ROBERT SKIDELSKY
Jesus College, Oxford, where he also obtained his MA and DPhil, in 1961
and 1967, respectively. He was a research fellow at Nuffield College, Oxford
(1965–8) and at the British Academy (1968–70), Associate Professor of
History at Johns Hopkins University (1970–76), Head of Department of
History, Philosophy and European Studies, Polytechnic of North London
(1976–8), Professor of International Studies, University of Warwick (1978–
90) and is currently Professor of Political Economy, University of Warwick
(since 1990). He was made a life peer in 1991.
Professor Skidelsky is one of the leading authorities on Keynes and the
interwar period. Among his best-known books are: Politicians and the Slump
(Macmillan, 1967); The End of the Keynesian Era (editor) (Macmillan, 1977);
John Maynard Keynes, Vol. 1: Hopes Betrayed, 1883–1920 (Macmillan, 1983);
John Maynard Keynes, Vol. 2: The Economist as Saviour, 1920–1937
(Macmillan, 1992); Keynes (Oxford University Press, 1996); and John Maynard
Keynes, Vol. 3: Fighting for Britain 1937–46 (Macmillan, 2000).
His articles include: ‘Keynes’s Political Legacy’ and ‘Some Aspects of
Keynes the Man’, in O.F. Hamouda and J.N. Smithin (eds), Keynes and
Public Policy After Fifty Years, Vol. 1: Economics and Policy (New York
University Press, 1988); ‘Keynes and the State’, in D. Helm (ed.), The Economic
Borders of the State (Oxford University Press, 1989); and ‘The Influence
92 Modern macroeconomics
of the Great Depression on Keynes’s General Theory’, History of Economics
Review, Winter–Summer, 1996.
Together with Peter Wynarczyk (formerly Principal Lecturer in Economics at
Northumbria University), we interviewed Professor Skidelsky in his office at
Warwick University on 9 March 1993.
Why did you decide to write a biography of Keynes?
It evolved out of my earlier historical work relating to the interwar years.
Keynes was a major presence in my previous books and a major source of
inspiration for my view of that period. I thought he was an interesting person
and I had better write about him. I came to that conclusion after reading the
biography by Roy Harrod in which I thought there were things which were
left too vague and unclear.
Does your interpretation of Keynes’s life and work differ in any fundamental
way from that offered by Harrod and Moggridge?
I am more historically minded. That may be the major difference. There are
historical ways of thinking about phenomena and economic ways of thinking
about them. Now I do not think you must draw a very sharp divide but
economists tend to be generalizers and historians tend to concentrate on the
idiosyncratic and unexpected. Historians make better biographers, on balance,
than economists. For many economists, evidence is simply data rather
than being history – the stuff of illumination. They treat history like statisticians.
That is not a very illuminating approach to understanding a man’s life
or work.
Why are there so many varied interpretations of Keynes’s General Theory?
Does this demonstrate the strength or weakness of the book?
Probably the main reason is that Keynes was a fertile rather than a systematic
thinker. He was much better over the short essay than over the treatise. His
mind was always brimming with ideas, and he could not really stick to one
line for any length of time. Too many things kept coming in. The second
reason is that there was, in all his work, a strong polemical element. He
wanted very much to do things. You have to sort out the polemics from the
theory and it is not always very clear where one begins and the other ends.
Keynes would always overemphasize one part of an argument in order to
clinch a policy conclusion. The third reason is that Keynes operated on many
different levels. You can pick and choose which level you find most attractive.
That is why there are these different interpretations.
Do you see this multidimensional picture as a strength?
Robert Skidelsky 93
Yes, because, in the end, fertility is what lasts, not rigour. Rigour is for its
own time, fertility is for all time.
What elements of Marshall did Keynes reject and which did he retain in his
intellectual journey from The Tract to the General Theory?
