Keynes's Public Policy Agenda

Keynes’s Public Policy Agenda

Throughout the inter-war years, Keynes's public policy agenda varied both as a result of the changes wrought in his analytical apparatus and the fluctuating international economic position. This agenda became more stable after the publication of the General Theory and its important supplement, How to Pay For the War. The wartime discussions of post-war economic policy, in which Keynes took a major part, were carried out within an essentially Keynesian framework in which his macroeconomic modelling together with its statistical complement, national income accounting, became increasingly influential (CW XXVIIpassim). I have based my analysis on what may be described as Keynes's 'final position' - for the evolution of Keynes's earlier views, see, of course, Clarke (1990).

There are several restatements of his Weltanschauung, usually appearing as incidental remarks in Treasury memoranda. A good example is contained in a passage commenting on a draft report of the Steering Committee on post-war employment in which he sides with Lionel Robbins against attempts to develop major controls over industry:

for those who believe that it will be the role of this country to develop a middle way of economic life which will preserve the liberty, the initiative and (what we are rich in) the idiosyncracy of the individual in a framework serving the public good, and seeking equality of contentment amongst all, Professor Robbins's admonitions go to the heart of things. (CW XXVII369)
'Equality of contentment for all' is a resounding phrase, but how is this form of equality to be attained? This was clearly a long-term objective, but Keynes did not believe that it required some grandiose blueprint for society. The first consideration was 'to maintain a steady level of employment and thus to prevent fluctuations' (CWXXVII323). The associated policy measure was control over total investment. The bulk of investment - Keynes varies his estimate between one-half and two-thirds - should be carried out or be influenced by public or semi-public bodies. He was clearly less impressed with anti-cyclical measures that were designed to influence consumption spending, at least as a short-term measure, on the now familiar grounds that spending habits change slowly. While it would be fascinating to reconstruct the macroeconomic model which would throw light on his preferred policy measures and to lay these alongside James Meade's views, which Keynes much admired, the point at issue in his contribution is that no liberalist inhibitions held Keynes back from a proposal which clearly entailed much more public intervention than one which relied on influencing private consumption through taxation. However, one cannot be sure that Keynes regarded global investment control as a permanent fixture. He agreed with Hubert Henderson that a saturation point might be reached in investment when the direction of policy might have to change and move towards 'increasing the scale of consumption or (alternatively) of leisure'. In other words, the long-term economic threat to mustering the resources to produce equal contentment for all was still likely to be underemployment of resources. Keynes alleged that 'short-termism' applied not to the goals he chose for society but to the need for constant adaptation of policy measures to keep on the right path. To change the metaphor: the choice of haven had been taken, but to keep the ship of state moving towards it needed frequent changes in the instructions to the engine room and to the quartermaster at the wheel.

The emphasis on long-term stability as the clue to securing the economic base of Keynes's good society also entailed taking a view of international trade and industrial policy. I have nothing very much to add to what is now so well known. Keynes's own efforts to promote international economic stability were matched by a strong belief that Britain's long-term economic future depended on free international trade (see the famous Economic Journal article of 1946 -his last academic contribution). Protection was not entirely ruled out and there is a pre-echo of the left-wing Keynesian view that tariffs and subsidies could be used as devices to protect employment levels (see CW XVIIpassim), but the difference between Keynes and his left-wing intellectual descendants clearly lies in his view that protection should only be used to cope with the difficulties of transition from a war economy or if there were a complete breakdown in international economic co-operation - see Wilson, 1982. In the case of industrial policy, Keynes was a lifelong opponent of the capture of the 'commanding heights of the economy' by government and latterly of selective intervention in industry. For example, in his many exchanges with Hubert Henderson, he picks on a quotation from the former which 'embodies much wisdom' (CWXVII324):

Opponents of Socialism are on strong grounds when they argue that the State would be unlikely in practice to run complicated industries more efficiently than they are run at present. Socialists are on strong ground when they argue that reliance on supply and demand, and the forces of market competition, as the mainspring of our economic system, produces most unsatisfactory results. Might we not find a modus Vivendi for the next decade or so in an arrangement under which the State would fill the vacant post of entrepreneur-in-chief, while not interfering with the ownership or management of particular businesses, or rather only doing so on the merits of the case and not at the behests of dogma?

