For a number of decades our economy has failed to work for ordinary citizens. Stagnant wages have been combined with underemployment and rising costs of basic goods like healthcare, education and housing. At the same time, a small minority of the population make obscene profits, while in the background we continue to hurtle headlong into an environmental emergency. However, despite there being no shortage of anger and anti-elite sentiment expressed in what is often referred to as the ‘culture wars’, no significant challenge to the dominant economic model has broken into the mainstream. The pound and the fury argues that behind this failure of imagination are a set of taken-for-granted myths about how the economy works – myths that stifle debate and block change. The book analyses these myths, explores their origin, how they circulate and how they might be dispelled at a time when, away from the public gaze, economic theory is opening up new possibilities of economic action. Possibilities that, as we emerge from the chaos of Covid-19, could lead to the radical structural changes we desperately need.
It is impossible to adjudicate definitely on the prospects for a return to Keynes. There are many interpretations and, as the first section argues, grounds for saying that Keynes never went away. Much of the economic practice of the post-WWII boom period endures. The second section argues, however, that structural shifts have weakened national bases of economic organisation, potentially limiting the scope and efficacy, and crucially also the institutional supports, of Keynesian intervention. The third section reflects on the experience of the global financial crisis of 2007–09, which confirmed that leading states retained the capacity to intervene effectively, before disappointing hopes of a more radical, long-term reorientation with policy reversals which brought severe austerity, particularly in Europe. The preceding argument suggests that there was an economic rationale for such a turn, which is misunderstood simply as bad policy. The fourth section considers arguments that the growing environmental crisis requires an interventionist green Keynesian response. There is a constituency for change in economic interests and a powerful social movement, but there are also dangers in a lowest-common-denominator approach which ‘greenwashes’ insufficiently radical reform, which can be undone by the dynamics of capitalist and interstate rivalry. The final section argues that reining in capital in more consistently Keynesian ways would require a leap of political faith beyond anything that Keynes’s own political philosophy would allow. This is not to discount the possibility of reform but suggests that its achievement requires going beyond Keynes.
This chapter introduces economics as Keynes encountered it and then how his own work before the General Theory begins to break from orthodoxy. First, it discusses the classics as they were understood by Marx, for whom ‘classics’ was a qualified term of approval, as distinct from the ‘vulgar’ school of mere apologists. It briefly identifies what was lost from this tradition in the later marginalist revolution in terms of its treatment of economic aggregates and economic interrelation, which Keynes substantially recovers, and in terms of the classics’ focus on production and growth, in which Keynes has little interest. This first section then discusses the beliefs which Keynes criticised, the adherence to the quantity theory of money and Say’s Law. The second section introduces Jevons’s and Marshall’s marginalism, their vision of an exchange economy, the concepts of utility and disutility, and their attitude to money, production and labour. Keynes has a somewhat ambivalent relationship: both in and against this tradition. There is a sense in which he can point out its failings precisely through a more careful application of its principles. The third section discusses Keynes’s own early work, particularly the Tract on Monetary Reform and the Treatise on Money. Keynes would retrospectively see himself as having still been orthodox when he wrote these earlier books, but they anticipate important later themes and the Treatise, in particular, sometimes makes more radical departures, and attempts a more dynamic analysis, than would the General Theory.
Towards a critical but constructive appraisal of Keynes’s thought
The introduction describes the structure and rationale of the book. It argues that Keynes should be seen as neither villain nor hero and that while the left should appropriate his ideas with caution, he provides insights at a level of concreteness which Marx’s analysis largely ignored and which were concerned with issues of the modern world which Marx could not have foreseen. A critical Marxist engagement can simultaneously increase the power of Keynes’s insight and enrich Marxism. The introduction describes how, to understand Keynes, whose work is liberally invoked but seldom read, the book first puts Keynes in context, explaining his biography and the extraordinary times in which he lived, his philosophy and his politics. The book describes Keynes’s developing critique of ‘the classics’, of mainstream economics as he found it, and summarises the General Theory. It shows how Keynes provides an enduringly valuable critique of orthodoxy but vital insights rather than a genuinely general theory. The book then develops a Marxist appropriation of Keynes’s insights. It argues that Marxist analysis of unemployment, of money and interest, and of the role of the state can be enriched through such a critical engagement. The book addresses Keynesianism after Keynes, critically reviewing the practices that came to be known as ‘Keynesianism’ and different theoretical traditions that have claimed his legacy. It considers the crisis of the 1970s, the subsequent anti-Keynesian turn, the economic and ecological crises of the twenty-first century, and the prospects of returning to Keynes and Keynesianism.
