The Last Chapter on Keynes

By George P. Brockway, originally published June 29, 1992

1992-6-29 The Last Chapter on Keynes Title

ONE OF THE saddest pieces in modern literature is the last chapter of John Maynard KeynesThe General Theory of Employment, Interest and Money. It was not meant to be sad. It was written in exultation by a man of 52 at the height of his powers. He had been editor of the Economic Journal, the most prestigious publication in his field, for 25 years. He was the author of several influential political pamphlets and four major books, one of them an international best-seller, another a ground-breaking two-volume Treatise on Money. He was active and known and listened to in Cambridge, Manchester, Whitehall, and the City of London.

As he wrote the final chapter, he could look back with satisfaction on five years of hard work on a book he was frank to say he expected would change the world. The people with whom he had discussed his ideas and to whom he had submitted proofs of the work in progress encouraged him in that expectation, though he scarcely needed encouragement. He was self-confident to the brink of arrogance. At the same time, he had a saving wit (those who felt its occasional sting were not so sure it was “saving”) that was often turned toward himself. How else can we interpret the title he gave his great book? The General Theory, indeed! Did he rank himself with Einstein? Of course he did. Did he find it amusing that he should be so pushy? Yes, that too.

The heart of the whole work is in the last chapter’s first sentence: “The outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes.” I can only think that most economists reading that sentence have shrugged as they shrug when, let us say, a politician makes obligatory declarations in favor of school and family – two institutions everyone believes in and no one proposes to do anything substantial about. Then they probably have skimmed lightly to the famous peroration concerning “ideas, not vested interests, which are dangerous for good or evil,” and have returned contentedly to the construction and deconstruction of their mathematical models.

Keynes, however, intended his ideas to be “dangerous for good.” The economy’s faults were dangerous for evil” – not inconvenience, but evil. The economy would not work properly unless they were corrected. Every aspect of The General Theory depended upon and was directed toward that correction. Few noticed.

At a crucial point in Chapter 6 Keynes shows the fallacy of the classical theory that saving drives the economy. He writes: “Saving, in fact, is a mere residual.” At the end of the chapter he announces that” the conception of the propensity to consume will, in what follows, take the place of the propensity or disposition to save.”

Okay, say mathematically trained economists, wherever S appears in our equations we’ll substitute C. But they pay no attention to the distribution of incomes. Indeed, their procedure is one of deduction from axioms, with all reference to actual situations rigorously excluded. The result is confusion.

In the modern economy of mass production, while it may not make much difference who does the saving, it makes all the difference in the world who does the consuming. Affairs might be so badly skewed that only one person did all the saving, and the system could creak along reasonably well. But the system would not work if one person did all the consuming (a manifest absurdity); and it will not work very well when 20 percent of the people do a mere 4.3 percent of the consuming (which is the way we try to run things in the United States today [in 1992]).

In a mass-production economy, consumption is a chore that cannot be delegated. A feudal economy can do everything it has to do when one-tenth of 1 per cent of the people dine on pate of reindeer tongue, and 99.9 per cent get along on carrot soup. A modern economy falters whenever a sizable percentage of the population is denied its output. If the output isn’t fully consumed, there is no point in producing so much; and if there is no point in producing so much, there is no point in employing so many people, whereupon things start to unravel – rather, many things are not knitted up in the first place.

In talking about “arbitrary and inequitable distribution of wealth and incomes,” Keynes wasn’t ritualistically endorsing motherhood; he was pointing to the heart of the problem. This was so obvious that he didn’t think it needed much emphasis. The solutions, too, were obvious, and a few of them had been in partial use: nearly confiscatory death duties, steeply progressive income taxes, possibly a cap on incomes. What would be necessary at a particular stage in a particular society might not be appropriate in another, One wouldn’t know until one tried. It is also very likely, as he wrote in a previous chapter, that “the duty of ordering the current volume of investment [to achieve full employment] cannot safely be left in private hands.” Again, one could not say in advance exactly how this should be organized.

Keynes taught himself probability theory, and wrote a fat book about it, to satisfy himself that, as regards the future, “We simply do not know.” Unfortunately, some of his most skeptical critics and some of his most enthusiastic supporters undertook to supply the unavailable knowledge. The result was what several generations of bemused undergraduates have learned to call the IS-LM curve, which is supposed to show “the simultaneous determination of equilibrium values of the interest rate and the level of national income as a result of conditions in the goods and money markets.” That’s what The MIT Dictionary of Modern Economics says; don’t look at me[1].

