Keynes: socialist, liberal or conservative?

June 5, 2019

James Crotty is emeritus professor of economics at the University of Massachusetts

Amherst. Along with his colleague Sam Bowles, he is one of the few radical
heterodox economists to gain tenure at a leading American university.

Crotty�s main contribution to economics has been to try and synthesise Marx and
Keynes. This ended up with Crotty arguing in his 1985 article �The Centrality of
Money, Credit, and Financial Intermediation in Marx�s Crisis Theory�, �that Marx�s
vision of capitalist crises cannot be understood except in terms of the development
of the credit and the financial system, and that his discussion of these ideas
anticipated the ideas on financial fragility later developed by Minsky and other
Post Keynesians.� (quoted in an interview with JW Mason) In other words, Marx was
really a post-Keynesian Minskyite.

I won�t discuss the validity of that view here because Crotty has a new book out,
entitled Keynes Against Capitalism: His Economic Case for Social Liberalism, in
which he claims that, far from being a conservative Keynes was in fact a socialist,
if not a revolutionary one like Marx. �Keynes did not set out to save capitalism
from itself as many think, but instead reckoned it needed to be replaced by a
liberal form of socialism.�

Crotty argues that Keynes�s Liberal Socialism began to take shape in his mind in
the mid-1920s, evolved into a more concrete institutional form over the next decade
or so, and was laid out in detail in his work on postwar economic planning at
Britain�s Treasury during WWII.

In Crotty�s reconstruction, the analysis goes something like this: �Keynes writes
in many places that he�s a socialist. He gives speeches to the Labour Party saying
�I�m a socialist.� What does he mean? He thinks we need to organize capital
investment decisions, bring them all under a board of national investment. And we
have to bring together all the sources of savings that are in our economy in one
place. And, he goes through all of these incredible, important things you can do
with this capital if you can control it. In 1942 or 43, he says if the state can
control two-thirds to three-quarters of large-scale capital investment through this
national board of investment, we�ll be fine. The only way you can do this is if you
drive the interest rate down towards zero, and that�s what you should do. So you
have to have strict capital controls, otherwise, people will take their money out.�

Crotty interprets Keynes� s policy ideas as socialist. �His socialist plan, means,
we�re going to have to manage our trade, we should have industrial policies, we
should have wage policies, we should have geographical location policies. And all
of this to achieve not just full employment, but the creation of arts, the building
of cities, the building of housing, and so on. In his socialism, there�s still
private markets, but they are small. He keeps saying if we don�t have socialism,
we�re going to have chaos, we�re going to have revolution.�

But does this view of Keynes the �socialist� really hold water? Crotty argues that
it does because Keynes �decisively rejected the traditional theory of perfect
competition, applauded the ongoing trend toward increased reliance on public
corporations, and argued that the government should not only accept the current
movement toward cartels, holding companies, trade associations, pools and other
forms of monopoly power, but should proactively assist and accelerate this trend in
order to regulate and control it. Keynes argued that an increasing part of the
country�s largest and most important private companies were evolving toward a
status that could make them as easy to regulate as public corporations.�

As Crotty puts it, Keynes� central point was that the emerging importance of the
system of public and semipublic corporations and associations combined with the
evolution of collusive oligopolistic relations in the private sector already
provided the foundation for a qualitative increase in state control of the economy.
Crotty concludes �Keynes was unabashedly corporatist.� Indeed � I would add that
his concept of corporatism was not dissimilar to that actually being implemented in
fascist Germany and Italy at the time.

And who was to run this corporate capitalist/socialist state? According to Keynes�
biographer, Robert Skidelsky, it would be �an interconnected elite of business
managers, bankers, civil servants, economists and scientists, all trained at Oxford
and Cambridge and imbued with a public service ethic, would come to run these
organs of state, whether private or public, and make them hum to the same tune.�
(Skidelsky 1992, 227-28).

Keynes rejected laissez-faire and �doctrinaire State Socialism� because what is

�needed now is neither free-market competition nor quantitative central planning
but �regulated competition� (19, 643). Keynes goes on, �we must also be prepared
to experiment with all kinds of new sorts of partnership between the state and
private enterprise. The solution lies neither with nationalisation nor with
unregulated private competition; it lies in a variety of experiments, of attempts
to get the best of both worlds. The Government must recognise the trend of soundly
run business toward trusts and combines. It must be prepared to recognise their
existence as beneficent institutions in right conditions; and it must adopt an
attitude towards them at the same time of encouragement and regulation.� (19, 645)
In this way, we �will get the best both of large units and of the advantages that
might be expected of nationalisation, whilst maintaining the advantages of private
enterprise and decentralised control.�(19, 649).

Keynes�s �socialism� was really the so-called mixed economy of capitalist combines
and government control, all run by �an elite of business managers, bankers, civil
servants, economists and scientists, all trained at Oxford and Cambridge.� This is
what Crotty describes as �liberal socialism�. For me, it is neither liberal nor
socialist; but elitist and capitalist.

What were the practical economic policies of Keynes� socialism, according to

Crotty. Keynes proposed a National Investment Board that would have funds of
between 4-8% of GDP to invest to ensure that economies moved in productive
directions. This proposal was part of the Liberal Party Manifesto in 1928 � and
not accidentally is now part of the UK Labour Party�s in 2019 under Corbyn and
McDonnell. This apparently, according to Crotty, is what Keynes meant by his
famous phrase, the �socialisation of investment�.