This book sees Keynes as neither villain nor hero and develops a sympathetic ‘left’ critique. Keynes was an avowedly elitist and pro-capitalist economist, whom the left should appropriate with caution. But his analysis provides insights at a level of concreteness which Marx’s analysis largely ignored and which were concerned with issues of the modern world which Marx could not have foreseen. A critical Marxist engagement can simultaneously increase the power of Keynes’s insight and enrich Marxism. To understand Keynes, whose work is liberally invoked but seldom read, the book first puts Keynes in context, explaining his biography and the extraordinary times in which he lived, his philosophy and his politics. The book describes Keynes’s developing critique of ‘the classics’, of mainstream economics as he found it, and summarises the General Theory. It shows how Keynes provides an enduringly valuable critique of orthodoxy but vital insights rather than a genuinely general theory. The book then develops a Marxist appropriation of Keynes’s insights. It argues that Marxist analysis of unemployment, of money and interest, and of the role of the state can be enriched through such a critical engagement. The book addresses Keynesianism after Keynes, critically reviewing the practices that came to be known as ‘Keynesianism’ and different theoretical traditions that have claimed his legacy. It considers the crisis of the 1970s, the subsequent anti-Keynesian turn, the economic and ecological crises of the twenty-first century, and the prospects of returning to Keynes and Keynesianism.
Keynes’s General Theory of Employment, Interest and Money is a notoriously difficult book, which this chapter tries to explain as simply as possible. Keynes could be a great stylist and the General Theory’s many quotable passages have enhanced its appeal. Elsewhere, however, Keynes’s prose is dense and the arguments highly technical and convoluted. In contrast to other great works of political economy like Smith’s Wealth of Nations or Marx’s Capital, the General Theory was never meant to be understood by non-specialists. The difficulties of comprehension appear to be confirmed in the way the General Theory has been subject to widely different interpretations, as a radical departure or a mild amendment of the orthodoxy he was criticising. The chapter argues for something in between. The General Theory provides a substantial critique of standard economics but it does this by engaging with the mainstream on its own terms, and this qualifies claims of Keynes’s radicalism. The chapter provides a very brief overview and commentary on the overall argument of the book and its conceptual priorities. It is then organised around sections on savings and consumption, on money and the rate of interest, and on investment and employment, introducing a general discussion of how this leads to Keynes’s vision of the prospect of ‘unemployment equilibrium’ and the possibility of state intervention to ameliorate this. A final substantive section discusses dynamic change, cycles and long-term tendencies, into which it suggests the General Theory provides important but subsidiary insights.
The chapter argues that while the purpose of this book is to discuss Keynes’s ideas, these make better sense in the context of his life and times. Both the life and the times were extraordinary, and despite Keynes’s individual brilliance, there is a strong case for seeing him as a product of and spokesperson for his class and nation. Keynes’s thinking was shaped during a period of remarkable social and economic upheaval. From an age of apparent stability and complacent British imperial hegemony, he lived through two world wars, the descent into the Great Depression and times of sharpened class struggles. A liberal economics based on enlightened self-interest in which, by assumption, neither states nor unemployment existed made sense neither as theory nor ideology, and Keynes became the most prominent of many economists trying to articulate a more realistic theory, a theory which would better describe capitalism but also better defend it. By the end of this period, Keynes had become both the world’s most famous economist and a leading player in the negotiations to shape the post-WWII order – now a world where the US had displaced Britain as the dominant power. The chapter’s content highlights how Keynes’s life (1883–1946) spanned this extraordinary age. It is divided chronologically into four parts, from 1883 to 1914, to 1929, to 1939 and to 1946, marking vital stages in Keynes’s intellectual and political career.
