Keynes: The Return of the Master by Robert Skidelsky

Keynes: The Return of the Master

by Robert Skidelsky

Recommendation: read (buy here).

(It’s Keynes Week here at!)

The book’s tag-line is, “Why, sixty years after his death, John Maynard Keynes is the most important economic thinker for America.” Whether or not that is so, it is true that Skidelsky’s admiration of the “master” borders on idolatry.

Which is not a bad thing, because we know exactly what we’re getting. Mostly. Because Skidelsky can’t help but sneak in his own politics occasionally. We hear that the current economic system is “unjust”—that ever dangerous word—that budget deficits are caused by defense and war spending but not by increased “entitlements”, that we promote the “rape of nature”, that the level of “useless consumption” is too high, and so forth. However, we know our author is a modern academic, so we reflexively discard these distractions and get to the good stuff.

And there’s plenty. The chapters summarizing “The Crisis” are so well written that the words pour off the page right into your head. As do his descriptions of the two main ivory tower rivalries, which he labels, quoting Robert Waldman, Freshwater and Saltwater, or his own New Classical and New Keynesian. It is his contention that the Friedmanites have not advanced much beyond Adam Smith and Say’s Law. But he also chides New Keynesians for abandoning the faith. They are not true Keynesians, and their theories and methods differ so little from Classicalists that their spats are “in the nature of family disputes.”

Both schools have abandoned ethics, morality, epistemology, and common sense and have become a branch of Applied Mathematics too much in love with theory. By which he means the wrong theory. But I’m with him, because the same problems are found in my own field. He suggests economists are lost in admiration of the beauty of their models, so much so that they shun intrusions of reality. Take the rational expectations hypothesis and real business cycle theories as examples. These obviously false, but oh so pretty, theories form the basis of endless papers and tenure decisions.

But forget all that, and let’s get to the real question. What would Keynes do?

Keynes believed that the goal of life was not to create wealth, but to live “wisely, agreeably, and well.” He believed that “statistical information in the hands of the philosophically untrained was a dangerous and misleading toy.” And he strongly believed that people were far, far too certain of themselves (see yesterday’s post). To all of which we say, Amen, brother!

At the start, he rejected Bentham’s hedonistic utilitarian calculus. He said that Benthamism was “the worm which has been gnawing at the insides of modern civilization and is responsible for its present decay.” Keynes did not believe it was possible to calculate “happiness,” nor was it desirable to do so, nor should economic policy be designed in its name.

He opted instead for G.E. Moore’s ethics, which sought to increase the amount of good. Not that that concept is without difficulties, but Keynes felt it was defensible. Among the good: love of knowledge, being in love, “experiencing aesthetic emotions”, and such like. Pleasure, to counter Bentham, was external. Being in love “is a source of both pleasure and pain.” To know what is good is not an empirical question: no amount of data will ever help answer it.

Conspicuously, and thankfully, absent from Moore’s list is “justice”, though Keynes took it up in his idea of a “just price,” by which he meant a “fair” price. Skidelsky claims this idea “has long been banished to the attics of economics.” But we often hear condemnations of price gouging, monopolies are typically disallowed, and several sectors of the economy, such as utilities, have their prices heavily regulated. Anyway, Keynes only meant that rational people have an intuitive grasp of what is fair and what is not.

Keynes married his basis of ethics and morality with his brilliant understanding of probability and uncertainty, and from this flowed his theory of economics. Skidelsky spends a lot of time describing these foundations because he feels, probably rightly, that they have been forgotten or neglected. He also outlines Keynes’s economic theory, which is covered in enough other places we needn’t repeat it here.

Still, what do we do now? Regulate, says Skidlesky. Spend, and embrace deficits. He provides a sketch of ideas that should be implemented forthwith. Now, I do not have the expertise to judge whether these ideas are what Keynes would advocate or not. What is clear is that Skidelsky has forgotten his master’s warning about excess certainty. Plus, and although he didn’t mean for this to happen, he puts the reader on the hunt for unresolved foundational difficulties, of which there are many.

For example, terminology is a huge problem. Keynes and every other economist always use the term “full employment”, which has a technical definition, and which is everywhere assumed to be good. But nowhere is that assumption justified, or even explained. It’s just taken for granted. It might even be true, or obvious to economists, but I don’t see it.

