The second volume of Robert Skidelsky’s remarkable biography of John Maynard Keynes opens in 1921 with Keynes in Cambridge reading an after-dinner speech at a meeting of the Apostles, the select society of Cambridge of which at age thirty-eight he was president. The speech describes the career of one of its members, J.E. Moulton, who had recently died. Moulton had been a brilliant mathematician and then Fellow of Christ’s Church, but he had forsaken scholarship to go in for money-making, at which he had been very successful. Keynes defends his actions as an exercise, not a betrayal, of his best abilities:

In the stir and bustle of the world, pitting his wits, at a price, against all comers, an honourable servant of those who employed him, exercising a variety of conjoined gifts in the quarters of phenomenal existence [Apostle slang for the affairs of the world]…Moulton may have come, as near as he was capable…to the satisfactions of the artist.

Keynes is ostensibly talking about Moulton, but, as Skidelsky writes,

It is easy to imagine that he is talking about himself—discussing, perhaps justifying, his life choices before the jury of his peers. He too had spent much of his early adulthood in the cloister, scribbling away on his theory of probability. As his father noted at the time, he had returned to Cambridge in 1908 to resume “a student’s life.” But as he worked on probability he came to realise that the achievements of a Moore or a Russell were beyond him. His inclinations and capacities were activist, not reclusive.

Keynes did indeed follow Moulton’s footsteps in becoming actively interested in money-making, but his early, highly speculative ventures were near-disasters. In May 1920 Keynes could have been forced into insolvency had not his family and his Bloomsbury friends stood behind him, convinced that in the end they would get their money back. They were right. By the end of the year his debts were paid off, and within two years Keynes was comfortably off with capital of between £25,000 and £30,000. His real financial success came later. In 1929, the value of his Wall Street holdings came to £7,815; by 1936 it had grown to £506,522. From D.E. Moggridge’s recent compendious biography1 we know, however, that Keynes was not a financial genius, although he occasionally wrote as if he thought he were: “As the fruit of a little extra knowledge and experience of a special kind, [money] simply (and undeservedly in any absolute sense) comes rolling in.” At its peak in 1936, his portfolio also carried loans of nearly £300,000, which exposed him to serious risk. The risk was realized in the collapse of 1937, when Keynes lost over half his capital. Nonetheless, by the mid 1940s, his assets had risen to over £400,000, worth easily twenty times that today.

I begin with Keynes the moneymaker, because, as Skidelsky emphasizes, it is hard to get at Keynes’s manysided personality and achievements; and money-making is not a bad perspective from which to begin. Keynes could never have led a cloistered academic life, not least because he could never have settled for the standard of living of an academic. His salary at Cambridge provided only a third of his income between 1930 and 1936; earnings from books or commissioned articles averaged roughly another third over his lifetime; and income from investments, directorships, and the like never provided less than 20 percent, and in some years of speculative success provided over 70 percent.

The point is not only that Keynes became rich. It was that worldliness was an important part of his life. Unlike most economists—David Ricardo is the only exception that comes to mind—Maynard Keynes kept closely in touch with the financial world. Nicholas Davenport, his stockbroker, thought that in his speculations Keynes was more interested in testing out his theories of probability than in using them to make more money. This intimate acquaintance with practices of finance helps to explain an aspect of virtually all of Keynes’s writings. It is the assumption that his economic readers will be as familiar with the catch-as-catch-can atmosphere of Lombard Street and Wall Street as with conventional economic theory. For example, in Chapter 11 of his masterwork The General Theory of Employment, Interest and Money, written during the early 1930s, he first describes the crucial process of making investment decisions from the viewpoint of economic theory, which depicts a businessman deciding rationally whether or not to invest in a project by comparing the expected returns from his investment with the cost of making it. In the next chapter, Keynes switches to the perspective of the business world where “business men play a mixed game of skill and chance, the average results of which to the players are not known by those who take a hand,” and from here he passes to the considerations that are likely to predominate on the floor of the exchange:


Professional investment may be likened to those newspaper competitions in which the competitors have to pick out the six prettiest faces from a hundred photographs, the prize being awarded to the competitor whose choice most nearly corresponds to the average preferences of the competitors as a whole; so that each competitor has to pick, not those faces which he himelf finds prettiest, but those which he thinks likeliest to catch the fancy of the other competitors, all of whom are looking at the problem from the same point of view.