The most obvious thing is that he took from Marshall his particular method
of dealing with time. He made a clear distinction, in many of his writings,
between the short period and the long period – that came straight out of
Marshall. But one must not take that too rigidly because Keynes retained a
fairly open mind about the analytic method he would use till quite late in the
writing of the General Theory – whether to use a short period equilibrium
framework or to use a disequilibrium framework. Secondly, he probably
never deviated much from Marshall’s theory of the firm and he always, rather
illogically, accepted Marshall’s perfect competition models, despite Marshall’s
acceptance of increasing returns. Keynes never thought much beyond that,
which is why he was really very uninterested in the imperfect competition
revolution. I always found that fascinating, paradoxical and odd. The evidence
is that although he was a great admirer of Piero Sraffa, he never took
on board that element of the Cambridge revolution starting with Sraffa’s
[1926] article leading through to Joan Robinson’s [1933] contribution. This
was partly because he remained very Marshallian on the supply side of
microeconomics and perhaps as confused as Marshall was on one or two of
these issues. Keynes believed in a third-generation theory of the firm and
tended to assume that firms decayed naturally before they established any
serious monopolistic position in the market. The third influence was the idea
that you should not take wants as given and that there were higher-value
wants. But, unlike Marshall, he thought that these higher-value wants were
derived from philosophy rather than from evolution. Fourthly, Keynes took
from Marshall the cash-balances version of the quantity theory of money. He
always thought about the quantity theory in that way and not in the Fisher
way. That’s how he got into the Treatise on Money and beyond that into the
General Theory. These legacies of Marshall were enormously important.
How would you characterize Keynes’s methodological stance?
I think Keynes was only weakly verificationist. He would not have much
favoured the view that hypotheses can be verified by tests of one kind or
another – certainly not hypotheses in the social or moral sciences. In fact that
was the root cause of his opposition to econometrics. He thought that the
most important thing about a theory is that it must be fertile and atuned to
one’s intuitions. He thought data were very important in forming these
intuitions: you should not ignore the real world. You should be a vigilant
observer, this was one of the economist’s most important tasks, but it was raw
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stuff, it was not doctored or predigested. The kind of stuff modern economists
look at is all pre-done, the curves are already there. Keynes hated
economic data presented as graphs – that is why he never used graphs in any
of his writings, and the one diagram contained in the General Theory was
provided by Harrod. He always wanted the actual figures. The figures were
not to verify hypotheses; they were to indicate the sort of limits of the
validity of our intuitions. If the figures were totally contrary to your intuitions
then probably your intuition is wrong – but it was a rough and ready kind of
testing: nothing that could claim to be verificationist theory. What he would
have said about Popper’s falsifiability method I do not know. He may have
been more interested in that.
Given your detailed biographical work on Keynes, were there any real surprises
which you unearthed in your research?
The surprises, if at all, arise from the historical treatment itself, by embedding
Keynes’s ideas very carefully in historical and biographical situations, including
values and, therefore, paying greater attention to the more ephemeral
writings. It is usually there that one can see the mind in action and at the edge
of things. I find his lectures from the period 1931–3 to be much more interesting,
in a way, than the General Theory itself, because you can see the whole
thing raw. You can actually see more clearly what was going into it. When he
was writing his Treatise on Probability, he wrote to Lytton Strachey and said, ‘I
am now turning my stuff into a more formal treatise and everything original
that I have thought is going to be snuffed out in the course of doing it because
that is what academic life is like.’ Now that is not quite true; of course, the
General Theory was thought to be a revolutionary book when it came out. But I
think some of the raw energy that went into the creation of it was lost.
You have written that ‘Keynes’s inspiration was radical, his purpose conservative’
– how did Keynes reconcile these conflicting forces?
Well, the best answer to that was given by Galbraith, who said people who
are radical in monetary matters are usually social conservatives. In other
words, there is a certain kind of therapy for an economy which is nonstructural,
which serves the purpose of preserving the existing structures.
That does not give rise to a problem, in my mind. If you think of some of the
competing radicalisms of Keynes’s time, particularly Marxism, you do see
that Keynes’s theory was, by comparison with that, very conservative about
the social order, and deliberately so. He said, time and again, if you do not
accept my modest remedies you will be faced with having to accept much
more disagreeable ones sooner or later. I do not think his theory was simply
instrumental to preserving the existing social order but he had that as an aim
in his mind. He also really did believe that, with some small changes in the
Robert Skidelsky 95
way things were run, you could avoid the worst of business fluctuations and
stabilize the economy. You could do this by improvements in economic
science. So in terms of economic theory he was eventually very radical, but
in terms of the concluding notes of the General Theory he maintains that his
theory is moderately conservative.
What exactly did Keynes mean when he talked about the ‘socialisation of
investment’?