The chapter discusses Keynes’s philosophy. Probably more than any major economist since Marx, Keynes thought deeply about political and philosophical issues. He was a sophisticated thinker, close intellectually as well as personally to several leading philosophers of the age. He was particularly strongly influenced by Moore, and wrote one major work, the Treatise on Probability, which operates at the intersection of mathematics, logic and philosophy. There is controversy about the influence of this early work, and of Keynes’s philosophical thought in general, but there are important connections between his philosophy and his mature economics. It is argued that Keynes never develops an entirely coherent overall philosophy. This undermines grander claims for a ‘Keynesian economic system’ and for the generality of the General Theory. Keynes develops profound insights, around intuition, organic unity, time and uncertainty, which he does not always follow through, and makes philosophically provocative statements from whose implications he pulls back. An apparently individualist idealism and questions about the basis of knowledge might, if pushed to their (il)logical conclusions, appear radically incompatible with a genuinely critical political economy. More positively, however, these ambiguities enable the adoption or appropriation of Keynes’s insights in a way that a more rigorously internally consistent system might preclude. In particular, Keynes is right that individuals act in the face of real uncertainties and that this has important economic implications.
Keynes was intensely political. He was an activist, a populariser of economic ideas, an influential Treasury official and seldom for long out of touch with the British prime minister of the day. Economics was never a neutral scientific endeavour, and it makes sense to understand his economics in the light of his political views. Keynes wants to develop a more realistic theory, but even his most abstract work is oriented to providing a better guide to policy. Keynes wrote in the ‘advice to princes’ tradition, offering a better guide for rulers of the existing system. As usual with Keynes, there are ambiguities and his political stance is contested, but it is argued that although Keynes says some different things, he fairly consistently occupies a space bounded on the one hand by a conservatism drawn particularly from Edmund Burke and on the other by British liberalism. The first two sections of the chapter discuss these two influences. The third section discusses alternative claims that Keynes was a socialist, arguing that while there were radical aspects to his thought, Keynes is better understood as a pro-capitalist not a socialist thinker. As the fourth and final section continues, Keynes brings in the state, but in a quite consistently liberal way in that he still conceives the requisite level of state intervention as being minimal, albeit while raising the perceived necessary minimum. A specifically British, but also more broadly a national rather than international or global, orientation also informs and limits Keynes’s political economy.
Keynesian scholarship is enormous and diverse. Rather than feigning an overview of the literature, this chapter sketches three broad trajectories of Keynesian critique to make an argument that each remains limited by an ambiguous and unsatisfactory break with neo-classical economics. The chapter first considers neo-classical synthesis Keynesianism, associated with Samuelson’s textbook introduction to economics, the IS/LM (investment savings/liquidity money) models of Hicks and Hansen, and the Phillips Curve interpretation of inflation. Second, the chapter looks at market imperfections, considering alternative New Keynesian and post-Keynesian accounts, with briefer notes on money and financial instability. Despite declarations of mutual hostility, the relatively moderate New Keynesians and the putatively more radical post-Keynesians have much in common in their emphasis on imperfections, implying that neo-classical world of perfect competition remains central to their vision, even if as a focus of antagonism. There is often common ground too in hopes that states can reduce the imperfections or ameliorate their consequences. Third, the chapter considers an alternative strand of post-Keynesianism which puts more emphasis on time and uncertainty. Potentially profound insights tend to be reined in as they are marshalled for an in-house squabble with mainstream economists. Even as a more fundamental critique, the identification of radical uncertainty shows the follies of much of the existing economic formalism without providing the basis for an alternative political economy.