This book is, in my opinion, a pretty mixed bag. While forming my thoughts on it, I was actually reminded of Keynes' description of the works of Karl Marx, which he said contained "occasional but inconstructive and discontinuous flashes of insight." Water that sentiment down a bit, and you have my opinion of this book - some pretty good content mixed in with a lot of drudge.
Some ideas in this book seem poorly formed, or maybe just poorly explained. Consider the following passage:
Following his Cambridge mentor, G. E. Moore, Keynes steadfastly refused to limit human behavior to utility maximizing. Like Moore, he believed that people were often motivated by a higher principle. Thus, when he wrote of 'egotistic capitalism' and of 'self-interested capitalists,' he did so critically: egotism and the pursuit of pure self interest were linked to the system's failing to perform as it should.So Keynes believed people don't act like self-interested utility maximizers, but also believed capitalism fails to work as it should because people act like self-interested utility maximizers? I am puzzled.
Actually, their whole take on "utility" puzzles me. They assure us that unlike an economist such as Milton Friedman, who assumed that the world consisted of "nothing other than individuals maximizing their own well-being," Keynes understood people have a multitude of values beyond money making. But why on earth do they assume acting on values aside from money making is somehow different from maximizing well being, or maximizing utility? Suppose someone had a high paying job he hated, and quit his job to pursue a much lower paying career he found more personally fulfilling. I'd call that maximizing utility, but the authors would call that an example of seeking a higher purpose than maximizing utility.
On a side note, I am also distinctly unimpressed with Keynes' concerns about unequal income. Keynes tells us:
The economic doctrine of normal profits, vaguely apprehended by everyone, is a necessary condition for the justification of capitalism. The business man is only tolerable so long as his gains can be held to bear some relation to what, roughly and in some sense, his activities have contributed to society.In response, every libertarian ever shouts back "According to whom?" Consider this. Oprah makes more money in a day that I make in a year. I don't like Oprah. I think her influence is pernicious, largely consisting of substanceless feel-goodery at best. At worst, she gives support for, and a platform to, dangerous lunatics like Jenny McCarthy, whose ill informed anti-vaccination platform has resulted in children being killed by diseases that used to be all but forgotten. I think Oprah's contribution to society is a net negative, and certainly nowhere near the massive riches she has accumulated.
But here's the catch - that's my opinion and I don't rule the world. Why isn't that a good enough answer for anyone who thinks that another person's wealth needs to be justified to them? Please note, Keynes isn't specifying cases where wealth has been gained by fraud or theft or abuse - he makes no stipulation that the money was earned dishonestly. But if some people have a "sense" that another person's earnings are excessive according to some "vaguely apprehended" doctrine, then that shows a problem with capitalism? WTFingF?
The authors argue that Keynes' view of capitalism is roughly equal to Churchill's view of democracy; the worst system there is, except for all the others. What's strange is the reason they give for Keynes rejecting socialism: "Though he felt that Communism had failed, he was less dismissive of socialism; rather, the problem was that, once socialism was instituted, he thought people would lose interest in it, and the common purpose needed to hold society together would disappear."
Really? That's the problem he saw with socialism? Really? I certainly hope that's not the principle defect he saw with socialism. In the spirit of charity and goodwill, I'm going to just let this claim slide - but with friends like these, Keynes doesn't need enemies.
The authors present Keynes as being very flexible in his doctrines - he was very comfortable with shifting his views. But their portrayal goes beyond a simple willingness to consider new ideas or adjust to new evidence. For example, he came into a disagreement with A. C. Pigou in 1930 over the state of the British economy. Keynes was upset with Pigou's diagnosis of the economy, in that Pigou placed the blame on interest rate policy and business confidence. The authors tell us that Keynes wanted to focus the issue on the interest rate "and nothing else." But Keynes had, in previous writings, given business confidence a good deal of importance, as he would do again in his later writings. So why was it that "Keynes treated [Pigou] as if he were in the dock answering for his analytical errors," if Pigou were simply drawing attention to a factor that Keynes himself knew was important?
The authors tell us why:
In order to be effective in his new role [as a government advisor], Keynes felt that he needed to identify a clear cause of the country's economic maladies so that he could, likewise, identify a clear solution. In his mind, the problem was interest rate policy, and to make that case he ruled out any important role for other factors. His approach reflected a thoroughly realistic view about how politics worked.The authors seem to think this approach is a feature, while I view it as a bug.
That's enough griping for now - let me turn to some of the things I liked.
The biggest surprise in this book was the statement "In addition, Keynes was not a supporter of budget deficits if they took the form of borrowing to finance current expenditure." Instead, Keynes' view was:
Since the 1920s, Keynes had been advocating splitting the government budget into two parts: the Exchequer budget would cover current, day to day expenditure, and the public capital budget would cover the government's investment in capital goods...he originally considered it no more than a matter of good accounting practice, on the grounds that it was normal for a private firm to separate its capital budget from its ordinary operating budget, and that the government should do the same. The rationale, of course, was that if money was borrowed to buy a capital good that would yield a revenue stream that could be used to pay off the borrowed funds, the implications were very different from those of borrowing to finance current expenditure.I liked the way the authors present Keynes' ideas of the intersection of math and economics. One of the ways they argue that Keynes has been misunderstood is that his disciples in the 50s and 60s took the value of applied mathematics in economics far too seriously. While Keynes did use math to illustrate various economic concepts, he didn't think that math should be used to try to actually answer questions:
His method was typically to use algebraic notation to define a problem, writing down a functional relationship or breaking down a concept to its component parts, before discussing it verbally. The algebra does little more than provide a framework for a verbal discussion, and there is virtually no manipulation of the algebra to derive further results.The generation of economists that came after Keynes, according to the authors, moved beyond this approach, and instead set out to construct "algebraic models of the economy that could be manipulated to yield policy conclusions," despite the fact that "Keynes did not follow this approach." Notes taken at Keynes' lectures frequently contained the phrase "Equations are symbolic rather than algebraic." To Keynes, the idea that you could manipulate a mathematical model in such a way as to derive useful policy conclusions was to adopt what he derisively called a "magic formula mentality."
The authors also note that in the time leading up to Keynes' death, he felt that the profession was losing touch with the vision of the classical economists, which he found lamentable.
I find myself moved, not for the first time, to remind contemporary economists that the classical teaching embodies some permanent truths of great significance, which we are liable today to overlook because we associate them with other doctrines which we cannot accept without much qualification. There are in these matters deep undercurrents at work, natural forces, one can call them, or even the invisible hand, which are operating towards equilibrium.Bottom line: while I can't say I really enjoyed this book, I did learn a few new things from it. At the end of the day, isn't that all that matters?