The Joe Walker Podcast - The Reign Of Keynes, Part II — Lord Robert Skidelsky

Episode Date: March 22, 2021

Robert Skidelsky, FBA is a British economic historian. He is the author of a three-volume award-winning biography of British economist John Maynard Keynes.Full transcript available at: josephnoelwalker.com/skidelskySee omnystudio.com/listener for privacy information.

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You're listening to the Jolly Swagman Podcast. Here's your host, Joe Walker. Ladies and gentlemen, boys and girls, swagmen and swagettes, welcome back to the show. It is great to have you back and what a glittering conversation we have in store. My guest is renowned for many things, perhaps most of all, as the great biographer of the British economist, philosopher and statesman, John Maynard Keynes. Lord Robert Skidelsky is a British economic historian. He read history at Jesus College, Oxford, is Emeritus Professor of Political Economy at the University of Warwick, and in 1991 was made a member of the House of Lords, where he now sits on the crossbenches.

Robert is the author of a three-volume biography of Keynes. Written over a space of nearly 30 years, the first volume was published in 1983, the second in 1992, and the third in 2000, it picked up five prizes along the way and is probably the greatest biography of the 20th century, undoubtedly the greatest biography of an economist. Regular listeners will note that I've been delving into the life and ideas of Keynes a lot lately. Episode 122 featured Keynes' most recent biographer, the journalist Zach Carter. Except for one question in the middle and one at the end, each of which I wanted to put to both scholars, this conversation

with Robert Skidelsky is entirely different to the one with Zach Carter, entirely new. I should warn you that Robert was in the state of Goa in India when we recorded this, and moreover, he was sitting on his balcony outside. You may have heard of Goa, you've probably never been there, and you've probably never heard its sounds. So here, you're going to get a panoply of them. Warm summer winds buffeting Lord Skidelski, pariah dogs yelping below him in the street, sparrows chirping blissfully unaware of the audio needs of your humble host back in Australia. So apologies for the background noise on Robert's track and a big thank you and shout out to podcast listener JJ from California who made the track perfectly listenable when I put out a call for help on Twitter. A true swagman. Ladies and gentlemen, without much further ado, please enjoy this conversation with the

great Robert Skidelski. Lord Robert Skidelski, welcome to the Jolly Swagman podcast. Good to be here. Thank you for asking me. So a quote from Keynes on Hayek and a quote from Hayek on Keynes. So here's Keynes in a letter to Hayek in 1944, praising the road to serfdom. It's a letter that you know well. Keynes writes, in my opinion, it is a grand book. Morally and philosophically, I find myself in agreement with virtually the whole of it,

and not only in agreement with it, but in deeply moved agreement. End quote. And here's Hayek in a 1978 interview with Leo Rosten. Hayek says, Keynes was brilliant, but economics was only a sideline for him. End quote. What was the personal and intellectual relationship between these two men? Intellectually, were they really locked in a dialectic as history has portrayed them? And personally, were they adversaries?

Were they rivals? Were they frenemies? Were they adversaries? Were they rivals? Were they frenemies? Were they friends? Well, I think, personally, I think they were friends. But, I mean, I think they were so different in temperament. It's very hard. I mean, Keynes valued friendship enormously. And I think Hayek was a rather distant person. And anyway, you you know from Austria and so I mean their relations were perfectly

friendly and Keynes did Hayek a very good service in the Second World War he got him and other LSE professors evacuated to Cambridge and they got a Cambridge life during the war. And that was all arranged by Keynes. Their intellectual interests, both remarks are very interesting. I think Hayek's is quite perceptive and I think Keynes' is quite perceptive. When Keynes said, you know, I'm in deeply moved agreement, he was speaking to a fellow liberal. You know, in other words, he believed in Hayek's moral argument, but he said Hayek's economics was designed to kill liberalism and not to enhance it. And the reason it was designed to kill liberalism, or it would have the effect

of killing liberalism, was because it allowed too much economic distress. Basically, Hayek didn't believe that governments had any duty to keep economies at full employment, or even to remedy the bad things about the free market system. He just believed you should sort of let it go, and then gradually you'll learn to do better. And Keynes said, no, you can't afford that. Look at all these political monsters that are prowling around. And remember, this exchange was in the Second World War. Hitler hadn't yet been defeated, but he had been rampant for the previous 15 years. And communism, which started in the First World War. So I think Keynes said, you know, you're being much too cavalier in dismissing government and the role of government.

And so that's what Keynes meant. In other words, was government the antidote or was it the disease? And if you like, you can put debate in those terms. For Keynes, government was the antidote. For Hayek, it was the disease. Then you look at Hayek's remark, and economics was only one of the things Keynes did. I think that's true and interesting. Keynes wasn't originally an economist. He was a philosopher. big works were in philosophy and they had a big effect on his economics, including his works in ethics. And he came to economics a bit late. Interestingly enough, I don't

know, Joe, whether you read economics or studied economics, but if you think of all the courses that people now have to go through, three years of training, then a master's, then a PhD, before anyone can put economist after their name. Keynes did about ten weeks of economics, formal economics, in his life. I mean, taught by a very, very wonderful teacher, one of the great economists in the world. But everything else he picked up through teaching

and through editing an economics journal, so he had to read all the stuff. He was incredibly quick. But there were gaps, there were gaps in his economics. And Hayek was no doubt pointing to that. But you know, I think what Hayek meant as maybe a term of criticism was really a praise. I mean, anyone who's just an economist is hopeless. I'm afraid there are many like that. They don't know anything but economics. They don't realize how limited economics is. They make incredibly exaggerated claims for it as a science. And they lead us astray very often. So not to be a full...