And don’t let it fret you. It’s all a game of let’s-pretend. But it distracted the economics profession from Keynes’ message and sent the majority off on a treasure hunt for equilibria to make graphs and journal articles of. (Physics, the source of the idea, equates equilibrium with entropy, or the end of change, a.k.a. death. But let that pass.)

KEYNES, TO BE sure, was not above trying to peer into the future himself. The peroration of The General Theory may even be taken as an example. I want to shift here, though to an essay he wrote six years earlier. It is called “Economic Possibilities for Our Grandchildren.” He advanced two propositions: First, the “economic problem” would be solved in about a hundred years, provided there were no major wars and the population did not expand too much. Second, the process would depend on the steady accumulation of capital, and that would come about by means of incentives then in force. “For at least another hundred years,” he wrote, “we must pretend to ourselves and to everyone that fair is foul and foul is fair; for foul is useful and fair is not. Avarice and usury and precaution must be our gods for a little while longer still. For only they can lead us out of the tunnel of economic necessity into daylight.”

The man who said, “In the long run we are all dead,” should have known that things seldom if ever work out as envisioned. Only 62 of his prophecy’s 100 years have run [in 1992.  84 years as of the day this is put on-line], and we certainly have not avoided major wars or population explosions. Nor have we seen recent signs of the sort of capital accumulation that Keynes expected to lead us into daylight. As for the interest rate, which he expected to trend steadily downward and effect “the euthanasia of the functionless investor,” it is (even at today’s supposedly low rates) higher than it ever was in his lifetime.

Two contemporaries, Bernard Shaw (whom he admired) and Lenin (whom he did not), had visions similar in form to his. In the Preface to Major Barbara, Shaw wrote “that the greatest of our evils, and the worst of our crimes is poverty, and that our first duty, to which every other consideration should be sacrificed, is not to be poor.” In the play proper, Cusins asks: “Excuse me: is there any place in your religion for honor, justice, truth, love, mercy, and so forth?” Undershaft replies: “Yes: they are the graces and luxuries of a rich, strong, and safe life.”

Lenin, foreseeing the establishment of the Communist state, wrote in The State and Revolution: “Capitalist culture has created large-scale production, factories, railways, the postal service, telephones, etc., and on this basis the great majority of the functions of the old ‘state power’ have become so simplified and can be reduced to such exceedingly simple operations of registration, filing, and checking that they can be quite easily performed by every literate person.”

These three visions all rely on a situation or change of one sort to effect a change of another. In each case, foul or death-dealing or self-serving motives are supposed to be led, one might almost say by an invisible hand, to lay the foundations of the good life. Assume the foundations at last to be laid. Why should the original motives cease to be effective? Why should men and women who have succeeded with “avarice, usury, and precaution” now abdicate? Undershaft obviously enjoys his religion of being a millionaire and his control of money and gunpowder. Why give it all up for “graces and luxuries” he already has? Even in the Lenin example, where the same people may be involved first and last, one wonders why self-serving bureaucrats become dedicated and efficient public servants (for surely that was Lenin’s expectation – and we have lived to see it disappointed).

More important, how can you and I and Keynes himself – understanding the difference – renounce the fair and embrace the foul? What an obscene pretense is asked of us!

Well, “Economic Possibilities for Our Grandchildren” is perhaps a playful aberration in Keynes. His steady theme elsewhere is that economics is one of the “moral sciences” (a phrase he no doubt learned from his Comtian father). His formal ethics was heavily influenced by the hedonism of G. E. Moore and thus was a far cry from that of, say, the American National Conference of Bishops – as both his and theirs are from mine. Yet he and I could have agreed with the bishops when they wrote, “Every economic decision and institution must be judged in the light of whether it protects or undermines the dignity of the human person.” (See ” Bishops Move Diagonally,” NL, March 23, 1987.)

Keynes’ initial disagreement with classical economics was that it denied the existence and even the possibility of involuntary unemployment. Today the economics profession either accepts a “natural” rate of unemployment, which may be as high as 6 or 7 per cent, or rejects the relevance of ethics altogether. The high road surveyed in The General Theory, and described in its last chapter, was not taken.

It might have been[2].

The New Leader

[1] The author also refers here to a college prank of his.  In his senior year he had a course taught by a professor with a never admitted to or publicly used nickname, “Birdy,” and whose ideas were generally thought little of.  On a final exam the author says he wrote a complete and accurate response as the professor would have wanted, no arguing with the professor, but his last sentence, which resulted in a trip to the dean, was “That’s what Birdie says; don’t look at me!”

[2] It might still be


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