“Equilibrium” is yearned for—economists are passionate about having it—but nobody offers what it means empirically. This feels like economists have had just enough physics to be dangerous.

And then there’s “inequality”, perhaps the most dangerous, certainly the bloodiest, idea ever had by man. But just what is that? Anybody care to answer?


  1. Once I picked up a graduate level textbook on economics. After a few pages I became convinced that I had accidentally picked up a treatise on measure theory. At any rate I couldn’t see the connection to human behavior- all these pages of lemmas, theorems, and proofs built on assumptions as shaky as jello.

  2. John Free

    Devil Worship takes many forms these days.

  3. dearieme

    I met Skidelsky once at a dinner in Cambridge: he was an obsessive, and tried to pump me like mad on politics and economics. So I told him my Keynes story. But I may have told it here before, so I’d better shut up.

  4. Briggs


    But you didn’t! We’d love to hear it.


    Hayek has a mention or two, but in a strange way. The times he quotes from Hayek or Keynes mentioning the other, they are always in agreement. Skidlesky himself, as you might guess, is not a follower of Hayek.

  5. I think it would be good to return to Adam Smith’s principle that humans behave motivated by enlightened self interest. The key word is enlightened. Supply side economics under which we have been operating for over sixty years has evolved into human behavior that is motivated by “what is in it for me now?”: which can be considered one of the seven deadly sins. Econometrics is just a technique for measuring the effects of human behavior, either good or bad.

  6. Doug M

    I have mixed feelings about JMKeynes.

    His ideas have been horribly manipulated to justify ever increasing govenrment control. I doubt he would recognise “Keynesian Economics” in its current form. At the same time, “Keynesian economics” has been much in vouge in Washington for the last 10 years, even if it is out of favor in the adademy.

    Blame Samuleson mistaking economics as a “hard science”, and treating like phisics with people instead of particles.

  7. Doug M

    Fred Haynie,

    “What is in it for me” is my enlightend self interest!

  8. Ron DeWitt

    Two approaches to motivating people are recognized, represented metaphorically by the “carrot” and the “stick”. Advocates of equality wish to eschew the use of the carrot, and in effect, restrict motivation to the other means.

  9. dearieme

    Right. My brother was at a dinner in The City, years ago. He got talking to an old boy, an Investment Manager, who started reminiscing about Keynes. “Such an interesting chap, and so quick. Quite the cleverest fellow I ever met, by a long shot.” “Ah.” “And a very successful investor himself.” “Um.” “Of course he was an inside dealer, but an honest inside dealer.” “Oh?” “Yes, you see a crook who was consulted by the government would give advice designed to drive his investments up. Not Keynes. He would decide honestly what advice to give and then, before delivering it, he’d invest in something that would go up if the government followed his advice. An honest man, you see.” This was perfectly legal back then, of course.

    Anyway, which of the financial panjandrums of today would pass the old boy’s test? Approximately none, I’d guess.

  10. Pat Moffitt

    Inequality as defined by Environmental Justice(EJ) movement demands a redistribution of society’s benefits. Cap and Trade is the means by which the monies are to be collected and Green economics is the mechanism by which these benefits are to be redistributed. Environmental Justice is the grand unifying vision of the environmental movement and USEPA.

    Be very careful when you hear elected officials and NGOs speak about a green future it means very much more than windmills. Green economics espouses a finite limit to economic growth- a limit proponents claim we are rapidly approaching. Greens believe the resources and environmental demands of bringing all the world’s people up to “consumer class” western living standards would be catastrophic. The only option therefore is to constrain the growth and consumption of the west while redistributing the west’s excess wealth to the developing world. Green economics sees the equitable distribution of limited available resources as the top priority rather than the efficient allocation of these resources. Growth in a green economic system is derived from personal fuflllment and can only arise with the creation/replacement of a new value system. (More detailed info can be found in the Tuft Univ. seminars on green economics)

    Green Economics does not simply say we are nearing the end of economic growth they see it as their responsibility to limit any potential for growth. Economic growth is “destructive to both people and nature.” John Holdren the science adviser to President Obama wrote with Paul Ehrlich in Global Ecology “only one rational path is open to us—simultaneous de-development of the overdeveloped countries and semi-development of the underdeveloped countries.” The US is obviously one of the overdeveloped western countries and there is not easier way to “de-develop” a country than to deny it access to energy.

