Was Keynes a Liberal?

Was Keynes A Liberal? a Partial Answer to a Difficult Question

Behind the ontological assumption of liberalism, as I have described it above, are two important propositions about the human condition. The first is that the characteristic of self-interest in individuals, which can embrace concern for the interests of others, is independent of time and place. This has become the cornerstone of public choice theory, clearly illustrated in its now-famous economic analysis of bureaucracy which denies that civil servants follow 'higher ideals' than the mean, sensual men who are subject to their regulation. The second is that human beings will always be faced with the dilemma of choice, namely that there is a cost attached to any decision to use resources to promote their individual interests — the alternatives foregone; and one should add that whereas individuals may learn from their mistakes in the course of making decisions, this does not reduce the importance of the unknowability of the future - for a penetrating account of this view and an associated critique of Marshallian economics, see Wiseman, 1989.

Keynes's views seem to deny both propositions. The 'opportunity cost' problem which forces us to make 'tragic choices' would be solved by rapid economic advance. That advance would itself bring about a transformation in human nature. This sounds more like the utterances of Utopian socialists looking forward to the day when, with the end of capitalism, 'roast pigeons would fall from heaven into the mouths of the comrades' (von Mises) and the perfectibility of man would be complete. However, a fundamental difference remains between the Keynesian and socialist ideals and in this difference lies the origin of Joan Robinson's aphorism: '[Keynes] thought that when people could understand his theory, could understand how the capitalistic system actually works, they would then behave in a reasonable manner and operate the system in such a way as to produce favourable results ...' (Kahn, 1984, p. 203).

Why should it make any difference to Keynes's position on the functions of the state if he did hold views on human nature and the constraints on human action different from those of latter-day liberals? That question cannot be answered without considering the ethical principle underlying individualism, that the individual is the best judge of his or her welfare. If that principle is accepted, the individual is not obliged to accept any moral imperative, other than that of respecting the interests of others and the resolution of conflicts of interest through an agreed set of rules. If alongside this ethical principle it is held that human beings would always be characterized by what David Hume called 'narrowness of soul' and if resource constraints remained, Keynes's dream would appear to be neither desirable nor possible, unless the power of ideas was so strong that people could be persuaded to change their ways, and provided that, in the interim, they could trust governments to act in accordance with such ideas.

The debate between Keynes and latter-day liberals of the public choice school could be settled, in principle at least, by empirical investigation - in fifty years or so! In this connection, it must be recalled that Keynes entered the caveat that his argument depends on the absence of wars between progressive countries and on there being no population explosion. So far, if we extend Keynes's remit to large industrial countries which have experienced a major increase in their standards of living, it would seem a vain hope to place reliance on a moral transformation which would remove these barriers to progress. Keynes seemed to have a touching faith in the idea that the spread of gracious living and cultural refinement would remove all economic and social conflicts.

The contractarian liberals, as we have se,en, place great weight on developing institutions which both support equality of political rights and at the same time direct the employment of these rights towards political support for limited government. No evolution in morals is presupposed, though there must be general acceptance of the constitutional rules of the game. Keynes's position is very different. First one must be sure of one's moral position. As an intelligent person with a conscience one must use all one's power of persuasion to convince as many as possible that this position is right. Finally, the widespread acceptance of the moral position reduces the necessity for being concerned about the precise content of constitutional arrangements. Indeed, one could go further and envisage a situation where self-regulation could supplement government measures. Large corporations would develop a moral conscience and be governed by ethical precepts which would induce them to follow an investment policy which would maximize employment; and individuals could adjust their propensity to save in accordance with the same objective. Here I find Skidelsky's argument instructive, though I am worried by its implications: '[Keynes] means by the state that sector of the polity not working for private self-interest, but for the public good' (Skidelsky, 1988, p. 18). Does Keynes really mean that private self-interest and the public good are antithetic? I prefer an interpretation in which the Keynesian nirvana is one where it is recognized that 'equality of contentment' is not simply what some would prescribe for others but what everyone will perceive as in his or her own interest to embrace.

The most fascinating evidence of Keynes's position is to be found in the well-known letter to Hayek on reading The Road to Serfdom (see CW XXVII 385 et seq.). Keynes writes that 'morally and philosophically I find myself in agreement with virtually the whole of it; and not only in agreement with it, but in a deeply moved agreement'. But having agreed with Hayek on the prime importance of individual liberty and the rule of law, he rejects the notion that 'so soon as one moves an inch in the planned direction you are necessarily launched on the slippery path which will lead you in due course over the precipice'. Keynes maintains that what is needed is not 'no planning' but 'moderate planning', presumably in order to avoid underemployment equilibrium, '[b]ut the planning should take place in a community in which as many people as possible, both leaders and followers, wholly share your own moral position. Moderate planning will be safe if those carrying it out are rightly orientated in their own minds and hearts to the moral issue.'