Well, not to be just an economist seems to me the highest praise you can give to an economist. I've had the same interpretation of Hayek's comments that they were probably intended as criticism, but actually, to my lights, that's a big compliment. He was never very charitable to Keynes, was he? No, not really. Strangely.

Well, I mean, he was as charitable as his nature allowed, let's put it that way. He said Keynes was very brilliant, the most brilliant person he ever met. Lots of qualities, but he basically thought of Keynes as someone who darted around, who wouldn't settle on one particular view. And he thought his influence was terrible. Because one of the things he also said was, Keynes said to me, this is Hayek,

Keynes said to me once, look, if they make mistakes with my policy, I'll tell them that they've made mistakes and then they'll correct them. And Hayek thought, but you're not going to be around for much longer to correct them. And then they'll just be left with the mistakes. And so he thought Keynes was very overconfident in his ability to set government policy going on the right lines. And later on, he became very much a critic of Keynesianism because of inflation. He took the view with Milton Friedman that Keynesian policy

led to inflation. And he wrote a book, Hayek, called The Tiger by the Tail, which was a big attack on Keynesianism. Do you think it's generally true that generalists and polymaths are treated with scorn in academic departments, whether that's in economics or some other area of the social sciences? Yeah, I think they are, because of the specialisation. If you're on the frontiers of different number of subjects, you're regarded a bit of as we have the expression jack-of-all-trades, that you're a master of none, but the way academic life goes, it makes you master of smaller and smaller bits of knowledge. And yet it's knowledge of the whole that makes one a great thinker.

So you have academics, but academics who are so narrow, only about six other academics can understand what they're talking about, which means that they're useless, basically, with rare exceptions. But in economics now, there are heterodox schools. So there is a mainstream, which really is neoclassical economics. And then there are departments which allow more variable programs. So there's definitely different schools of heterodox economists that challenge the mainstream. And they haven't broken in. They haven't got what's called an alternative paradigm

to replace neoclassical economics. But they're making progress. And more and more more there is this feeling that economics is not telling us nearly enough about the world we're living in. And if it goes on not telling us very much about the world we're living in, it will disappear. It will one day be regarded as a kind of magic,

just like occult sciences vanished in the early modern period. So economics might go there, you know, unless it really takes itself in hand. It might go that way. We don't like magic, you know. We're not in an age when we want science to be magic. We've improved on magic, or we thought we have. And economics has some magical qualities about it. Quantity theory of money is a wonderful magical formula.

Was there a particular moment when you realised that you needed to write a full-length biography of Keynes? Yes. By one route or another, I did my PhD on... I graduated from Oxford in 1961, and then I started on a PhD, which was on the great slump of 1929-1931 so it was called the politics of the slump the book was called politicians of the slump and then I came was it was a character in it there were two characters in it really that got me interested one was Oswald Mosley and the second was Keynes. And Oswald Mosley was a minister in that Labour government of 1929- deficit finance and a measure of protection as well. And he

challenged the government, he was defeated, he resigned and a year later he formed the British Fascist Party. So that was one route out of my book Politicians and the Slum. The other was Keynes, who also challenged the policy of the time with many of the same arguments that Moseley was using. In fact, Moseley got them from Keynes. But he didn't go outside the system. he always kept in touch with the system and therefore in the end was able to influence the system in a way Mosley never was so I thought here are two very courageous people

in their different ways and one went the wrong way and the other I, went the wrong way and the other, I thought, went the right way. And two books seemed to follow naturally from these two thoughts. One of the reasons that the three-volume biography took so long to write was because you decided that you had to teach yourself economics. What was that experience like for you? How did you go about it, learning economics?

I went about it in a couple of ways. First of all, I was teaching in the United States, and I, what's called audited economics courses. I didn't take any, I didn't do any exams in it, but I audited, over a number of years, audited courses in economics. And therefore picked up just, you know, a certain amount, quite a bit really. Secondly, the way I taught myself economics was just reading lots of canes, which is a fantastic education. Well, he was just a brilliant teacher through his books, through his popular articles, and I sort of had enough maths, just about enough maths, to be able to understand the more simple maths of that time. And thirdly, I had wonderful living teachers who I used to importune in a most shameless way and say, now give me a lesson in this or that. And

the two I pick out were Nicholas Caldor, who was a great economist in Cambridge. It helped that I was also very friendly with his daughter. That was the way I got into the Caldor household. And secondly, someone called Ian Little who was also, these are two Nobel worthy economists. And I got very friendly with them, and I would ask for tutorials. When I didn't understand something, I would say, please explain it to me, as though you were giving me a tutorial. And they were both incredibly generous. Nicolas Caldor had an odd habit, which is that he fell asleep, used to fall asleep in the middle of his own exposition.

Not in the middle of what I was saying, but in the middle of what he was saying. And so then you had to wait till he woke up. And then he'd resume at exactly the point he'd left off. But that was an incredible education. And then, of course, I served on various economics committees. So, I'd say bits and pieces I picked up. There are bits of economics I don't know about and can be stumped on, sure. I'm not up to speed with mathematical economics as it now is. But I've got a general idea of the style of thinking and the way economists think about things. I think I understand it, and therefore I can criticise it if I want to,

or I can reproduce it if I want to, or I can reproduce it if I want to. What's the closest thing you've found to being an economic law? Well, you know, there aren't any. I mean, there aren't any big laws. There are small laws. I mean, you know, the law of supply and demand is a sort of good small law. If you have a small market and you have limited numbers of buyers and sellers and various other things, then you do have a quantity-price relationship. And it's useful for many, many things.

