Keynes: The Return of the Master

When unbridled capitalism falters, is there an alternative? The smartest and, for most of the century, most influential economist, tells us that there is. In the long run, Keynes famously said, we are all dead. But John Maynard Keynes has never been quite dead, and has led a ghostly half-life in the corridors of central banks, treasuries and in the economics profession for decades. In the current financial crisis Keynes has been taken out of his cupboard, dusted down, consulted, cited, invoked and appealed to about how a rescue operation can be effected. But very little attention has so far been paid to Keyness explanation of why economies experience these sorts of collapses. There are three main ideas of Keyness worth thinking about now. The first is that the future is unknowable, and therefore that economic storms, especially those originating in the financial system, are not random shocks which impinge on smoothly-adjusting markets, but part of the normal working of the market system. The second idea is that economies wounded by these shocks can, if left to themselves, stay in a depressed condition for a long time. That is why governments need to have and use fiscal ammunition to prevent a slide from financial crisis to economic depression. The third is a moral critique of societies which worship the pursuit of money and efficiency above all other objects of human striving. No one has bettered Keyness description of the psychology of investors during a financial crisis: The practice of calmness and immobility, of certainty and security, suddenly breaks down. New fears and hopes will, without warning, take charge of human conduct . . . the market will be subject to waves of optimistic and pessimistic sentiment. The ideas of John Maynard Keynes have never been more timely.