I previously observed (in Section IJJ above) that 'the second problem' encountered in defining the practical content of liberal policy concerned income and wealth distribution. Could there not be a close link between 'equality of contentment' and the redistribution of command over resources? It is here that it may seem the easy way out on my part to confine attention to Keynes's final thoughts on this question. If I do, then the answer that Keynes appears to give - 'appears' because there is much that is not clear in his observations - is certainly that the link implied that a sine qua non for achieving the goal must be that all should enjoy the fruits of economic advance. For example, Keynes studied the Beveridge Plan in detail, not only supporting its purpose including the precondition of establishing a National Health Service, but also proclaiming its financial viability. His draft speech to the House of Lords on this subject was yet another document emphasizing that to make a bogey of the economic problem is.... grievously to misunderstand the nature of the tasks ahead of us. ... The real problems of the future are first of all the maintenance of peace, of international co-operation and amity, and beyond that the profound moral and social problems of how to organise material abundance to yield up the fruits of a good life. (CW XXVII260-1)

By 1944, there is not much more to his egalitarianism than commitment to the Beveridge Plan, an element of redistribution involved in financing it (but with due regard to the effects of taxation on incentives) and a capital levy as a once-and-for-all measure to penalize those who had made large capital gains in wartime and to help finance post-war credits. (Keynes credited Hayek with this last proposal!) The capital levy might pave the way for a permanent capital tax 'which would be a valuable addition to our fiscal machinery and has certain important advantages over income tax' (CW IX 407). After his death a memorandum to the Treasury on the 1946 Budget was found with some post-Budget reflections. A 'Capital Tax half per cent' is on his list of proposed direct taxes, which hardly suggests some swingeing egalitarian measure.

Although earlier statements of Keynes, notably on the 'euthanasia of the rentier', might support Fitzgibbons's contention that '[t]hose who deny that Keynes was an equalitarian have a far harder case to prove', I cannot accept that it is necessary to seek to prove that case by having to argue that Keynes did not mean what he said. The problem is that, whereas one can accept that Keynes was in favour of a much more equitable distribution of income and wealth in the long run, for this would be a necessary condition for 'equality of contentment', there seems to be a notable reluctance on his part to use the power of the state to move towards this condition by draconian measures. The prospect of economic abundance in the long run, coupled with an investment glut, would be sufficient to relieve a large proportion of the working population from economic necessity and alter the relative shares of labour and capital as the return on capital moved to zero. In technical language, Keynes looked forward to a world in which the factor, pre-tax, distribution of income would become more equal, rather than one in which distributional objectives would be reflected in the post-tax (disposable) income distribution engineered by government. Keynes meant what he said, but, on this issue, he did not say a great deal.

As we have indicated, 'equality of contentment' meant something more to Keynes than a vast improvement in the standard of living of all, as conventionally measured by, say, income per head. Whereas it is a basic tenet of libertarians, if not liberals, that preference scales of individuals cannot and ought not to be ranked, Keynes saw the removal of economic necessity as an opportunity for all to enjoy the cultural benefits which had been handed to him on a plate.

In 'earlier writing', that is before the 1940s, Keynes, having assumed that the economic problem of the ordinary person would be largely solved, asks the question 'how to occupy the leisure, which science and compound interest will have won for him, to live wisely, agreeably and well' (CWIX 328). In answering this question, interest centres on what the role of the state would be in achieving this ideal position. Keynes at this stage (1930) does not provide an answer. Rather does he suggest that there is a prospect that the solution of the economic problem would release man from the bondage of instincts and impulses associated solely with money-making. The very realization that the problem has been solved would itself initiate the desired change:

when the accumulation of wealth is no longer of high social importance, there will be changes in the code of morals. We shall be able to rid ourselves of many pseudo-moral principles which have hagridden us for two hundred years, by which we exalted some of the most distasteful of human qualities into the position of the highest virtues. We shall be able to afford to dare to assess the money-motive at its true value. (CWIX 328)

... and there is much more of this expressed in equally eloquent terms.

In the field of the arts, at least, Keynes became deeply involved in later life with giving the move towards his cultural nirvana a push in what he saw as the right direction. Apart from his personal aesthetic interests and financial support for all kinds of artistic enterprises, it is extraordinary that he had the time and energy in wartime not only to preside over the foundation of the Arts Council, but to define on what terms government money should be given to artistic enterprises. First, he defines the task of any official body as 'not to teach or to censor, but to give courage, confidence and opportunity' to artistic enterprises, clearly with the aim, as he applied it to broadcasting, 'of enlarging the desires of the listener and his capacity for enjoyment' (CW XXVIII 368). Second, he saw the main constraint on the promotion of the arts as the lack of buildings. The restoration of buildings would both enhance the physical environment and provide suitable venues - see Mary Glasgow, 1975, on which this account of Keynes's views is largely based. He was implacably opposed to the public provision of artistic performances, preferring to back established companies against loss or to offer loans. He is reported to have said that if a subsidizing body were 100 per cent successful it would end up spending nothing at all, except on administration. It would choose so well and back such uniformly certain winners that all its loans would be repaid in full and none of its guarantees ever called. As chairman of CEMA (the predecessor of the Arts Council) he expressed his likes and dislikes and followed them through into the composition of funding, rather in contradiction to his public expression of a 'hands-off approach towards artistic endeavours. It is possible to be dismissive of these efforts, for, alongside the traditional common functions of the state, expenditure on the arts is small beer. However, it is reasonable to suppose that Keynes saw himself as setting an example for other rich lovers of the arts to follow, encouraged by tax reliefs as an alternative method of state support (see CWXXVIII361).