And you can work out lots of things more or less accurately in that way. So I think for certain what they call microeconomics there are sort of hard and fast laws. But to think that the whole of economics is governed by something like the law of gravity that applies to planets, apples, and everything else in the world. That is a mistake. Because what you find is that most laws in economics are very context-bounded. They depend on the history, culture, and the place of the society. And they differ according to what object they try to make law like. What I'd say and I think is reasonable is that there are tendencies which you should take account of but they can be upset and you should be very cautious and not not not

you know overconfident economists have many different ways of dealing about this it's it's it's odd how they're regarded as gurus, especially financial journalists. Look at all these forecasts about the growth rate next year. What's Australia's growth rate going to be next year? 4%, 3%, 5%? They say 4% on the whole. But will it be 4%? How do they know, really? It could be upset. What they can say is, if this, this, this, this and this is true, then it'll be 4%. That they can say, but they have no control over this, this, this and this. So you've got very conditional forecasting.

And that's not true of Newton. So social science and natural science are just not the same. To that point, Robert, I was in preparation for this conversation rereading some of Keynes' letters, including his extraordinary letters critiquing Tinbergen's books. And let me just quote from a letter he wrote to Roy Harrod critiquing Tinbergen's books. And let me just quote from a letter he wrote to Roy Harrod critiquing Tinbergen in 1938. This is Kane's, economics is a science of thinking in terms of models joined to the art of choosing models which are relevant to the contemporary world. It is compelled to be this because unlike the typical natural science, the material to which it is applied is, in too many respects, not homogenous through time.

And he goes on, One has to be constantly on guard against treating the material as constant and homogenous. It is as though the fall of the apple to the ground depended on the apple's motives, on whether it is worthwhile falling to the ground and whether the ground wanted the apple to fall, and on mistaken calculations on the part of the apple as to how far it was from the center of the earth. But yeah, classic Keynes, intuition

miles ahead of everyone else, making a great point about non-stationarity. I've quoted that one many times in my own work. The only point at which that little allegory or image of the apple comes into economics is mistaken calculations. You see, of the apple, about how far the center of the earth is. Economists can deal with mistake in calculations. That's just mistakes. You they will not allow for the possibility that there's no calculation possible because uncertainty is dominant. They won't allow for that. They'll allow for probability and that's when they talk about risk and, you know, are we calculating the risks properly or banks took too much risk on board when they got into debt, for example, they'll use that expression. They were overloaded with that's sort of like the apple making mistakes but uh really it's not not an exact analogy but economists can deal with risk they can't even in a nutshell they can deal with risk they can't deal with uncertainty in 1921 the same year as Keynes' treatise on probability is published, on the other side of the Atlantic, a political conservative

who graduated from a small Christian college in Tennessee before heading to the state university, Frank Knight, a very different man to Keynes in many respects, also converges on this distinction between risk and uncertainty, or to use Keynes' language, probability and uncertainty. And Knight's book, Risk, Uncertainty and Profit, is published that year. Do you know if Keynes and Knight were aware of each other? No. Of course, Knight was aware of Keynes

as the author of Economic Consequences of the Peace, but not aware, I don't think, of any of his studies in probability, because they were published the same year as Knight's own book. They're different, you see. I mean, for Knight, uncertainty really arose out of some economic dynamics, and particularly when you had innovations, and you had profits that were unexpected. And in the end, that kind of uncertainty disappeared.

So it was more or less compatible, in his thinking, with the notion of overall equilibrium. That in the end, after the disturbance, prices settled down to their equilibrium values. And the uncertainty was removed. With Keynes uncertainty was inherent in all future looking economic transactions. It was a normal state. We don't know what the price of oil is going to be in ten years time. Whatever the technology of the oil industry is at that time, we just don't know, we have no basis. Too many things, as in the letter you quoted from Tinbergen, too many things can crop up. So they hit on the same phenomenon, but they applied it to different

topics, if you like, and with Knight it was a very temporary thing uncertainty within a general equilibrium framework whereas with Keynes it was inherent and completely necessary i mean it was just a fact of economic life and you're quite right knight Knight hated the general theory, and he criticized all Keynes' policy suggestions. And then, I guess, became the father of the Chicago School, as you know. One of the main ones, yes. One of the main ones, yes. One of, yeah. Robert, can you help me understand the connection between the treatise on probability and Keynes' view of uncertainty? I don't think it was ever explicitly articulated in the treatise on probability

in the way that it was in, for example, 1937 when he writes a response to critics of the general theory. And he has that lovely paragraph where he compares probability and uncertainty and it finishes, you know, with about these matters there are simply no scientific basis on which to form any calculable probabilities, whatever, we simply do not know.

But that's not really explicit in the treatise on probability. The treatise on probability is sort of a work that focuses on some other but related issues. So is his view on uncertainty lying dormant in the earlier work? How do you see the connection there? Well, I don't think it was dormant. He just found a topic to which to apply one bit of his treatise on probability. See, there were three notions of probability in the treatise on probability. There was cardinal probability, which is you have numbers for different states of things, different states of probability. Then there was ordinal probability,

in which you could say something was more likely than less likely, but not how much more likely. And he thought a lot of human action took place in that world, that you can't actually, you know, you can't assign numbers. This is three times, it's three times more likely than that. You can say it is more likely, whereas with cardinal probability, you can always give a precise bet. Cardinal probabilities like betting, you know, you bet with numbers.

