Web Assignment 3: John Maynard Keynes's Mission

John Maynard Keynes was brought up a classical liberal and a classical economist, believing in free trade, economic progress, cultural uplift, and political reason. He then finds himself working for the British Treasury during World War I, unable to stop what he thinks are disastrous post-World War I political decisions, and then watching as the classical economic mechanisms he had been taught to admire fall apart. He then picks himself up, and spends his life arguing that if only statesmen would be farsighted and clever enough they could put humpty-dumpty together again and get back to a good world of free trade, economic progress, cultural uplift, and political reason. But what, exactly, does he think needs to be done?

Surf over to http://delong.typepad.com/pe101/virtual_discussions/ and then to http://delong.typepad.com/pe101/2007/08/web-assignmen-3.html. Write a comment of at least 200 words on what you think the core of Keynes's plan to save the world through clever public policy is. Contribute to the discussion that is ongoing at http://delong.typepad.com/pe101/2007/08/web-assignmen-3.html--that is, react and respond to not just Keynes but, to the extent it is appropriate, the earlier posters and commenters on the webpage.

Do this by 5 PM on September 18.

Comments

[Kinzie Kramer]

John Maynard Keynes believes in state use of fiscal and monetary measures and public spending to promote growth in an economy dominated by private enterprise. He does not champion a completely laissez-faire economy, but thinks that the government should be involved. Three specific changes he feels necessary are as follows.
First, Keynes “believe[s] that in many cases the ideal size for the unit of control and organization lies somewhere between the individual and the modern State […] that progress lies in the growth and the recognition of semi-autonomous bodies within the State.” In other words, Keynes calls for strong government without the red tape. He thinks that smaller groups/councils should be acting for the State in a semi-independent fashion. These strong government councils would be self-governing within “prescribed limitations.” If these groups act solely for “the public good as they understand it, and from whose deliberations motives of private advantage are excluded,” then trade and life should run smoothly.
To prove his point on this idea, he uses the example of the corporation. He credits corporations with being useful institutions for society, but explains that as the corporation gets bigger, “general stability and reputation of the institution are the more considered by the management than the maximum of profit for shareholders.” By keeping the corporation smaller (less shareholders) and more autonomous, the corporation could potentially be more profitable. In order to get to this point of smaller corporations, the government could step in.
Second, he feels that “we must aim at separating those services which are technically social from those which are technically individual.” The State should not preoccupy itself with services that the individual should be performing, but rather should worry itself over the services and “decisions which are made by no one if the State does not make them.” Keynes calls for a differentiation between different types of services so that the State’s services could be more limited and therefore more effective.
Third, Keynes believes that savings and investment should not be left to individuals, but “some coordinated act of intelligent judgement is required.” He thinks that the State should intervene when it comes to savings and investment. He basically calls for what today in the United States is known as social security.
In conclusion, Keynes thinks that capitalism needs to be “wisely managed” in order to be more efficient. The State should act in the form of small, semi-autonomous groups, but only in areas that are not already being handled by the individual. However, savings and investment are two areas that should not be left to the individual, but rather managed by the State. Keynes calls for a type of capitalism that involves “social organization” and the government.

[Glory Liu]

What Kinzie mentioned in her response above summarizes precisely what Keynes envisioned for the individual progress of States. However, I think it’s also important to note what Keynes envisioned for international progress against the backdrop of a post-WWI world.

Keynes argues that the reason for the economic depression following WWI was due to the unfair Treaty, which was not thought out in practical measures of reconstruction, but harsh measures of retribution. Furthermore, he argues that the world had “now lost the power of international initiative” and that “we are just now suffering from a bad attack of economic pessimism,” leaving the questions of worldwide economic depression unaddressed. He firmly believes that a governing body- much like the body described as an intermediary between the individual and the State- for international trade comprised of “great creditor nations” should bond together to “restore confidence to the international long-term loan market, which would serve to revive enterprise and activity everywhere, and to restore prices and profits, so that in due course the wheels of the world’s commerce would go round again.” Keynes foreshadows the foundation of the World Bank, in which he plays a crucial role in being appointed the Chairperson for the Commission on the International Bank of Reconstruction and Development (IBRD), later a branch of the World Bank, at the Bretton Woods Conference in 1944.

