The Saviour of Capitalism

John Maynard Keynes is famous for his private life and associations with Bloomsbury and famous, too, as the economist who campaigned for public works between the wars, and revolutionised economics with his General Theory.

The passionate, and of necessity highly secret, homosexuality of the pre-war days was fading. His last male love was the Cambridge undergraduate Sebastian Sprott.

That Keynes would fly high was already clear in 1920. But it was not at all apparent that he would become the author of a revolution in economics and the saviour, or would-be saviour, of the capitalist system. Nor did he conceive the main principles of the General Theory until 1932.

Keynes, of course, was a brilliant man. He probably never met anyone who was obviously cleverer than himself, with the possible exception of Wittgenstein, whose tortuous monologues drove him to distraction. But his transformation into a great man was a consequence, Skidelsky maintains, of his ability to draw on a diversity of knowledge and experience, much of which came from outside economics.

He pressed into service his early philosophical studies of probability, his experience of speculation in the currency and commodity markets, and even his knowledge of poetry, drama and myth: his understanding of the role of money in the economy was coloured by the legend of King Midas.

He was to retire to Cambridge and compose, with a circle of young disciples, a theoretical work that would overturn classical theory by demonstrating that an economy could reach the point of equilibrium – and stay there indefinitely – with a high level of unemployment.

Whatever the subterranean links between Keynes’s thought at different periods, the General Theory was almost universally recognised, on its publication in 1936, as a fundamental assault on the traditional concept of a self-regulating business cycle. Keynes had created a theory of output and employment in which the main determinant of the level of activity was the level of demand. The traditional response to a slump had been to cut back on wages and public expenditure. But on Keynes’s theory, such measures were bound to exacerbate the situation by reducing demand.

The proper remedy was for the government to undertake its own investment programme, thereby encouraging businessmen to invest and consumers to go out and spend. ‘Whenever you save five shillings,’ Keynes told housewives in a broadcast, ‘you put a man out of work for a day.’ Underlying this approach was another touch of Bloomsbury: a rejection of Victorian puritanism in favour of hedonism and self-expression.

As Keynes became more radical in economic theory he tended to become socially more conservative, setting himself up as the squire of Tilton, the house and farm he rented in Sussex.

Another striking feature of his inter-war career was the absence from his mind of the Left-Liberal preoccupation with poverty, the social services and the redistribution of wealth

Was Keynes indeed the saviour of capitalism? He was ‘spectacularly wrong’ in his belief that economies would simply stagnate under laissez-faire economics.