And then there was this area of uncertainty where you can't assign any probabilities at all. And he had that in the Treatise on Probability, and he had an illustration of it. I mean, the idea is when two arguments lead to opposite conclusions, you know, it's a matter of animal spirits, if you like, which one you choose. He said if the barometer is, if the sky is blue but the barometer is black, so to speak, it's a matter of, don't spend a lot of time calculating the probabilities just either take the umbrella with you on a walk or don't. You simply choose without wasting time on the debate. You choose as your inclination moves you. And that's the real condition of uncertainty.

Now, of course, we have probabilities. At that that time they didn't have weather forecasts that were nearly as accurate as now now we have a probability and we could actually be a bit more accurate about whether to take the umbrella or not or the raincoat or not but at that time it was a very good image to use but it illustrates and it that's the point he took up in the general theory, that umbrella point. You don't know whether the sun is going to come out or whether it's going to rain. And look what you're doing. You're trying to calculate your profits 10, 15 years, 5, 10, 15 years in advance. Are you going to say we have probabilities? Are you trying to tell us that stock market prices today accurately measure the returns that you're going to get on your investment when you float a company now?

He says that's rubbish. Only insane economists and analysts who make a lot of money on it would actually tell you that they have any certainty about this. So what do you do under those situations? Well, he says, it's animal spirits. You either feel confident and in a good mood and you think the world's going well and it's a good gamble. Or you're pessimistic and you don't invest. And he said pessimism is actually probably more likely in the long run than optimism. In other words, the way we would put it, people are more risk averse, optimistic. And therefore, you'll always get some naturally sluggish elements in an economy moving forward

because people don't know what's going to happen. And I think that was a very common sense point of view. What did Keynes think about the inductive method generally, if you'll pardon my irony? Oh, you're asking me deep philosophical questions. He thought it was incoherent, because you can't, by induction, develop an inductive principle. I mean, you can't get an inductive principle out of induction. You have to have some prior belief that induction is a basis of knowledge. I mean, in that sense, it's completely incoherent.

And I think a lot of philosophers would accept it. Now, there's an interesting slant to the question though which is this. You know it was always said, I mean standard histories of modern science always argue that you know they start from Galileo's telescope and they say look what modern science did was to say we acquire knowledge about the world by looking and not by having some religious view of creation we actually look and see so the idea is we look and see. So the idea is we look and see. So that's the inductive laws just by looking. And yet they never really, the modern scientists never really, although they paid a lot of lip service to it, that's not actually the way they worked at all.

For one thing, they were terrified that ordinary people might look and see things that they didn't want them to see. And so they always hedged. They said, yes, observation is the method of acquiring knowledge but only educated observation. Only observation educated by us, scientists. Then they will be able to see what we see. But not until then. And so there was always what I would call a very strong platonic streak in modern science. And it goes right up to the present day, you know. I mean, the debate on the internet is all about that. I mean, between allowing people to say what they think and yet controlling it because they don't like what they might see. And that's a debate that goes back right

to the beginning of our tradition of philosophy with the Greeks. But, I mean, in answer to your particular question, what is, we then sort of look around. We do it that way. We see and look rather than look and see. I think probably that's the way he would put it. I want to switch back to you, Robert. So, in 1986, between volumes one and two, you wasn't a luxurious house. It was a farmhouse that had been gentrified and it was very comfortable, but it wasn't a rich man's house particularly. That's the first thing one learned. It was a very comfortable old farmhouse. Second thing, his interest in architecture. His own

study he had built as an annex and it was very much in an Italianate style, a sort of Renaissance kind of style with those kind of windows and particularly ceilings. So architecture was a major interest of his, and I would say generally the arts. All the wonderful pictures that he had had hanging there had gone. So that was the second thing I learned. A third thing, of course, you could call it the genius of the location. I mean, the fact that he had done his greatest work when he was there was a tremendous inspiration to me. a bit about Keynes's visitors because a lot of them were still alive and they were divided into two groups there were the economists some old economists were still going strong and the artists painters and writers and I always asked

well I tend to ask them the same question when they came and visited because there are lots of visitors the was, what was the house like in Keynes's day? You were there, you came along. The economists couldn't concrete on the side of the writers and the painters, and abstract on the other side. Oh, we had a wonderful conversation about the theory of induction, one might say, as one of the economists, but couldn't remember whether there were any pictures on the walls. The thing is they didn't notice. They actually didn't notice. So I think those were the things I got out of being there,

but particularly inspiration, inspiration of feeling that this was an ordeal I had to go through. It was a challenge, a Toynbee-an challenge, and either I fell flat on my face or I met it to the best of my ability. I mean, that's amazing. I'm just trying to put myself in Keynes' shoes and imagining in a few decades' time someone occupying my desk, a biographer in my former house,

writing about me. It would be a very strange thought indeed. Yeah, but now I'm engaged in a film project with a very uh a very uh talented uh director um in latin america who who who is very anxious to make a a six-part episode six-part filmpart film about Keynes, and I'm the advisor to the project. And I think it's going to be based roughly on my book. And he's got wonderful ideas. You see, he's a filmmaker,

and so he sees everything very visually and dramatically. And so the challenge is how to make a life of Keynes dramatic. Because he wasn't a classical hero. He didn't die on his sword. He didn't do himself to death through drugs. You know, all the kinds of things that now make contemporary heroes and make people admire.

