Tuesday, March 23, 2010

Clarke & Skidelsky on Keynes

I've recently finished two books on John Maynard Keynes, as we are in the midst of a Keynes renaissance. Based on these two books, this resurgent interest in the mid-twentieth century economist is well deserved. The first of the two that I read, Keynes: the rise, fall, and return of the 20th century's most influential economist by Peter Clarke (2009, 211 p.) provides a good, succinct summary of Keynes's position in history along with some consideration of his relevance to our present circumstances.
Clarke is an accomplished historian, and he displays a solid command of the world that Keynes inhabited. The second book, Keynes: The return of the master by Robert Skidelsky (2009, 221 p.) provided an even better insight into Keynes. One might expect this, as Skidelsky authored a three-volume biography of Keynes that many have highly praised. A one-volume abridgment is available.

After reading these two books, I find myself holding Keynes in high regard, and I've dispelled some myths that many seem to hold about Keynes. Some of the most important points to me:

  1. Keynes can write. He belonged the Bloomsbury Group (Virginia and Leonard Woolf, Lytton Strachey, etc.). These folks cared about art and wrote well. Keynes took their examples to heart, even when writing about the "dismal science". Also, Keynes wrote and worked before the take-over of economics by mathematical models (although Keynes himself provided a very capable mathematician).
  2. Keynes acted in the public arena. Keynes attended the Paris Peace Conference that resulted in the Treaty of Versailles as a member of the British delegation, and he worked for the British Treasury during WWII. He contributed a great deal to the ideas behind the Bretton Woods agreement that helped shape the post-WWII international economy.
  3. Keynes drew a distinction between "risk" and "uncertainty", a distinction lost by many investors of recent years, and a distinction given new life by Nassim Taleb. In short, "risk" involves situations where odds of an outcome may be calculated, for example, as at a roulette wheel or in a card game. "Uncertainty", a wilder and more natural occurrence, holds that we often just have no idea about what to expect. Economics and investors need to know and appreciate the difference.
  4. Keynes appreciated the insights of Hayek, contrary to the inferiority complex that one seems to find among Hayek admirers. Is the converse true? I don't get that impression, although Hayek, too, proves useful and popular (to some extent) because he does economics in prose as opposed to mathematics.
  5. Keynes isn't all about deficit spending and government control. Keynes starts of the traditional liberal and free trade position, and makes modifications as circumstances justify change. Both so-called liberals who run continuing deficits and conservatives, who claim that deficit spending is always bad, do an injustice to the views of Keynes. Keynes, followers and critiques notwithstanding, proves eminently sensible.
  6. Keynes appreciates that morals as well as "animal spirits" influence an economy and the society in which an economy operates. Keynes proves a forbearer (with impeccable credentials) of those who want to take economics beyond homo economicus and the rational market theories that have proven so sterile and contrary to the evidence. This trend of criticism (actually quite old, but little appreciated of late), continues of grow, and probably no better person to have on the honor role than Keynes.

I could go on, but you should have the picture. Two fine books about an extraordinary individual.

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