Such an institution reflects Keynes’ strong faith in making big, bold jumps for economic progress. He criticizes governments alone for being the institutions of “negation, restriction, inactivity,” while he believes that the future has nothing scary about it and that in fact it holds “more wealth and economic freedom and possibilities of personal life than the past had ever offered,” which is why he calls for bold and open experiments to take action and try new things.

The reason why Keynes would consider something like corporations, controlled government intervention, or even an international regulating body like the World Bank “bold experiments” is because he was dealing with a world completely hung up with total laissez-faire. Any slight intervention with private interests would be seen as a violation of the sanctity of private property- the core of classical liberalism. But, Keynes believes such guiding institutions and the notion of risk-taking propel the economy and individual forward. The Treaty of Versailles reflected the disjointed state of Europe- each Allied country pursuing its own interest and hoping to squeeze the most out of Germany merely because they were all afraid of what would happen if Germany were to be given aid for reconstruction. But, as Keynes continually points out in all his works, helping Germany would mean that war debts would be paid sooner, and that in the long run, economic activity would be in the interest of Allied Powers as well. Would Europe be willing to take the risk was the main question, and one that was not well-answered.

Keynes’ vision for wisely-managed capitalism not only applies to individual states, but also to states working with one another globally by taking risks in trying new ways to gently steer the economy in the right direction. This is the cure to both individual and national crises.

[Kent Yamane]

Keynes believes that the world can be saved by taking the middle road in public policy. He does not believe that Laissez-Faire works because “The world is not so governed from above that private and social interest always coincide. It is not so managed here below that in practice they coincide. It is not a correct deduction from the principles of economics that enlightened self-interest always operates in the public interest.” (Keynes) The world will not function if left totally to the actions of an autonomous state. Yet Keynes also believes that we should not be totally controlled by the State. We have to be able to run some aspects of life on our own, also because we are capable of making decisions about our property and welfare that the government should and will not have any say over. So part one of Keynes plan is to find this happy medium between autonomy and total State control. He believes that there should be smaller autonomous groups that should answer to the higher authority of the state. These small autonomous groups are free to make their own decisions to a certain point at which the government will govern decisions beyond this point. Keynes talks about “bodies which in the ordinary course of affairs are mainly autonomous within their prescribed limitations, but are subject in the last resort to the sovereignty of the democracy expressed through Parliament.” (Keynes).
Part two of Keynes plan is that government should not make decisions that are already made by the rest of society. There are certain decisions that society makes that need no governmental control. The government needs to allocate their time “to those decisions which are made by no one if the State does not make them” (Keynes). This makes society run more efficiently by allocating resources to issues that are not being made by both parties.
I think that Keynes plan is good in theory and shows a balance of power between society and government, it is this give and take relationship that might end up causing problems, because who will be the first to give up power to create this equilibrium that Keynes speaks of. I believe that it is a good idea that we take the middle road because there are good points from both ends of the spectrum and finding the positives from both can only help create a better economy. I also think that it is a good idea that the government not waste time critiquing decisions that society can make efficiently. That way more decisions are made and not wasting man power by going over issues twice. I also believe that Keynes is trying to promote progress, he is taking older theories and philosophies that have been put into practice and taking the successful parts from each and creating a new whole in the hopes for a better community.
I agree with Kinzie that Keynes wants a “wisely managed” capitalism, having the best of individual and state will help to form a smooth economy. She got all the main points of Keynes Essay and I agree with all the points she made.

[Sam Iverson]

John Maynard Keynes argues that in establishing a free market state, absolute laissez-faire society may never thrive and that there is need for a balance between actions of the state and those of the individual. In a more explicit form, states should manage and regulate the economy to the extent that it isn’t already controlled by the individual. In preserving private enterprise and the interests of the individual, Keynes describes, “Our problem is to work out a social organization which shall be as efficient as possible without offending our notions of a satisfactory way of life.” (V) In constructing such an organization, Keynes offers several state reforms that may best prescribe laissez-faire economics while promoting a public good.

Regarding the structure of the state, Keynes calls for a process of decentralization that would give powers to control the economy into the hands of “semi-autonomous bodies within the State-bodies” (IV) that would specialize in correcting a sphere of the economy towards a public good. These groups would draft policies that would preserve a free system of exchange and would guard against creating advantages for any private enterprise over another. Thus, their purpose would be to safeguard a free and fair economy.