A second theme in Keynes’s life is his relation to the Bloomsbury group from which he absorbed so many of his values. In a novel by Anthony Powell, Bloomsbury life is described as “highpitched voices adumbrating absolute values, rational states of mind, intellectual integrity, civilized personal relationships, significant form,” plus, I should add, more than a touch of self-regard: asked during World War I why he was not fighting for civilization, Lytton Strachey replied that he was the civilization for which they were fighting. Skidelsky goes on to say that “Lytton’s joke was Maynard’s belief.” Keynes spent much of his life fighting to defend the concept of civilization represented by Strachey, Duncan Grant, Vanessa Bell, and the rest of a group whose views, it should be noted, were about as far removed from those of Lombard Street or Wall Street as one could get.

The tension between the values of Bloomsbury and those of Lombard Street and Whitehall is reflected in Keynes’s abiding ambivalence toward capitalism in general and money in particular. In an essay, “Economic Possibilities for our Grandchildren,” first read to the Chameleon Club at Cambridge in 1928, he described the love of money as “a somewhat disgusting morbidity, one of the semi-criminal, semi-pathological propensities which one hands over with a shudder to specialists in mental diseases.” At the same time, Keynes thought that the money neurosis would cure itself through the success of capitalism, which by enriching people would prepare the way for their return to “sure and certain principles of religion and traditional virtue.” For the time being, however,

We must go on pretending that fair is foul and foul is fair; for foul is useful and fair is not. Avarice and usury and precaution must be our goods for a little longer still. For only they can lead us out of the tunnel of economic necessity into the daylight.

We find the same argument, somewhat less fancifully expressed, at the conclusion of The General Theory, where, after a lengthy analysis of the inherent tendencies of capitalism to generate lasting and socially disruptive periods of unemployment, Keynes ends on an unexpectedly sanguine note, As in his essay, he foresees a day in the presumably not-too-distant future in which the amount of capital would have grown so large that the earning capacity of any new investment would be very low. This would entail what Keynes called the “euthanasia of the rentier”—the end of a “functionless” class whose income represented the “scarcity-value” of capital—a prospect that Keynes describes as “moderately conservative in its implications,” insofar as it would be “nothing sudden, merely a gradual but prolonged continuation of what we have seen recently in Great Britain, and will need no revolution.”2

I need hardly say that Keynes’s outlook did not look so “moderately conservative” to those who turned the page to read that a capitalism in which capital had lost its scarcity value would require “a somewhat comprehensive socialisation of investment [as] the only means of securing an approximation to full employment.” Nor do I imagine that they were reassured by Keynes’s pronouncement that “beyond this no obvious case is made out for a system of State Socialism which would embrace most of the economic life of the community.”

In a very perceptive article, Roger Garrison has described this rather naive argument as “a lop-sided exercise in comparative economic systems,” in which Keynes is comparing capitalism-as-it-is with socialism-as-it-has-never-been.3 It is also, it seems to me, the manner in which Keynes sought to reconcile the moral promptings of Cambridge and Bloomsbury with the distressing conclusions to which his analytic intelligence drove him.

Skidelsky has much to say about Keynes’s love affair with and eventual marriage to Lydia Lopokova, a Diaghilev ballerina, whom he had met at the Sitwells in 1918, when he was thirty-five. Keynes had been a homosexual before he met Lydia, but he seems to have been charmed by her at first sight. She was, however, married and busy with the ballet, and nothing came of their meeting until a second encounter three years later, about which Keynes wrote to Vanessa Bell:

Loppy came to lunch last Sunday, and I again fell very much in love with her. She seems to me perfect in every way. One of her new charms is the most knowing and judicious use of English words. I am going to the ballet to-morrow, and am asking her to supper with me at the Savoy.