    In a recent speech by James Speth -mentor to our energy czar Carole Browner- and founder of NRDC, president of WRI and Dean of Yale’s School of Forestry and the environment summed up the position of the environmental movement: (Environmental politics) “should expand to embrace a profound challenge to consumerism and commercialism and the lifestyles they offer,….. a redefinition of what society should be striving to grow, a challenge to corporate dominance and a redefinition of the corporation and its goals, a commitment to deep change in both the functioning and the reach of the market, and a powerful assault on the anthropocentric and contempocentric values that currently dominate.”

    “The current financial crisis and, at this writing, the response to it, reveal a system of political economy that is profoundly committed to profits and growth and profoundly indifferent to people and society. This system is at least as indifferent to its impacts on nature. Left uncorrected, it is inherently ruthless and rapacious, and it is up to citizens, acting mainly through government, to inject values of fairness and sustainability into the system.” ( 20 Oct 2008 IN Climate Policy & Politics Sustainability North America)

    Speth correctly states that modern environmentalism is a “culture war” with the stakes being the core values and future of society requiring the destruction of the “materialistic values that dominate our society, to addressing the constraints on environmental action stemming from America’s vast social insecurity and hobbled democracy” Remember the context- values are the only thing allowed to grow in a green economy.

    Technological advancement is rejected by the Greens as a solution to any problem -especially to continued economic growth. Technology can and has proved the precept of limited resources wrong and the “truth” of resource limitation is necessary to justify green economics and redistributive justice.

    Green philosophy rose from the vision of Barry Commoner (among others) – that the environmental movement should not focus on correcting the effects (a technological approach) but focus on eliminating the cause -capitalism. Green writers including Dowie, Gottlieb, Speth and others have warned the movement that allowing for intermediate technological solutions to environmental problems will undermine the necessary public perception of crisis and as such the growth of the green movement.

    Gottlieb in “Forcing the Spring” finds no value in technology’s eradication of water born illnesses in the western world. “The rise of treatment and control technologies and the dominant role of the professional groups in addressing public health issues had also played a part in diminishing the significance of the Progressive social reform” All casualties from the Green attack on technology -from energy to genetically modified crops- are simply martyrs to “building the movement” necessary for the idyll of a green future.

    Norman Borlaug is the father of modern agriculture and the man responsible for the advances in food technology that today feed billions of people. It is Norman Borlaug’s technology that made all Ehrlich’s and Holdren’s apocalyptic visions of world wide famine by the year 2000 an inane prediction. Rather than admit a mistake Holdren simply moved the date back to 2020 for the famine death of a billion people and changed the cause to CO2. Yet Norman Borlaug recently passed away in quiet obscurity and Holdren is the science adviser to the US President-Go Figure.

    We may find it ain’t easy being green.

  11. T-Max

    Economists are social scientists who can do math.

  12. Otter

    Someone call Dr. Who!

  13. Pat Moffitt

    Tullock’s model for a ‘Rent Seeking Society” may be one of the better economic explanations for the specifics of our current financial difficulties.

  14. kdk33

    so high brow…

    We are, each of us, scheming to get as much of and as many of the things we desire as fast as possible with as little effort as possible. Any other premise is wrong.

    …but I’m rather simple.

  15. AusieDan

    I’ m a big fan of Keynes, have been for 50 years.

    However, his ideas which have been recently applied, were written in the depth of a very severe depression.

    They have been applied at just the start of another, so far milder one.
    Will they work in the USA, UK and Europe? We will just have to wait and see.

    Here in Australia, we have had a mild recession, less severe than experienced in the 1990’s.
    Here, we must wait to see if the government has the willpower to take the next step and the skill to sell it to the voting population.

    That involves applying the nasty medicine – more tax, less spending.
    I don’t like the sound of that, and I understand the economics.

  16. Kevin

    Is Von Mises too non-mathematical to be an economist?
    My favorite economist story is of Joseph Schumpeter joining the communist government of Austria in 1920(?) as finance minister. Someone asked him why he would join in such a government. He replied that if someone were contemplating suicide, they should be well advised to have a physician in attendance.
    kdk33 I like simplicity.
    AusieDan In the U.S. half the population pays no taxes or receives income credits. They are interested in more taxes and more spending, and there are always politicians around to oblige. I have never seen a tax increase that helped bring revenues into line with spending. People talk about a few years in the Clinton Administration of course, but I doubt any simple explanation for what happened during that time.
    At any rate, if Australia has had a mild recession, why increase taxes and decrease spending? You could end up with a full-blown recession.