I have offered sufficient evidence already to indicate that, to the extent that Keynes turned his mind to the other questions of importance - distribution of income and wealth, international economic co-operation to ensure a high level of employment and free international trade, and selective intervention in the economy - there is little to distinguish his position from that of, say, Lionel Robbins or James Meade, both of whom have vigorously defended him from the charge of being a prisoner of collectivism - see, particularly, Robbins, 1971.

It is nevertheless no wonder that contractarian liberals regard Keynes's end-state liberalism as naive. The best evidence of this lies in the remarkable growth in the relative importance of government in the economy since the Second World War, which has been principally a function of the growth in social security transfers and social services coupled with growing centralized control of government. It is simply unreasonable to claim that this growth in government is the logical consequence of Keynes's views on the functions of government, as distinct from those of his followers. Also, the pattern of government income and expenditure presupposed by Keynes's measures would have had to be very different. So much for the triumph of ideas which would enlighten politicians about their tasks and convince the public to support them. The meaning of the famous last sentence of the General Theory (CWXVII384) should be stood on its head, for all the evidence displayed in the transactions of government supports the thesis that vested interests triumph over ideas. If a man of Keynes's intelligence and perspicacity had spent a bit more time considering the political presuppositions behind his ideas, he would have discovered this for himself. Regrettably, the major influences on his life, notably the patrician stance of his intellectual generation, his remarkable powers of persuasion among his academic and government colleagues, perhaps also the lack of experience of material hardship, deluded him into believing that political structure and organization were not matters which any sensible person would regard as particularly important and, to the extent that it was in place, it could be and should be easily set aside by enlightened administrators advised by persons like himself. At least this is the conventional wisdom amongst contractarian liberals.

No one is obliged to answer the question which Keynes posed to himself solely by reference to the austere propositions of contractarian liberals, but I am prepared to argue that even within the framework set by their propositions, their judgment of Keynes contains methodological faults. These faults are of such a nature that they prevent anyone giving a complete answer to Keynes's question. In the first place, whereas contractarian liberals share similar values about the importance of constitutional procedures and argue, convincingly in my view, that limited government must be a precondition for preserving individual liberty, that is not to say that they agree in detail about the precise role of the state. Wicksell, the father of public choice theory, paid close attention to the development of voting rules which would maximize individual choice, but he hoped that the result would be strong public support for provision of government services to improve human capital formation and to protect workers from the risks of old age, accident and ill health - see Uhr, 1962. Wicksell believed that these services could be provided without a major expansion in the relative size of government, because 'true' expression of voter preference would result in a shift away from military towards social expenditures while, simultaneously, investment in human capital by government would contribute so effectively towards increasing national income that the government expenditure/national income ratio would not increase. As we have seen, there has always been argument among liberals about the position of 'welfare state' activities in their political philosophy, but what is more interesting here is that no public choice theorist, so far as I am aware, has ever criticized Wicksell's perception of the proper functions of the state. Why then pick on Keynes?


John Gray, certainly a strong believer in limited government, has emphasized that a stable political order requires not only wide diffusion of wealth and equality of opportunity, but also 'a matrix of cultural traditions which is at once legitimate and finds expression in it' (1989, p. 74). The problem is how to ensure that the components of a liberal society are put in place without destroying liberty in the process. In the case of preserving cultural heritage, for example, Gray argues the case for using tax relief on cultural expenditures rather than direct subsidies, exactly as Keynes did just before he died.

In the second place, 'we are all creatures of our time'. No doubt Wicksell could be defended on the grounds that he was fighting for the fundamental right of universal suffrage and for the removal of the ban on dissemination of birth control information, both measures which would redistribute power to the working classes in a legitimate fashion. However, if that defence were offered for Wicksell as a.contractarian liberal, it could equally well be offered for Keynes as an end-state liberal. After all, Keynes refused to embrace collectivist planning as a solution to his country's problems at a time when many influential and educated persons were turning their backs on the market economy, particularly those with aesthetic interests which he shared.

Lastly, Keynes was 62 when he died - for me that is young! It is clearly fallacious to assume that policies leading to expansion in the public sector's role and often done in his name would therefore have had his approval - see, further, Hutchison, 1981, Chapter 4. Conjectural history is likewise method­ologically suspect, but there is at least some evidence in his last writings that Keynes disapproved strongly of the autarkic policies which were being developed in the immediate postwar period.

My answer must be this. Keynes's liberal dispositions cannot be in doubt. However wrong he may have been about the evolution of morals and the economy, and however unfair he may have been to Classical economics, to regard him as the betrayer of classical liberalism is a charge which cannot stick.