Supper lasted until 1 AM, and a love affair progressed with astonishing rapidity. To most of the Bloomsburyites, it was an amusing development; to Vanessa Bell an alarming one. “As for Loppi don’t marry her,” she wrote to Keynes. “However charming she may be, she’d be a very expensive wife…I think you’re in great danger.” However, before long there was a great reshuffling of living arrangements, with Lydia subletting a flat from the James Stracheys, Vanessa moving back into a flat that she had allowed Lydia to live in while she was herself in Paris, and Clive Bell—the most strongly opposed to the Lydia connection—going to live in Chelsea. Lydia herself soon thereafter went to stay at the Hotel St. Regis in Paris, where she was performing with the ballet. She and Maynard corresponded amorously:


King’s College, 5 June:

My dearest, darling L.

This is my birthday (41 years of age) and I have had a miele birthday present from you in getting three letters in one day…

Hotel San Regis, 8 June:

Oh I had a desire yesterday and today to become a rich woman again independently by my legs or comedy power; I saw so many old dancers, they are most poor or mad, “Life is difficult,” I sigh all over and lean on you.

King’s College, 8 June:

In my bath to-day I considered your virtues—how great they are. As usual I wondered how you could be so wise. You must have spent much time eating apples and talking to the serpent! But I also thought that you combined all ages,—a very old woman, matron, a debutante, a girl, a child, an infant; so that you are universal. What defence can you make against such praises?

Hotel San Regis, 10 June

Oh Maynard what you thought of me in a bath room on Sunday is something like wooing in absence, I am flattered and shy, and flattered again, I am not all you say, but I shall improve with time and eat more apples.

Keynes’s former lover Duncan Grant had written earlier to Vanessa that “Maynard’s marriage to Lydia is a grim fact to face.” They were married on August 4, 1925, and shortly thereafter moved into a country place they had bought at Tilton. We may imagine something of their life together from the letter Lydia wrote Keynes that November: “You do develop my cranium, miely Maynarochka, and I am so very glad that I live with you and I’m intimate with your little holes (also cells) your soul your breath and your kisses.L.”4


I have omitted at least two other themes that were important in Keynes’s life—his rise to political influence and his involvement with the Arts Theatre which he very generously endowed at Cambridge in 1935. He did not emerge as a major influence on Great Britain’s foreign economic policy until the Bretton Woods Conference following World War II, but that climactic event will not be covered until Skidelsky’s third volume. And although the Cambridge theatre was always a passionate concern of Keynes’s, it is not at all relevant to his central pursuit, of which we have nearly lost sight—the radical reformulation of economics.

This brings me finally to The General Theory of Employment, Interest and Money, Keynes’s main achievement in his role as the “saviour” of capitalism. The General Theory was the product of that unprecedented collapse of purchasing power we call the Great Depression, just as Keynes’s earlier Treatise on Money had been provoked by the much milder disturbances of the 1920s. A striking difference between the two was immediately apparent. The central concern of the Treatise was the cause and cure of changes in price levels, whereas the all-important question for the General Theory was the cause and cure of changes in the level of total output. In the Treatise the question of unemployment only hovers in the background; in the General Theory it occupies the center of the stage.

There was, as well, another difference, less immediately apparent but ultimately of deeper significance. The General Theory, in its entirety, was a direct attack on a central tenet of “classical” economic theory, whose vulnerability the Treatise did not explicitly recognize. The tenet was that a capitalist system, operating through an interlocked web of markets would, by its self-generated pressures, fully employ all its job-seeking labor, assuming only that government or some other arbitrary power, such as trade unions, did not hinder the free play of market prices. In The General Theory, Keynes not only denied that even the most fluid market system would necessarily reach this fully employed condition but further concluded that only by government intervention would a market system attain the full employment promised by conventional theory. This was tantamount to declaring existing economic theory to be the problem, not its solution. It is understandable that the first reaction of the economic establishment to the book was, as Skidelsky puts it, “not to attack Keynes’s arguments, but to attack him for putting at risk their discipline.”

At the core of Keynes’s rejection of existing theory was an emphasis on an aspect of the economy that we have already noted—its inherent and pervasive uncertainty. The rational judgments that underpinned conventional theory could not be formed in the marketplaces of the real, as opposed to textbook, world. Instead, what Keynes called “animal spirits”—moods of optimism and pessimism, often based on little more than rumor, follow-the-leader impulses, or sheer desperation—dictated the investment decisions on which the level of employment depended.