But just in case you think that Keynes wanted only his elite to run this corporate
capitalist state, he also patronisingly advocated that �To make the worker feel
that �he is treated as a partner and not as a mere tool,� (238), (he) proposed that
every firm be legally required to form a �Works Council� to facilitate �permanent,
regular, and established methods of consultation [between management and labor] in
every factory and workshop of substantial size� (472). Shades of the �social
market economy� with its workers councils of modern Germany!

That�s Crotty�s evidence that Keynes was against capitalism and for socialism. For
me, it merely shows that Keynes reckoned that capitalism was no longer a system of
�perfect competition� (it never was of course) but had evolved into �monopoly
capitalism�. And this was a good (�beneficent�) thing, requiring only the nudging
and direction of a �wise educated elite (of men)�, dutifully supported by the
workers, in order to deliver prosperity for all.

And there is plenty of evidence in Keynes� writings that he really stood for
�managed capitalism�, and not socialism by any reasonable definition. As he wrote:
�For the most part, I think that Capitalism, wisely managed, can probably be made
more efficient for attaining economic ends than any alternative system yet in
sight, but that in itself it is in many ways extremely objectionable. Our problem
is to work out a social organisation which shall be as efficient as possible
without offending our notions of a satisfactory way of life.�

The profit motive must remain: �The loss of profit may be due to all sorts of
causes, but short of going over to communism there is no possibility of curing
unemployment except by restoring to employers a proper margin of profit.� As Keynes
argued that �Economic prosperity is�dependent on a political and social atmosphere
which is congenial to the average businessman.� As American economic historian,
Bruce Bartlett explains: �He offered for the economy a hierarchical ideal. The
creative center of the system was the skilled entrepreneur and the goal of policy
was to cultivate his skills and ensure his inducement to invest.�

In his later years, Keynes praised the very laissez-faire �liberal� capitalism that
he appeared to condemn in the 1920s. In 1944, he wrote to Friedrich Hayek, the
leading �neo-liberal� of his time and ideological mentor of Thatcherism, in praise
of his book, The Road to Serfdom, which argues that economic planning inevitably
leads to totalitarianism. Keynes wrote: �morally and philosophically I find myself
in agreement with virtually the whole of it; and not only in agreement with it, but
in a deeply moved agreement.�!

And did he stick to his view of �socialised investment� as Crotty claims? This is
what Keynes said in his last years: �If our central controls succeed in
establishing an aggregate volume of output corresponding to full employment as
nearly as is practicable, the classical theory comes into its own again from this
point onwards.� So once full employment is achieved, we can dispense with planning
and �socialised investment� and return to free markets and mainstream neoclassical
economics and policy: �the result of filling in the gaps in the classical theory is
not to dispose of the �Manchester System� (�free� markets � MR), but to indicate
the nature of the environment which the free play of economic forces requires if it
is to realise the full potentialities of production.�

Keynes was a strong opponent of national economic planning, which was much in vogue
after the Second World War. �The advantage to efficiency of the decentralization of
decisions and of individual responsibility is even greater, perhaps, than the
nineteenth century supposed; and the reaction against the appeal to self-interest
may have gone too far,� he wrote.

Contrary to Crotty, Bartlett reckons that �Keynes was almost in every respect a
conservative, both in philosophy and temperament, although he identifies himself as
a liberal throughout his life. His conservatism was largely a function of his
class. When asked why he was not a member of the Labour Party, he replied; �to
begin with it is a class party and that class in not my class.. and the class war
will find me on the side of educated bourgeoisie.� Conservative icon Edmund Burke
was one of his political heroes. Keynes expressed contempt for the British Labour
Party, calling its members �sectarians of an outworn creed mumbling moss-grown
demi-semi Fabian Marxism.� He also termed the British Labour Party an �immense
destructive force� that responded to �anti-communist rubbish with anti-capitalist
rubbish.�

Keynes� �socialism� was openly designed as an alternative to the dangerous and

erroneous ideas of what he thought was Marxism. State socialism, he said, �is, in
fact, little better than a dusty survival of a plan to meet the problems of fifty
years ago, based on a misunderstanding of what someone said a hundred years ago.�
Keynes told George Bernard Shaw that the whole point of The General Theory was to
knock away the �Ricardian� foundations of Marxism and by that he meant the labour
theory of value and its implication that capitalism was a system of the
exploitation of labour for profit. He had little respect for Karl Marx, calling him
�a poor thinker,� and Das Kapital �an obsolete economic textbook which I know to be
not only scientifically erroneous but without interest or application for the
modern world.�

John Kenneth Galbraith, the great heterodox economist of the Roosevelt and post-war
years, and whose politics were well to the left of Keynes, reckoned, �The broad
thrust of his efforts, like that of Roosevelt, was conservative; it was to ensure
that the system would survive�. Keynes�s friend and biographer Harrod tells us
that underneath his veneer of trendy liberalism, �Keynes was always deeply
conservative. He was not a Socialist. His regard for the middle-class, for artists,
scientists and brain workers of all kinds made him dislike the class-conscious
elements of Socialism. He had no egalitarian sentiment; if he wanted to improve the
lot of the poor�that was not for the sake of equality, but in order to make their
lives happier and better.� (without their involvement, we might add.)

It has always been difficult to be sure where Keynes stood on many issues as he
changed and adapted his views continually. Hayek criticised him for this and
Keynes replied that �If the facts change, I change my views, don�t you?� Even so,
it seems that Professor Crotty may be on his own in thinking Keynes was an anti-
capitalist socialist.