He was a very, very clever and intelligent policy maker and theoretician. He didn't go the way of Mosley. Mosley, you could say, fulfils some of the criteria of a hero, you know, because he sacrifices. Keynes didn't sacrifice that much, but nevertheless he was a hero as well, but a different kind of hero, a sort of sensible hero. Can you have a sensible hero? Possibly you can. So it's a challenge to a film, to make a film which keeps dramatic interest but at the same time brings out the genius the particular genius of the man I'm very excited

on that about that I'm also very excited by that. I suppose you could argue that his efforts at the Bretton Woods conference were heroic in the sense that he sacrificed his own good health for Britain and international peace. Yeah, I think so. And when he died very soon afterwards, one of the economists, actually Lionel Robbins, who he clashed with many times in his life, said he fell for his country just as much as any soldier. I mean, he gave his life for his country. And of course he did. I mean, he shouldn't have been anywhere near those things because he was too sick, really. Oddly sick, not mentally sick. And one of the most poignant

things he said when he wrote a letter to his mother at the time of the American loan negotiations, he said, may it never fall to me again to negotiate a hand with so little in it, to negotiate from such a weak bargaining position, because the Americans were all over him. He wanted the money, they had the money and they could impose whatever conditions they liked and for a patriot he was a patriot negotiating at the end of the british empire really it was it was it was you know on its last legs and he was trying to salvage as much for his country as he could. It's very poignant. I want to go back in time, Robert, and then just into Keynes' politics a little.

In 1904, Keynes pens a lengthy, admiring, but not gushing essay on Burke's political principles. In which ways did Edmund Burke influence Keynes' thought? Two ways. Prudence. Maybe they're wrapped up in one. Prudence. I think he thought was extraordinary, extraordinarily important. You don't rush into things. And he contrasted that with revolutionary enthusiasm, which of course Burke did as well. You don't know enough. And then he said something very important. He said in order to be sure that the future will be better than what is now, you not only have to be sure in your own mind that the results in the end will be better than what we have now, but that the cost of the intervening period will

not be so great as to overcome the results you're going to obtain. So in other words, to say, look, we're going to sacrifice one million people now because two million people will be better off, you know, when we've achieved our goal. That you cannot do. And out of that also comes one of his famous phrases, his most famous phrases, which is, in the long run we're all dead. You don't sacrifice yourself for the long run. And that was a very, very... Now, I think one's got to be very cautious about that phrase.

It doesn't always point in the right direction to me. But it often does. And it points, it's a very strong criticism of what I would call the sacrificial nature of economics. used to say, you don't try and deal with a slump by preventing bankruptcies and things like that. You allow the bankruptcies. You allow the economy to collapse because it's diseased. And therefore the only cure is to allow the collapse and then it will naturally recuperate itself without the aid of all these stimulants. So Hayek would have been terribly against the whatever it is, $900 million stimulus that Australia has just announced.

I mean, he would say that's the wrong way, whereas Keynes would say, no, it isn't, that's the right way, because, you know, you don't know that you're going to get a recovery in two or three or four years' time. And meanwhile, what are you really risking? You're risking a huge amount. So I think that's one way in which Keynes would say it was a Burkean. But I say it's a little bit problematic because you could use that argument and say

we shouldn't in any way change our present habits for the sake of our children and grandchildren. And people would say that's not quite right I mean if we think global warming is really had going to happen and we've got the science to tell us it would be the height of irresponsibility wouldn't it to just go on living as we are because we in the long run we're dead. You know, we were dead in the long run, but what about our children and our grandchildren? Don't we have responsibilities to them?

And so I'd say this is an argument you can have, not only with Keynes, but it's an argument you can have generally. Where do your duties to your fellow citizens or the human race, at what point do they end? At what point in time do they end? At what point in place do they end? Very, very important question. Would the economic consequences of the piece have been a better book

had Keynes left in the more salacious vignettes and extreme portraits of the original draft? Or was it ultimately a better book for the discipline and tact that his friends and family imposed on it? They sort of reined him in a bit, right? Yeah, yeah. Well, I'm not sure whether it would have been a better or worse book, but it would have had different consequences for his career. I mean, if you think of the fact that he then was able to get reconciled with Lloyd George, it would have been...

And then Lloyd George took up his program in 1929 and campaigned on public works and government spending to fight the Depression. If he had had all that stuff in about Lloyd George in the economic consequence of the peace, it only came in later after his collaboration with Lloyd George, it would have been very difficult for him to work with Lloyd George, I think. I mean, he said Lloyd George is void, rooted in nothing, a Welsh magician from, you know, the mists of... I mean all kinds of incredibly unflattering things about the then British Prime Minister, a pure opportunist, you know, things like that. Well, if you've said that about someone you're not going to have necessarily a very good relationship with them

afterwards and so I think that was right. Now of course it would have... about someone, you're not going to have necessarily a very good relationship with them afterwards. And so I think that was right. Now, of course, I don't think it would have made the book better. It wouldn't even have affected the sales much, I don't think, which is a criterion for judging books, because it was a bestseller. it was the most popular book in economics ever written at that time, in terms of short-run sale. He was very, very good. I mean, this is where Keynes was more than an economist, you see. He could paint pictures in words. Now, economists very rarely can. One person who could, and he's a very interesting case, I've admired him, there were a couple of people who never were quite accepted as