However, Keynes also recognizes an inherent quality in large, modern corporations to pursue social goals in themselves. Perhaps then, the goal of the state should be to protect the liberty of share-holders who have been dissociated from management and whose profits are restricted by public scrutiny on the corporation. His point that big enterprises are continually socializing themselves means that the state shouldn’t take socialist measures that would inhibit the progress made independently by these corporations. The state must read these positive trends produced by private enterprise and protect their liberty to perpetuate them.

Keynes’s next point is that the government should only act on the economy where nothing is currently being done to fix it. In his own words, “The important thing for government is not to do things which individuals are doing already, and to do them a little better or a little worse; but to do those things which at present are not done at all.” Keynes offers a few examples of ways to go about this.

First, Keynes recognizes that the risks of uncertainty and ignorance in private enterprise may be limited if there was a greater dissemination of business intelligence made public. By making business operations more open and visible, individuals would face fewer risks in commerce while enterprise would face no hindrances.

Second, Keynes finds that the government should be responsible for managing savings and investment. Because private bodies haven’t managed the most nationally productive means of savings and investment, the government should control them. In this way, savings and capital inflows and outflows will be managed most efficiently.

Last, the government should control, to a certain extent, its population. This probably has to deal with immigration and maintaining the number of its citizenry that labor does not become exhausted.

In reconstructing the inter-war period economy, Keynes sought to preserve laissez-faire economics to the extent that private controls on the economy were untainted and only new controls were put in place to render the most productive state. Through a process of decentralization, Keynes sought a reorganization of the government that would pursue “right aims by right methods.” (V)

[Eric Silverman]

I completely agree with the previous student's post about what Keynes
feels is necessary in order for simultaneous economic, political, and
social progress to continue. While true laissez-faire has led to a road of
destruction and chaos, it has its merits on a purely philosophical, and
possibly ethical level. But Keynes absolutely does recognize that the
state a certain ability, and duty, "to do those things which at present
are not done at all" by other citizens.

Others have already posted what those duties exactly entail and how they
are achieved, but I would like to reiterate them for my own benefit. In a very strong sense, he favors the small, autonomous state that has a loose affiliation with a central power. He explicitly states that, "progress lies in the growth and the recognition of semi-autonomous bodies within State-bodies whose criterion of action within their own field is solely the public good and they understand it"(IV). Here he makes a huge departure from other economists who try to aim towards some illusive universal progression. They seem to believe that development is objective as opposed to subjective, thus justifying a central state apparatus. In reality, however, localities have a better idea of how their money should be spent than some external power whose long arm is a stranger. Progress is defined differently by different people. The State government should regulate the savings and investment of its enterprise, and to some extent regulate its population, but nothing much beyond that.

The more fundamental concept that Keynes is advocating is a dynamic
ability to change ideas and beliefs that dictate economic policy. It got
to the point to where laissez-faire became a dogma or religion, and "to
suggest social action for the public good to the City of London is like
discussing the Origin of the Species to a bishop sixty years ago"(III).
This idea was first discussed by philosophers that preceded Keynes by a
century, and was etched in stone. Yet, as every other aspect of our
culture, society, and polity changed, this concept remained stagnant.
Humanities' economic problems are always changing, and at any given moment a new perception might be needed for a disease that evolves.

[Karina Tregub]

I felt that Kinzie and the students afterwards summarized Keynes’ arguments well, in pinpointing his concept of semi-autonomous bodies within the State, acting in such a way as to perpetuate the best results for the public good, and existing between individuals and the government. In challenging classical liberal thought regarding laissez-faire and the individual’s ability to naturally make the most advantageous decisions, Keynes asserts that “experience does not show that individuals, when they make up a social unit, are always less clear-sighted than when they act separately”. Keynes does not wish to do away with laissez-faire entirely, since it did arrive, in his opinion, to “harmonise individualism and socialism.” However, Keynes feels that economic progress and successful public policy cannot lie solely in the hands of individuals, and must be balanced between the people and the State. This balance, Keynes believes, can be achieved through these semi-autonomous institutions.

