Do you hear that? It’s the sound of the money printer whirring — trillions of dollars getting pumped into a collapsing economy, making the bailouts following the 2008 financial crisis look like small change.
The Price of Peace, Zachary D Carter’s outstanding new intellectual biography of John Maynard Keynes, offers a resonant guide to our current moment, even if he finished writing it in the time before Covid-19. It’s rare for a 600-page economic history to move swiftly along currents of lucidity and wit, and this happens to be one of them. (Mr Carter pays tribute to Robert Skidelsky’s three-volume biography of Keynes in the acknowledgments.) Mr Carter begins with a love story, and ends with an elegant explanation of a credit default swap; even readers without a background in high finance will learn how to appreciate the drama of both.
Mr Carter situates the development of Keynes’s economic thought in relation to his social milieu. Keynes, born in 1883, came of age amid the bohemian experimentation of the Bloomsbury Group, exchanging lovers and gossip with a set that included Virginia Woolf and Lytton Strachey. The Bloomsberries could be at turns backbiting, encouraging, critical and adulatory; their “radical and subversive code of conduct,” coupled with a refined taste for the good life, shaped Keynes’s approach to economic questions. He was trained as a mathematician, but unlike more doctrinaire economists, he viewed markets as social phenomena. Those who studied economics, he insisted, should be curious and intellectually nimble, with an abiding interest in human psychology and ethical questions.
At the end of World War I, as an emissary from the British Treasury at the Paris peace conference, he argued vehemently against trying to wrest crippling reparations payments from Germany. His argument was both moral and pragmatic. “If Germany is to be milked,” he patiently explained to his colleagues, “she must not first of all be ruined.”
But Germany was ruined, and Keynes’s fears were borne out. Demagogues thrived on festering resentments. The Economic Consequences of the Peace, Keynes’s compact and devastating attack on the Treaty of Versailles, quickly became an international best seller when it was published in 1919, though the full extent of its import and prescience would be revealed only in time. More immediate — and undeniably delicious — was its scathing invective (another Bloomsbury influence). Keynes famously likened President Woodrow Wilson to a “blind and deaf Don Quixote,” and was hardly gentler on his own prime minister. David Lloyd George, Keynes wrote (in lines that were excised from later editions), was a “vampire” who was “rooted in nothing.”
Keynes would spend the next decade living it up, speculating on foreign currencies, hunting foxes and throwing dinner parties, meeting the Russian ballerina who would eventually become his wife. He also started developing his ideas about monetarism, explaining how governments could cultivate economic growth and stability by managing the money supply.
Mr Carter’s explications of macroeconomic theory are so seamlessly woven into his narrative that they’re almost imperceptible; you only notice how substantive they are once you get to his chapter on Keynes’s notoriously dense 1936 book, The General Theory of Employment, Interest and Money, and realise that you’re riveted by a passage on fluctuations in liquidity preference because you somehow know exactly what it is that Mr Carter is talking about.
The General Theory aside, the rough outline of the Keynes story is that nobody with any power listened to his visionary proposals before the crisis of the Depression hit; after that, almost everyone did. Keynes’s ideas were radical, Mr Carter writes, but he was staunchly anti-revolutionary: Having been traumatised by World War I, Keynes was at pains to persuade some of his Marxist students at Cambridge that a more just and equitable society didn’t have to come at the point of a gun. An activist government and deficit spending could alleviate suffering and spur growth, he reasoned, and the world eventually obliged. As much as Franklin Roosevelt didn’t like running a deficit, his New Deal offered one version of how Keynesianism worked; World War II offered another.
Mr Carter’s protagonist dies about two-thirds of the way through The Price of Peace, on Easter Sunday in 1946, but the narrative keeps going. In the postwar years, Keynesianism settled into its perch as the new economic orthodoxy in the United States. Mr Carter traces the splintering of Keynes’s intellectual legacy and the neoliberal backlash of Joseph Schumpeter and Friedrich Hayek. Both Keynesians and neoliberals claimed that their theories were bulwarks against authoritarianism, but neither side could claim the moral high ground by the mid-1970s. Neoliberals like Milton Friedman were advising the Pinochet military dictatorship in Chile, while successive American administrations resorted to Keynesian fiscal manoeuvres to fund the prolonged bloodshed of the Vietnam War.
Keynes’s tools proved to be too useful, especially when paying for a forever war or a bank bailout. Mr Carter argues that what’s been largely missing is an overarching sense of purpose, a vision of the good life. He faults Presidents Clinton and Obama for squandering their chance to figure out what that might be in a futile bid to appease the right. As this brilliantly incisive book shows, being fair and judicious doesn’t necessarily mean trying to reconcile all sides.
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