economists in a pure sense, although they were, of course, economists. One was Weibler, who wrote the theory of the leisure class. I mean, his prose is completely idiosyncratic and totally distinct. And it's not an economist's prose. I mean, he was certainly a... And the other was Hirschman, Albert Hirschman, who was later. And he wrote very, very, very good non-technical economics. And as a result of not sticking to technical economics, both of them had a much wider idea of how the world works and what made things move and act and behave

in the way they did than if you put it into a mathematical formula. And so I suppose yeah I think probably it would have been nicer to have more of that in the economic consequences yeah Hirschman's tunnel effect is a great

example of how he could use analogy to convey an idea very effectively where he kind of tries to describe the process of a society becoming more unequal through the metaphor of supposing you're in a traffic jam and you're in the left lane and you're stuck but you see the cars in the right lane start to move you actually might tolerate that situation for a while because you think that it's a sign that good things will come but you know a reasonably complicated economic idea,

but just captured with the most apt analogy that he possibly could have found. In The Economic Consequences of the Peace, Keynes famously warns that vengeance, I dare predict, will not limp. And eventually he was right. World War II breaks out. But while Keynes was right, was he right for the wrong reasons? Partly, partly.

You see, I think that what rankled with the Germans and which you couldn't really have got them to give up until another war was their defeat. It wasn't really the reparations. Of course, the reparations was the big thing, he did, of course, because everyone did. But it was the fact that we were stabbed in the back and betrayed. And for the Germans not to give up, not to have another go, I think, would have required an absolute defeat, unmistakable, catastrophic defeat, as happened in 1945. I think that has changed the Germans fundamentally. They've given up their historical objective or goal, which was to gain control over Eastern Europe and bits of Russia. They're not the same people anymore. Now, there were lots of subsidiary things that went into it.

Very, very importantly, the Great Depression that gave Hitler his chance. I think Nazism was probably a product of the Depression more than anything else. Had it not been for the Depression, I don't think Hitler would have come to power. But there would have been someone else who would have tried the same thing. For example, what do we know in the 1920s, the Weimar Republic? They were busily, secretly re-arming. They were acquiring the latestimar Republic, they were busily, secretly re-arming. They were acquiring the latest military technology, all from the Russians, actually.

In the end, they attacked. They were planning, or a lot of them were planning the next war. Of course they were. So, in that sense, when Keynes said, if we treat the Germans generously, they'll settle down and become good international citizens, I think that was a bit optimistic. I think he only knew a certain kind of German, you see. He only knew Melchior and people like that and professors and even not the worst professors.

So I think he got a slightly wrong view. Being a Keynesian, I don't defend everything he said by any means. Is it accurate to say that Keynes probably admired Malthus the second most of any economist after Adam Smith? Yeah, absolutely. I think he admired Malthus enormously. And it's because Malthus is not taking this long view, you see. I mean, Malthus, it's that Malthus-Ricardo correspondence. And Malthus, you know, he's writing after the Napoleonic Wars, there's a great depression in Britain.

And the beginning of the Industrial Revolution, horrible things are happening. I mean, they really degraded their working population. I mean, to an unthinkable extent, it was horrible. And Malthus said, no, we've got to do something about this. And Ricardo said, look, the trouble with you, Malthus, is you're always thinking about the short run. But in the long run, we're all going to benefit from this, from industrialization and everything else.

And Ricardo was true, and he was right, according to his lines, but was the cost worth it? This was the issue and of course Keynes took Ricardo's view, not just because, sorry Malthus number two, was not doing economics mathematically. He was at first in his population theory. That was a mathematical formula. But later on, he didn't, whereas Ricardo was very abstract always. Malthus was, in his later years later years more concrete and that's why I think Keynes had a lot of time for him. And Malthus also of course made the point about effective

demand. He said an economy can slump because of lack of effective demand whereas Ricardo said the only problem was supply. He was entirely supply-side, and Malthus introduced demand. So, yeah, you're right. I mean, he admired Malthus enormously. Did he admire any other economists? He admired Marshall, his teacher, although he thought he was a ridiculous character.

But he admired his book, The Principles. But I'd say Adam Smith, of course he admired. Though he didn't read him very early on. He didn't read him until later on, after he started being an economist. And he read all of Smith's work, both The Wealth of Nations and The Theory of Moral Sentiments? I don't think he ever read The Theory of Moral Sentiments.

No, I don't think so. He read The Wealth of Nations. He also read, of those 18th century people in economics, he read The Fable of the Bees. Oh, God, I had the name in my head just a moment ago. Bernard Mandeville? Mandeville. He loved Mandeville. Everyone Bernard Mandeville? Mandeville. He loved Mandeville.

Everyone likes Mandeville now. In fact, any kind of economics, any kind of economics persuasion will quote Mandeville. Also, of course, Keynes, but you see, this is where his real intellectual background was. Hume, Locke, the Scottish Enlightenment, those were the people who, you know, he cut his philosophical teeth on. And that was what he said was being well-educated. An economist who does not have any philosophical hinterland is not a good economist. So to come back to Malthus,

in 1914 Keynes presents a paper on population pressure at a meeting of the Political Philosophy and Science Club in Oxford. And thinking of India, China and Egypt, he argues that three quarters of the world have never ceased to live under Malthusian conditions. And there seems to be like a lifelong Malthusian pessimism that runs through Keynes' thinking. He also shared the view of his time that some peoples could be classified as below civilized, as barbarous. And as you know, Robert, he got a bit into eugenics, although the extent of his involvement is obviously up for debate. So allow me to join two dots that may not be connected at all, but I'd like to get your reaction to this. Is it possible that his views on racial wars and eugenics