The organizations Keynes addresses are not overarching, but rather, specific to there field, and able to make informed decisions based on their interaction with that particular sector. Instead of the government deciding for individuals from an outstretched arm, as Eric points out, these semi-autonomous institutions maintain a closer relationship with the businesses and sectors of society which are affected by their decisions. Further, Keynes maintains that these bodies are semi-autonomous, not completely independent, and are “subject in the last resort to the sovereignty of the democracy expressed through Parliament”, retaining the ultimate power of the state, over these institutions.

What is necessary to realize is that Keynes is not advocating an anti-capitalistic system, one in which individuals are stripped of their right to make their own decisions regarding their economic and social circumstances. Rather, Keynes argues that “capitalism, if 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.” Therefore, he calls for a change in the model that structures the decision-making process, into one which accounts for both individual feelings and state ideologies. Writing after WWI, Keynes asserts that at this moment, “The next step forward must come, not from political agitation or premature experiments, but from thought”.

While I agree that finding Keynes’ happy medium between individuals and the state is not an easy task, I feel that Keynes’ understanding of change is very keen. At this point in world history, change needed to come from within, from the individual mindsets of those decision-makers who had made mistakes over the past few decades and were now experiencing the consequences of their errors. Therefore, I completely agree with Keynes’ notion that a change in public policy must “spring naturally from a candid examination of our own inner feelings in relation to the outside facts”, and the effects of that examination not only on the individual, but also on his interaction with society at large.

[Christina J. Adranly]

Previous students have done an excellent job articulating Keynes’ remedy for capitalism. Keynes advocates a “wisely managed” brand of capitalism (as previously mentioned) in which power is dispersed to “semi-autonomous bodies within state bodies” with the state providing services that individuals would not otherwise provide themselves as savings and investment. The foundation of this societal reorganization lies in Keynes’ questioning of the basic tenets of human nature as proposed by liberal economic thought—that private and social interests do not always naturally coincide, and moreover that the assumed “enlightened self-interest” is not necessarily so enlightened. Keynes strives to maintain the liberal idea of rule based on reason, education, and thought while invoking certain fundamental changes to the obviously ineffective capitalist pre-war system to correct human error and ensure economic stability and progress worldwide.

In addition to his proposal for the advancement of the state by internal means, it is worthwhile to examine Keynes’ plan for reorganizing the world order, specifically the Covenant of the League of Nations. The League was established in 1914 as the “end-all-be-all” to securing world peace, and Keynes recognizes its potential as a place where the “wisdom of the world may…transform into a powerful instrument of peace” (22). Noting this potential, he advocates “three great changes” to the existing Covenant to rebuild European economic life. First, he proposes that Germany pay reparations to the Allied forces monetarily and materially. The suggested payments are “well within Germany’s capacity to pay” in order to renew hope and enterprise within the state and alleviate the pressure common when treaty clauses are impossible to fulfill. Next, Keynes recommends that Germany pay back the coal lost through the destruction of French mines, as well as an exchange of iron ore. The purpose of this measure is to duly castigate Germany while permitting its industrial life to continue. Lastly, Keynes advocates the establishment of a Free Trade Union—comprised of Allies, their enemies, and newly established states as a result of the collapse of the Austro-Hungarian and Ottoman Empires—in order to achieve political stability thought economic cooperation and exchange.

As should be evident, these modifications are intended to be explicitly moderate, as Keynes believes it would be counterproductive to continue reprimanding Germany. Instead, Keynes champions the uplifting and restoration of Germany in order to ensure peace and stability based on the idea that “the prosperity and happiness of one country promotes that of the other” (29). In other words, the most long-lasting strategy for peace is one that propagates interstate solidarity as opposed to further economic and political differentiation which would create further animosity and thus future conflict.

[Nathaniel S. Aylard]

Well I could not agree more with the arguments and susmmaries provided by the previous students about how Keynes thought “humpty-dumpty” could be put back together. The problem was, as it exists today, that politicians are shortsighted looking for solutions that will give them a positive image in the eye of the public (sometimes prefer to compete than work together to come up with solutions like universal healthcare). Moreover, what is considered mainstream or “true” limits the tools available in your toolbox to repair say humpty-dumpty. In the backdrop of WWI, governments thought markets automatically corrected themselves and a policy of ‘Safety-First’ would prove the best solution. In other words, the government must keep their dirty little hands out of the economy disregarding we “can only consume as long as we produce”. Supply does not create its own demand as it was believed and what was needed was a makeover of economic principles. Thus, Keynes thought the following, as the previous students explained (another reiteration of the same themes):
a) Use the State to “guide” the economy
b) Use the State to “get the ball rolling” (letter from Keynes to FDR) in times of turmoil
c) Supply does not create its own demand; there exists a vicious circle (ie consumption/demand matters)
d) the economy is dependent on the ‘animal spirits’ of man
Following such prescriptions, the government after World War I created their own follies and even exacerbated their economy’s downward trend. They would rather “pay for unemployment” then equip the country” because markets were thought to behave under specific principles. So yes, Keynes had prescriptions in mind to put humpty-dumpty back together again but they rested on escaping from classical principles about how markets behaved.

