed to persuade his own delegation, and those of the other Allied powers, not to saddle Germany with reparations so large that they would crush the German economy. Not only would the money never be paid, Keynes warned prophetically, but the punishment would invite social unrest and a nationalist resurgence that could lead to another war. Dejected, he returned to London early and penned “The Economic Consequences of the Peace” — a “furious tirade against autocracy, war and weak politicians,” as Carter describes it — which became an instant bestseller and established Keynes as Britain’s best-known and most influential economist.
In the period between the wars, Keynes could not persuade Britain and other countries to abandon a gold standard that forced too many nations to raise interest rates to protect their currencies, thereby driving their economies into recession. In “The End of Laissez-Faire,” he laid out the argument that markets were neither self-correcting nor self-sufficient enough to deliver the right balance of economic efficiency, social justice and individual liberty to save capitalism from its own shortcomings and excesses.
When the global economy sank into depression after the stock market crash of 1929, Keynes was similarly unsuccessful in getting Britain’s political leaders to abandon Victorian values of saving and austerity and have the government borrow and spend when households and businesses would not. In Franklin Roosevelt’s America and Adolph Hitler’s Germany, in contrast, political leaders experimented with the possibility that demand could create its own supply.
And when Allied leaders gathered at New Hampshire’s Bretton Woods resort in the summer of 1944 to create the financial architecture of the postwar global economy, an ailing Keynes could not convince them of the folly of fixed exchange rates and the need for a global central bank.
“The arc of his public life,” Carter writes, “had been one long, fruitless attempt to bend European policy to his brilliance.”
Frustrated by his attempts to shape policy, Keynes retreated to Cambridge to write his magnum opus, “The General Theory of Employment, Interest and Money,” which laid out a new economic belief system, one that acknowledged the irrationality of economic actors, the imperfection of competition, the inherent instability of finance and the possibility that vigorous pursuit of individual self-interest can result in collective economic failure.
“It is a liberating book because it reframed the central problem at the heart of modern economics,” Carter writes: an economics concerned more with abundance and fairness than scarcity and efficiency. “It is a frustrating book because it is written in novel abstractions, argued in convoluted sentences and dense equations. And it is a work of genius because it offers a simple truth that, once offered, seems obvious: Prosperity is not hard-wired into human beings; it must be orchestrated and sustained by political leadership.”
As biographer, Carter revels in Keynes’s many contradictions: an anti-imperialist determined to save the British Empire; a pacifist who helped to finance two wars; a homosexual who thrived in a heterosexual marriage; a trained mathematician who decried the mathematization of economics; a witty cynic and unrepentant optimist; a pillar of the British political establishment whose closest friends were a group of Bohemian artists and intellectuals.
If I have any quibble with “The Price of Peace,” it is with Carter’s critique of “neoliberal” economists and policymakers who strayed from the true Keynesian path over the past 40 years by embracing globalization, deregulation and fiscal austerity. Keynes would have surely understood that the job of each generation is to adjust to changing circumstances and technologies, preserving whatever arrangements deliver broadly shared prosperity and fixing those that don’t. And by the early 1980s, there was a lot about the old Keynesian consensus that needed fixing. While it may have made sense for a British economist in 1946 to focus on the need for government to steer public and private investment to rebuild a war-ravaged economy, an economist in 1980 would have seen how too much government management had eroded economic efficiency and competitiveness, stifled innovation, and opened the door to rent-seeking and crony capitalism.
Now 40 years on, this “new Keynesian” consensus itself needs fixing, with financial markets dangerously unstable and inequality in advanced countries reaching levels that are morally unacceptable and economically self-defeating. But nobody would have objected more to a return to the Keynesianism of 1946 than the man who warned against enslaving ourselves to the ideas of some defunct economist.
Money, Democracy, and the Life of John Maynard Keynes
By Zachary D. Carter
Random House. 628 pp. $35