were somehow connected with his view on overpopulation? Yeah, they all were at that time. I mean, Mary Stokes was as well. That's why, you know, people want to tear down her statue. And she was the inventor, really, the pioneer of birth control. I mean, of course there was a eugenic basis to it. There was a eugenic basis to her birth control movement, Mary Stokes's, and it was just that lower income groups had more children than higher ones. So if you want to be a eugenicist and

think that the quality of the population lies with the more intelligent people, you want to stop the... or with the higher income people, you want to stop the or with the higher income people you want to stop others from reproducing I mean that was and and and you know there's there's a there's a eugenicist strand in Keynes in a lecture he gave I mean you you know you've read everything I can see that but in a lecture in a lecture he gave you recognize, in the mid of 1920s, when he talked about the agenda and the non-agenda of politics, he said future agenda of politics must include population

with control not only of numbers but of quality. And in that 1914 paper, when he talks about most of the world living in a Malthusian world, he also foresees big wars, the possibility of resource wars, as the poor attack the fortresses of the rich. And in a way that happened in Russia. That was the revolution. It hasn't led to a war between Asia and America, Europe, and I don't think it will. control climate and we are faced with outbreaks of starvation and pandemics on a bigger scale than the ones we've experienced. Wars between people who are most afflicted are quite possible. And so that's not... I don't think you can be a pangloss, really, about the world we're now in. And I don't think you can also quite, you know, use the word challenge, which is these words,

these weasel words, which our language is full of. And one of them is challenge. When anything goes seriously wrong, people say, oh, well, we're in challenging circumstances, as though there is a correct response. It may be it's worse than a challenge. So I think I'm not entirely optimistic about the future. Maybe it's my age. Well, it's certainly not an unreasonable view to take. If Keynes was alive today, which sort of one or two issues do you think he would devote his energies to what what would concern him most well i think i think um if he came back um having been out of things for the last 30 or 40 years he would be very surprised by the turn economics had taken

and the rejection of the idea that that in a slump you should have a stimulus, which was what really happened in 2008, 2009. You had a financial collapse and most governments started cutting their spending and trying to reduce their deficits. He would have said that's exactly the wrong thing you need to do under those circumstances. And so he would have been scathing about it and would have fought to rehabilitate his insight and theory. He would have been scathing about the revival of the quantity theory of money and the idea of a mechanical link between money and prices, which of course was what they believed at that time

and have gone on believing. I don't know how much of the Australian stimulus is in terms of central bank money or actual fiscal spending, but Keynes would have said only government spending guarantees that the money is spent. Because of the marginal propensity to consume. Yeah, and also the fact that if people are not confident, they increase their savings.

They don't just go and splash either on consumption or on investment, which is important. They may splash on consumption. Robert, I was hoping, and I know this is sort of an annoying question, but for the sheer benefit of my audience, you could explain the most important idea in the general theory. Dare I say it, the explanation of the general theory or the distillation of the general theory that you offer in your biography of Keynes is probably a better explanation than the one Keynes afforded himself.

So I was hoping you could tell us what we should take from that book. Well, I think the single sentence take is that market economies are not automatically stable. They don't deliver full employment and full use of productive capacity. And therefore a government has to be there to balance them in such a way that they achieve their potential. That was the big attack on classical economists. It comes out of generalizing from a single market in which if there's a competitive market, there are no surplus supplies left at the end of the market day. The prices ensured all have sold. Applying that to labour.

And he said that doesn't work in that way. There's a lot of labour that will not be absorbed by market forces. And they'll be unemployed. And the normal state of an unmanaged market economy is quite heavy unemployment. It could be 5%, it could be 10%, but it's always there. And he wasn't the only one who said this. What he didn't say, which is what Karl Marx said, was capitalism needs

that reserve army of the unemployed. Because if it doesn't have the reserve army of the unemployed, workers get a bit uppity. They ask for too much. They establish monopoly in labour supply and they encroach on profits. So capitalism needs a lot of unemployed around. And neoclassical economics made sure it did have a lot of unemployed around. And it does to this day. Huge amounts of just not only unemployment, right, 5, 6, 7%, but underemployment, which is the new name of the game. And Keynes would have been very quick on to that. Underemployment. People working below their capacity and shorter hours than they want to work. And therefore suffering a drop in their potential income. And the government has to balance it on the other side.

I mean, that's, I think, as near as I can get. The government should be the balancer of the economy, and it should not aim to balance its own budget. It should aim to balance the economy. And that's what he would have banged on about. Thank you. That was amazing. Why did he, so to follow that up with a completely trivial question, why did he use the letter Y to denote output?

I think it was... Now, you've stumped me on that. I would have thought it was, by that time, a standard notation for... Hang on, hang on, why? Do you have a view? I mean, certain things you can easily, S is saving, I would be income, Y would, you could, I suppose, put an O in, which would have worked just as well, which was output, but why? You'd better explain that to me, because I haven't got any obvious explanation.

I mean, you know, the normal one, the normal things are Q. I mean, in the demand and supply diagrams, they're Q and P. But, I mean, these must have all been established by this time. And I don't think he added new notation. Right. I don't know why Y stands for output. It really stands for in command output together, sort of in some combination. I don't know.

