T he sound of guns from the advancing German armies could be heard clearly by John Maynard Keynes as his train trundled across northern France in the spring of 1918. The evidence of the struggle on the western front was everywhere but Keynes, then a Treasury official, was not heading to Paris on war business; he was off to buy some art.
Keynes made the risky trip to attend an auction of the studio of Edgar Degas, who had died the previous year. The man who would become the foremost economist of the 20th century returned to London with some impressionist treasures for the National Gallery, having successfully petitioned the chancellor of the exchequer to spend £20,000 at the sale.
This story reveals much about Keynes. His skill in lobbying officialdom for funds at a time when the country was involved in a costly war. His love of art, which culminated in him being instrumental in setting up the Arts Council. His conviction that economics mattered less than the good things in life.
All of which makes the title of James Graham’s new play about Keynes, The Standard of Living, wholly appropriate. Keynes pored over statistics but was much more than a number cruncher. He had firm views about why the economy was malfunctioning in the 1920s and 1930s, but was just as interested in discussing philosophy with Bertrand Russell and Ludwig Wittgenstein. He believed a growing economy should provide the opportunity for more leisure time rather than the accumulation of monetary wealth. He revolutionised economics without having a revolutionary bone in his body.
Born into a well-off academic family, Keynes went to Eton before studying maths at Cambridge. His circle of friends after university was the Bloomsbury Group, painters and writers who included Virginia Woolf, and two of his lovers, Lytton Strachey and Duncan Grant. This was a group that prided itself on being unconventional, on not accepting the status quo.
Bloomsbury helped satisfy Keynes’s cultural needs but also helped shape his economic thinking. He did not see growth as an end in itself but rather as a means to live the good life or – as he put it – to live like the “lilies in the field”. In Economic Possibilities for Our Grandchildren he foresaw a time when the economic problem had been solved, when the working week would be considerably shorter and “when the accumulation of wealth was no longer of high social importance”.
His willingness to challenge the orthodoxy was demonstrated in an early book, The Economic Consequences of the Peace, which correctly predicted that the punitive terms imposed by the treaty of Versailles in 1919 would result in a humiliated Germany remaining bitter and vengeful.
To the surprise of his Bloomsbury friends, Keynes later fell in love with a Russian ballet dancer, Lydia Lopokova, and the couple married in 1925 when he was 42. While forthright and confident when expressing his opinions, Keynes was self-conscious about his appearance, considering himself repulsive. Others agreed. Virginia Woolf once described him as like “a gorged seal, double chin, ledge of red lip, little eyes, sensual, brutal, unimaginative”.
One of the central themes of the play is the battle of ideas between Keynes and the Austrian economist Friedrich Hayek. The latter believed that left to their own devices, free markets provided the best economic outcomes and that over the long term crises would be resolved without the need for state intervention.
Keynes took the opposite view, summed up by perhaps his most famous quote: “In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.”
By this he meant that the economy had no natural tendency towards full employment. Rather, high unemployment could last indefinitely unless the government was prepared to step in and stimulate demand. This argument formed the centrepiece of his most famous book, The General Theory of Employment, Interest and Money. The General Theory, as it is commonly known, challenged conventional economic thinking and had a profound influence on policymakers in the decades after the second world war, when it was seen as the responsibility of governments to manage demand to secure full employment.
Keynes saw the many flaws in the capitalist system but was no Marxist. As an unashamed elitist, he saw it as his mission to save capitalism from itself, if only because he saw it as the best way to safeguard civilised values. “He is contemptuous of common men, especially when gathered together in herds,” the social reformer Beatrice Webb once observed. “He dislikes the human herd and has no desire to enlist the human herd on his side.”
Unsurprisingly, the hard left have their suspicions about Keynes. As his biographer Robert Skidelsky wrote: “Marxists have long argued that Keynes’s ideas were taken up because they served the interests of the bourgeoisie in the 1930s and were dropped when they started to endanger capitalist profits in the 1970s.”
It is certainly true that Keynes and his ideas fell out of fashion by the mid-1970s, a period when western economies were afflicted by rising inflation and weak growth at the same time. Postwar Keynesian economists were baffled by the appearance of high inflation and high unemployment at the same time, and the new right – spearheaded politically by Margaret Thatcher and Ronald Reagan – emerged victorious from this era of “stagflation”. Inspired by Hayek’s ideas, it set about dismantling the postwar settlement based on full employment, state ownership, strong trade unions and generous welfare spending.
The 2008 global financial crisis saw the new right model come to grief. A belief that markets could never be wrong meant the dangers of excessive speculation were ignored and ultimately left the global banking system teetering on the point of collapse. For the first time since the 1930s there was a real risk of a full-scale depression and in those circumstances policymakers dusted down their copies of The General Theory in the search for a response.
Keynes would have sensed a financial crisis was coming. He speculated on the financial markets, not always successfully. In 1920, he created what would be today called a heavily leveraged hedge fund using money provided by his Bloomsbury friends – taking bets on currency movements – only to see his syndicate’s capital wiped out when the pound unexpectedly fell.
Even so, he was aware of the risks. “Speculators may do no harm as bubbles on a steady stream of enterprise,” he said. “But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes the byproduct of the activities of a casino, the job is likely to be ill done.”
Today, Keynes and Hayek are still revered by their followers on the political left and right respectively. Yet, the past two decades have showed the enduring nature of Keynes’s insights, first in 2008 and then during the global pandemic of 2020.
Faced with a crisis, belief in free markets goes out of the window as governments use every policy tool at their disposal to boost growth and prevent unemployment from rising. Or as the arch-critic of Keynes – the Nobel prize-winning economist Robert Lucas – put it in 2008: “I guess everyone is a Keynesian in a foxhole.”
The Standard of Living is at Theatre Royal Haymarket, London, until 12 December.
