Keynes: The Economist in Winter

By Michael J. Mandel


Fighting for Freedom, 1937-1946

By Robert Skidelsky

Viking 580pp $34.95

In 1936, at the height of his intellectual powers, John Maynard Keynes was confident in the ability of economists, and himself in particular, to influence world events. "The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood," wrote Keynes. "Indeed the world is ruled by little else."

But even the most brilliant of economists are sometimes at the mercy of practical forces they cannot control. This is the central theme of the third and last volume of Robert Skidelsky's epic biography: John Maynard Keynes: Fighting for Freedom, 1937-1946. Skidelsky gives a powerfully evocative picture of "the most famous, and controversial, economist in the world" trying to shape the postwar global economy and fighting to retain Britain's role as a great power--and falling short on both counts.

The previous volume of Skidelsky's trilogy, subtitled The Economist as Savior, 1920-1937, showed Keynes ascendant, developing the ideas of Keynesian economics that were to dominate the later, postwar era. But the new book starts on a different note, with Keynes, age 54, entering a sanatorium in 1937, battling subacute bacterial endocarditis, which damaged his heart valves and ended up killing him nine years later. The sense of a grueling, uphill struggle runs through the book, with Keynes serving a British government that rightly cared more about the war than the economy.

Indeed, Skidelsky points out that Keynes received only a single mention in Winston Churchill's five-volume history of World War II, even though Churchill and Keynes regularly dined together. Yet Keynes played an absolutely central part in Britain's war effort. In his role as unpaid adviser to the British Treasury, Keynes dominated economic policymaking. He "was, in fact, the Churchill of war finance and post-war financial planning," writes Skidelsky. And he had a larger-than-life quality that awed even accomplished peers. "I often find myself thinking that Keynes must be one of the most remarkable men that have ever lived," wrote one colleague. He had "a unique unearthly quality of which one can only say that it is pure genius."

What comes across most clearly in the book is Keynes's uncanny foresight. That stemmed in part from his experiences during World War I and in its aftermath. So before Britain started fighting World War II in earnest, Keynes was concerned with how the conflict would be financed. "The purpose of the wartime budget was not to divert resources to the government--that would happen anyway--but to do so with justice and efficiency," writes Skidelsky. Keynes accepted that British households would have to cut back on consumption, but he wanted to keep markets operating without resorting to price controls and rationing.

As a result, he laid out a "middle way" between centralized state planning and completely free markets. "It is for the state to say how much a man is entitled to spend out of his earnings. It is for him to say how he will spend it," argued Keynes. This idea became one intellectual pillar of the Keynesian economies of the postwar era.

Of course, despite what Keynes proposed, Britain did have to implement widespread rationing starting in 1940. But by that time, before victory seemed assured or even likely, Keynes had already begun thinking about what the postwar global economy would look like. "Keynes used to say, ironically, that he used the calm of war to reflect on the turmoil of the coming peace," notes Skidelsky.

Keynes had both global and parochial concerns. As early as August, 1941, he was reflecting on how to set up the world's currency system in a way that could avoid the problems that had led to the Great Depression. At the same time, Skidelsky emphasizes he was worrying about how to keep Britain from going bankrupt as it borrowed from other countries, especially the U.S., to pay for the war. His objective was to help preserve Britain's status as a great power after the war, rather than letting it become an economic vassal of the U.S. "America must not be allowed to pick out the eyes of the British Empire," wrote Keynes. Indeed, as Britain's prime economic emissary to the U.S., one of his main responsibilities was negotiating the terms by which America would help fund Britain's war effort.

However, Keynes soon found that his brilliance was no match for America's military and economic might. The 1944 Bretton Woods Agreement, which set up the International Monetary Fund and the World Bank, much more reflected the U.S. vision of the postwar global economy than that of Keynes.

"Keynes gave the Bretton Woods agreement its distinction, not its substance," argues Skidelsky. And all of his efforts did not help Britain avoid its economic fate, as the country ended up with large external debts after the war and was forced to assume a much smaller global role.

Anyone looking for tales of intellectual triumph would be better off starting with the previous volume of Skidelsky's trilogy. But this book is also worthwhile reading: Skidelsky gives a rare and accurate portrait of a great mind battling with obdurate reality. Keynes operated on a grand scale--and his failures were grand as well.

Mandel is BusinessWeek's chief economist.

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