What's the ideal length of the working day? I think the ideal length of the working day is about five hours. Personal view? I work so much harder than that. And what I think is, if only I could just work in the mornings and have a good time. I mean, it's ridiculous to say have a good time the rest of the day. Because although my wife always calls me a workaholic, in fact, work is a pleasure. I enjoy reading books and thinking. And writing is an effortful pleasure, but I have a sense of achievement when I do it. Keynes thought three hours a day would be enough to satisfy, that's right, to satisfy the old Adam in us.

You see, here's another thing we've got to always remember about Cain. He was very, very bred in a very theological age. He understood the Adam and Eve story. It was in his bones. And God had cursed Adam to work. I mean, in the Garden of Eden, of course they worked a bit. I mean, presumably the fruit fell off the tree and they had to pick it up. There was a bit of maintenance work in the Garden of Eden, but no planting and no domesticating of animals. It was agriculture that was the curse of God, and that was very, very hard work.

And so people used to dream of, when they dreamt of returning to the Garden of Eden, they dreamt that this would be a place where you didn't have to work any longer or only very, very little work. So that's what he meant by saying three hours would probably satisfy the Adam in us. There's a fascinating discussion in your original three-volume biography and it appears in the appendix. And it's the discussion of whether Harry Dexter White, the senior US official with whom Keynes negotiated

at the end of the war, was effectively a Soviet agent. Was Harry Dexter White a Soviet agent? Yeah, sure. Sure he was. They identified him as an asset. Now, that is undoubtedly true. Whether he actually gave them any secrets that were of immense importance, I don't know. I mean, probably not. I mean, it was economic intelligence that they were after from Harry Dexter White. But whether he thought, you see, think of it in another way. I mean, he actually passed on secrets. But there were a number of people in the early days of the development of nuclear weapons who thought that america should give atomic secrets

to the russians um i mean uh peter oppenheimer uh not peter oppenheimer um uh who was the scientist he was called robert oppenheimer robert Oppenheimer. Robert, yeah. He thought that nuclear knowledge should be free, freely available, public good, in order to avoid an arms race. Whereas someone called Teller, who is another leading nuclear scientist, said that would have been an act of treason. So, to get back to Harry Dexter White, he thought that he was doing the world good by giving intelligence to the Soviets because it would make for a more peaceful world rather than a world in which the two blocs would start fighting each other. You could say it was a belief in the transit of

information. So in his own mind, I don't think he felt he was a traitor. But I think technically he gave classified information to the Russians. Yes. And that is what's called in popular terms betraying your country. As we discussed it earlier in the conversation, Robert, there are no fixed and universal economic laws to the extent that so-called economic laws exist at any given moment they they arise out of structures which are contingent and my question therefore is could you envisage a situation in which Keynes' general theory finally has the rug pulled out from under it?

And what would that take? Well, yeah, you could say he gave a hostage to fortune in calling his theory the general theory. He would say there are no general theories, but I'm calling my theory a general theory. But, you know, a lot of people are like that. I mean, Marx, for example, was exactly the same. He thought of communism, socialism or Marxism as a universal scientific truth, whereas he said all truths are contingents on class position.

Except my truth. I think the way Keynes would get round it would be by this. In the same way I think Marx might get round it. He says, my theory is more general because it serves the interests of much larger numbers of people than these other truths. I mean, you might want to argue that many of the laws of economics, the so-called universal laws of economics, are so framed as to justify a large amount of poverty or a large amount of inequality. And I think that's true. You know, the idea that you're paid your marginal product, every factor is paid their marginal product. I mean, that is a law that just favours the rich.

I mean, it's designed to do that. Now, Keynes would say, OK, my laws, maybe they're not general in a complete sense, but they are much more on the side of most people than some of these other laws. I don't know whether he'd make that defense, but I mean that's a defense that could be made. And I think it's a defense that Marx might make.

The laws of neoclassical economics favor the creation and maintenance of an oligarchy. They are designed to help the rich get rich and keep them rich. And part of that, as we said earlier, was having a large reserve army of the unemployed. Final, final question. And this is in a way related to the previous question could economics ever produce another figure of the stature of Keynes anything is possible anything is possible uh more difficult more difficult now and it wouldn't be the same kind of figure,

more difficult because the training of economics has narrowed so much, and it's become so much more mathematicized. But you could imagine someone producing an economic generalization which tried to capture the essence of what the economies of today are like. I mean, what we've got are bits and pieces. We've got the financial sector, we've got the trading sector,

we've got all kinds of bits. And they don't seem to work harmoniously, particularly at the moment. And we don't know how to have an economics that explains everything coherently. You can imagine someone putting it together and the heterodox bits that make up economics today, gelling in some way into a coherent system. You could imagine that happening. The other thing that is more likely, I think, is that economics as we know it will disappear. The bits of it will be attached to business government departments and other applications. But that the grand theorizing tradition, what we might say the Newtonizing of economics, will be abandoned. That, I think, is likely.

People won't be interested, the very able people won't be interested in doing that sort of thing anymore. They'll realise they've reached a dead end. Robert Skidelski, great to meet you and thank you so much for joining me. Well, it was a great pleasure to be with you. You did an enormous amount of homework. You know the subject very, very well. I hope you enjoyed that conversation as much as I did.

Two things before you go. One, if you want to read the transcript or the show notes for this episode, you'll find them on my website, thejspod.com. Number two, please subscribe to the show. It means that you won't miss new episodes like this one, and it also makes it easier for other people to find us, and I would appreciate your help. The audio engineer for the Jolly Swagman podcast is Lawrence Moorfield. Our dehydrated video editor is Al Fetty. I'm Joe Walker. Until next week, thank you for listening. Ciao.