Thus, following World War I Keynes believed the world was being reconstructed in the wrong manner. Europe was not rebuilding itself because states were busy paying for debts, monetary policy was essentially taking the possessions of the investing class while the producing class rolled back their employment due to decreased in demand, and governments such as the US were resurrecting tariffs making it even harder for governments to repay their debts. So convention ruled, begging the question how would it change? Another world war possibly? Or a new world order under the direction of a new hegemon or hegemons?

[Serena Yang]

In contrast to the actual Treaty of Versailles in 1919, which he foresaw as having disastrous consequences, Keynes came up with his own plan for leading the world back to pre-WWI conditions of economic prosperity and political stability. Two of the problems with the peace treaty that Keynes tackles are that of German reparations and of inter-ally indebtedness.

With the former, Keynes argues that the German reparations should be made within their means to pay so as to prevent any tension between countries and to foster a more optimistic look for future international relations. So instead of cutting off the German economy at its knees (siphoning off capital, seizing land, etc.), it would be best to support them and then take reparations, so that more money could be accumulated for the victors of WWI. As to the issue of inter-ally indebtedness, Keynes thinks that canceling all debts would be the best solution, but barring that, he advocates “a reconstruction loan from America to Europe, conditioned, however, on Europe’s putting her own house in order” (p. 55).

These two problems, reparations and indebtedness, and the failure to properly deal with them as Keynes proposed, were critical factors to the depression of the 1930s and even to WWII. On a sort of tangent, as Glory has mentioned, Keynes advocated an entity similar to that of the World Bank, but he also predicted the Marshall Plan as it was instituted after WWII (the reconstruction loan he proposed in 1919). So in many ways Keynes’ thoughts and theories, while ignored in the aftermath of WWI, were taken very much into consideration after WWII, and the post-WWII world recovered much better than the post-WWI world.

[Kenichiro Nakahara]

John Maynard Keynes, born in Britain was brought up believing the classical economic theorists before his time (like Adam Smith) on free trade, cultural uplift and so much more. However, during and after WW1, he finds himself working for a British government which in his opinion, is heading towards “complete disaster” and exactly as he suspected, the world hits an economic crisis in the 20s.

Since then, all of Keynes ideas are the ones we know today as “Keynesian Economics”. From my knowledge, he is one of the only (possibly the ONLY) theorists who has an economic theory named after him and that explains his status and how revolutionary his ideas were. Right after the First World War, in Versailles, the unfair treaty against Germany was made and this was the moment that Keynes felt that some drastic changes were in need.

While nobody in the world believed him back then, most of his theories are carried on even in today’s society. First, his mission to promote fiscal and monetary measures and public spending to promote the growth of the economy has been accomplished in the example of the United States and the success it has achieved. Second, the state needs to be involved in the policies so that the individuals do not gain too much power in say “investment” and “savings”. This part of his mission seems to have been accomplished as well besides for the fact that with the rapid growth of capitalism, individual wealth (investments and savings) in the United States has skyrocketed probably above what Keynes ever predicted.

One thing we must not forget is that Keynes was not anti-capitalist but what he believed was that by states and organizations taking charge of policies to economic growth; it would bring a much more efficient wealth to the society as a whole. Also, he felt that besides economics, the social aspect and organizations are very crucial to the advancement of societal wealth. The gap that seemed to be opening up between the state and the individual worried Keynes and he felt that this had to stay under control. He refers back to the economic crisis the world faced after they had charged Germany harshly where the countries instead of hitting Germany with hatred, should have looked at things with long term vision. If there been an international organization back then who had listened to him and his “mission accomplishing standards”, maybe the world wouldn’t have had to face that dreadful economic crisis in the beginning of the 20th century.