Whenever I get a spare moment (it last happened in 1977), I try to soak up the wisdom of those sages from the past. The current economic situation clearly could use a dose of such perspective—one untainted by the incessant torrent of confusion and hoopla. Fortunately, we only have to travel back less than a century to find such an oracle.
Many brilliant minds dominated the first half of the twentieth century—Bohr, Freud, Picasso, Heisenberg, and Joyce, to name but a few. At the half-century mark in 1950, however, two stood above all others—Albert Einstein and John Maynard Keynes. As of now, Einstein’s light is certainly brighter, but Keynes’ star is once again on the rise. His influence from the 1930s through the 1970s is difficult to exaggerate. He was on the cover of Time in 1965, two decades after his death, and even Milton Friedman and Richard Nixon grudgingly acknowledged that “We are all Keynesians now.” No less an intellect than Bertrand Russell, who frequently engaged him in debate and also knew Einstein and many others among the contemporaneous luminaries, believed Keynes to be the smartest person he ever encountered. If his wasn’t the finest mind ever, it was definitely amongst ’em.
Keynes was a British economist, Cambridge don, leading figure along with Virginia Woolf in the Bloomsbury Group, art collector, investor, and currency trader—to name but a few! To give you an idea of his genius, he helped his country finance World War I and as a result was a part of the negotiations that led to the Treaty of Versailles. He realized the terms were not realistic, and, in a burst of anger and acerbic wit, immediately dashed off (in about a week) a little book entitled The Economic Consequences of the Peace in 1919. He predicted hyperinflation in Germany and the rise of a radical movement that would lead to another and even larger war. Not surprisingly, world leaders followed his advice in dealing with Japan and Germany after World War II, thus setting the stage for the most remarkable period of growth in human history. Among many other things, Keynes was the inspiration for the Marshall Plan.
As another example, he attended the 1944 Bretton Woods Conference in picturesque New Hampshire just a short while before he died. It was at this historic meeting that the global monetary system for the post-World War II era was established. Keynes liked most of what occurred, but felt that pegging the value of the dollar to gold could not be sustained more than about a quarter century. Twenty-six years later, President Nixon floated the dollar.
In between these two startling insights came his most amazing and lasting contribution. In 1936, in the midst of the Great Depression, he published The General Theory of Employment, Interest, and Money. In the 1980s, it became popular to associate this book and its author with the notion that all government spending was good and markets were bad. Nothing could be further from the truth. In fact, even during his lifetime, his followers and popularizers had so distorted his original concepts that he felt led to declare that “I am not a Keynesian.”
In point of fact, Keynes loved markets. He recognized they were not perfect, but reveled in their possibilities. During a five-year period when the British stock markets lost 15%, a trust that he managed grew by 500%. He amassed a personal fortune by engaging in currency trading for a few minutes each morning while still in bed. His basic message in General Theory was quite simple. Capitalism in the “real world” can get into a “liquidity trap” in which fear and lack of trust can stall economic activity no matter how low interest rates go (sound familiar?). When that happens, government needs to step in and stimulate activity. That’s it!!!
He even went so far as to say that infrastructure spending would be a good thing, but even if you just buried money in jars and let people dig it up, it beats nothing. The point was to get things moving immediately, because, while markets might eventually get there, “In the long run, we are all dead.” He further suggested that we should use some of the revenue generated by the subsequent expansion to pay down the debt, a fact which has been completely forgotten in the efforts to make him the whipping boy of limited-government advocates and the scapegoat for every hair-brained scheme to spend public money that somebody suggests.
In our current cataclysm, many leaders of all philosophical persuasions are coming around to the notion that we have no realistic choice but to provide a strong “Keynesian” stimulus. It is more than a little ironic, however, that a few loud voices have labeled the current efforts as “socialism.” First, during the 1930s when the horrific global plight of workers (one of every four with no job) might logically have led to precisely the type of uprising and socialist revolution that Karl Marx described, it was the sheer power of Lord Keynes’ vision that beat back this tendency. Second, his impact on leaders around the world (including Franklin Roosevelt) set the stage for a dramatic rebirth of economic self-determination. In fact, a few years ago, when Time magazine was assessing the monumental achievements of the previous millennium, it was noted that Keynes’ simple suggestion that governments should deficit spend in time of crisis “saved capitalism.”
We are now in the season when people of many faiths pause to take stock of their blessings. Even in this time of seeming crisis, there are many. One of our greatest is that we have the benefit of the wisdom of this self-proclaimed “academic scribbler” to guide us toward the next round of prosperity and progress. Happy Holidays!!