  17. Bernie

    Nice write up. Yet another book to read.
    Keynes legitimated the notion that the government could not only manage the monetary supply but also provide a social “safety net” and manage the “animal spirits” of those who create jobs. Alas, he failed to recognize that the “safety net” and “animal spirits” could not both be increased by the Government at the same time. Keynes certainly did expand the model of economic man, but he did not champion the role of the entrepreneur and the creators of goods. He was a finance guy – a kind of benign Soros.
    During the late 60s, Economic majors at Cambridge were taught to despise Friedman and Samuelson by the remaining contemporaries of Keynes – Robinson, Kaldor and Kalecki – The latter focused on essentially non-mathematical models of questionable value. Joan Robinson and Piero Sraffa, in particular, provided a very Marxist translation of Keynes. Sadly, I am not sure Cambridge Economics has ever really recovered.
    As to Keynes relevance today – my major misgiving is the fact that the multiplier – a key mechanism for turning government deficit spending into jobs – is much lower because so many of our goods are imported. We are essentially creating jobs in China, Korea and, to a lesser extent, Japan. Without major, major currency (or trade) reform in China and a very targeted investment plan that supports US manufactured goods, the prospects are pretty grim. Personally I am looking for a way to protect myself from a devastating bout of inflation (or Government acquisition of retirement funds).

    Nice story. Keynes evidently did a great job as the manager of King’s College investments.

  18. Briggs


    I, too, find much to admire in Keynes the man. Constantly, I am telling people to read his treatise on probability. He was no mathematical slouch, thought from the ground up, and was willing to change his mind. All rare talents.


    Skidelsky has an acclaimed three-volume biography of Keynes. I haven’t read it, but it’s on my list.


    I took a “700” level econometrics course when I was at Cornell. I didn’t know any economics, but I knew statistics, and I thought those guys were nuts. “Mu-hat-hat” (I seem to recall, but cannot find, an instance where they add a third “hat”), assumptions made of stone, clever tricks, and the same obsession with small p-values and belief in models we have.


    I can’t agree with your premise, and I doubt anybody with kids would. It’s a tautology to say all our actions are done in our self-interest, but that does not mean that altruism, self-sacrifice, coercion, etc. are not possible.

  19. Bernie

    Matilda, what’s with the Bernice?

  20. Bernie

    Ron DeWitt:
    Are you the “Ron DeWitt” from Massachusetts?

  21. Briggs


    Now isn’t that a weird slip of the keyboard. I have no explanation. Could be the first sign of a crackup.

  22. kdk33


    Is procreation not in our self-interest? Do we not desire progeny? More than anything else? (see in vitro fertilization & cost thereof.) Sacrifices to that end are no less self-serving than my neighbors Porsche.

    Truism perhaps, not tautology. But I had to look up tautology, ’cause I am simple.

  23. kdk33


    BTW, I’ve never known you to be wrong before. What gives? :-).

    As always, luv the site!

  24. Briggs


    Nobody bats 1000. (And we’ll come back to the topic, I’m sure.)

  25. Doug M

    Fred H. Haynie,

    The wisdom of Gordon Gekko.

    Here is what Smith himself has do say:

    It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own self interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.

    Not so much “enlightened” self interest, as selfish self interset that guides the invisible hand.

    What did Keynes really say?

    The classical veiw that the market always clears must be incorrect or there would not be periods of high unemployment. Prices and wages are sticky. If prices and wages do not react to fuctuations in demand, the government could intervene to stimulate demand.

    The questions that he never really answered:
    Can the government be timely?
    Does the government have the political will to remove stimulation when the economy returns to full employment?

    And, when fiscal policy is abused —
    Where does the the Goverment get its money? From abroad? influencing trade flows, exchange rates, and potentially national security. Borrowing the savings of its citizens? redirecting savings from private investment. Or, taxing its citizens? reducing consumption and savings.

    How are the affects of Goverement defecits different in the short run and in the long run?

  26. Inequality is when you have more than me.

    Equality is when I have more than you.

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