Keynes’s principal teacher, the great Victorian economist Alfred Marshall, had already emphasized in 1890 that “when confidence has been shaken by failures, capital cannot be got to start new companies,”5 but what had been only a cautionary afterthought to him became the central case for his pupil. In particular, Keynes attacked a belief that Marshall would surely have upheld—that unemployment could be remedied by lowering wages, just as cutting the prices of redundant goods would move them off the shelves. For Keynes, a reduction in wages reduced consumers’ spending, and this reduction in turn worsened the expectations of business firms. The “Keynesian” result was therefore to portray an economy capable of remaining indefinitely in a condition of long-lasting joblessness—a heretofore unimaginable “equilibrium” of unemployment.

Unemployment equilibrium in turn provides the basis for Keynes’s endorsement of government intervention as the only way in which such an economy could escape from its plight. What the government spent money for was therefore far less important to him than that it was spent for something. A famous passage in the General Theory reads:

If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissezfaire to dig the notes up again…there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.

There is a great deal more to the General Theory than the analysis of capitalism as an economic system capable of remaining in the trap of underemployment. The General Theory changed the vocabulary of the discipline with terms like the “multiplier,” the “propensity to consume,” “liquidity preference” that became embedded in the discipline and by their very presence changed the conversation. A heresy in 1936, when it was published, Keynesian economics was already the conventional wisdom by the time I entered graduate school ten years later. By then, however, it had been cleansed of its upsetting emphasis on uncertainty. Soon thereafter, in the glow of post–World War II euphoria, its stress on the low levels of employment at which the economy could settle was displaced by a new emphasis on the rate at which it would grow.

Since then a counterrevolution has relegated Keynesian economics to a romantic past, when Keynes could write a fanciful essay on “Economic Possibilities for our Grandchildren” projecting a time when the desire for acquisition would have disappeared. Today in many centers of high theory, Keynes’s economics is barely noticed. High theory in economics these days goes by many names—Monetarism, Rational Expectations, New Classical Economics, even “New” Keynesian economics, which bears little resemblance to the old.

Yet, along with a few other restive souls, I am not so certain that Keynesianism is dead.6 As I look at the economic landscape abroad as well as at home, it seems to me that we are in a state of persisting unemployment resembling that of the 1930s, although it is much less dire because we have a “Keynesian” financial support system in which government provides almost 20 percent of total spending, compared with less than 10 percent in the 1930s. The difference, as I see it, is that the persisting unemployment of today, both in its origins and implications, appears unlike the ailment that Keynes thought could be remedied by “a somewhat comprehensive socialization of investment.”

One difference is that we do not know how much more government spending can be absorbed without setting in motion inflationary pressures that were unknown in Keynes’s day. Another difference is that there is a deep disillusionment with the “socialization of investment,” which makes it difficult to move ahead with government spending programs that are perceived, rightly or wrongly, as ineffective in remedying unemployment, except in the public bureaucracies to which they give rise. A third is that the international interpenetration of markets—the much discussed “globalization” of the world economy—threatens to dilute the beneficial effect of any bold recovery program. It points to the need for an international coordination of economic efforts—a goal that lies, alas, well beyond our grasp.

Will Keynesian economics provide a way out? Not the economics of The General Theory, which is too much directed to a world differently organized from that of today. Keynes’s contribution to our times is therefore more likely to derive from the spirit of his economics, not its theoretical analysis. In Skidelsky’s introduction, he describes the plight of someone living in an “autumnal civilization,” caught between the wish to manage its social decay and the temptation to indulge his own appetites in a world whose public values no longer carry conviction. For Skidelsky, Keynes’s economics can be seen as an attempt to rise to the challenge that such a society presents. “Keynes,” he writes, “addressed the world as a priest, not as a technician. And though he rearranged its theology, economics spoke, through him, as a church, not as a branch of the differential calculus.”

I suspect that we will not discover the way out of the present impasse until we find an economics that projects a moral vision along with a technical diagnosis comparable in its power to that of the General Theory in the mid-1930s. I would further think that the best way to reach that elusive goal would be to ask our economics students to put down their micro and macro and monetary and trade and econometric texts for a few days, and read Robert (now Lord) Skidelsky’s biography.

This Issue

March 3, 1994