Keynes was a political operator and it was one of those phrases tossed out to
the Labour Party. That phrase comes out of the 1920s when he was talking
about the growth of socialistic institutions in the womb of capitalism. By the
late 1920s he was really arguing that a large part of private enterprise was not
properly private any longer; it was, in some sense, socialized because its
managers paid more attention to stability than short-run profit maximization.
Once firms reached a certain size they also started developing public motives
and responsibilities and they tended to be run by people who are much more
like civil servants and dons than old-style thrusting Schumpeterian entrepreneurs.
So I think the socialization of investment minimally meant simply a
growing tendency for investment criteria to be social, arising from the natural
evolution of the capitalist system. I think Galbraith has something of the
same thought in his New Industrial State [1967].
How would you account for the very rapid spread of Keynesian ideas, especially
in the USA?
Well, did they spread very rapidly in the USA? Within academia you find a
very patchy picture if you look at the USA as a whole. Harvard, yes, certainly.
The Harvard–Washington nexus has been very well explored. Once
Keynesianism could take a tax remission form rather than a public spending
form, then, of course, you got quite a lot of conservative business support.
You could always give it a supply-side justification. That is why you had a
Reagan version of Keynes in the 1980s. There was a much more modest
built-in stabilizers version in the 1940s and 1950s. I personally think Keynes
had more effect on Roosevelt’s New Deal than he has latterly been given
credit for, especially in the first phase of the New Deal, the pre-General
Theory phase. But, as in Britain, Keynesianism really arrived in connection
with wartime finance.
Would you draw a clear separation between the work of Keynes and the
contributions of Keynesians? In particular, what is your view of the IS–LM
interpretation?
You always have to draw a distinction between the work of an original
pioneer and that of his followers. The fertility, innocence and sharpness of the
96 Modern macroeconomics
original version is modified and made acceptable for the ordinary business of
life. Keynes was always quite careful to have a portion of his theory that
could be modelled, even though he did not particularly spend much time
modelling it himself. It was left for others to do that, not only Hicks, but
Harrod and Meade; the whole thing was reduced to a set of simultaneous
equations, an approach which was not true to Keynes’s own spirit. He was
much more a chain equation person, being far more interested in chains of
causation, and trying to work those out. Hicks emptied the General Theory of
its real bite, he generalized and increased its acceptability, whilst laying the
basis for the neoclassical synthesis. It was a very important PR job but I do
not think it captured the essence of what Keynes was trying to say. In fact,
Hicks conceded this. The interesting point is Keynes’s reaction to Hicks’s
interpretation. Here I do differ somewhat from Don Patinkin, who has always
argued that Keynes accepted the Hicks version as an entirely accurate representation
of his theory. That Keynes never criticized it is perfectly true. My
own feeling is that Keynes, although it sounds odd to say this, never grasped
the significance of it and never thought it particularly interesting. He never
reacted to it, that is the important point. It is not that he said that this is
marvellous or awful, he just never reacted and that is puzzling. He was a
punctilious correspondent. Hicks sent it to him, yet he did not reply for six
months, and then said ‘I have got nothing to say about this’, apart from one or
two points which seemed rather unimportant. But it does seem to me he
thought Hicks was not a very interesting thinker. He said Hicks had got a
good beta plus mind. That was a mistake. There was something about Hicks
Keynes did not respond to – in exactly the same way Kaldor never did.
Kaldor once said to me that Hicks was not a great economist because ‘a great
economist has to be a pamphleteer – Hicks is a judge, he weighs up everything
and takes a middle view. That is not the tradition of Adam Smith at all.
Keynes was in that tradition, I, Kaldor, am in that tradition, Hicks is not.’
There was some lack of sympathy between Keynes and Hicks which meant
that Keynes tended to ignore anything which Hicks did.
Did Keynes give the classics a rough deal in the General Theory?
Yes. He set up an Aunt Sally. No classical economist ever believed in the
things Keynes claimed that classical economics stood for and none of his
associates did really. Neither Robertson, Hawtrey nor Hayek were classical
economists. The only classical economist was someone like Pigou. Keynes
was quite deliberate. He said the things he was describing as classical economics
were not what the economists of his day actually believed in, but the
things they would need to believe to make sense of what they were saying.
Keynes was challenging them to make their premises consistent with their
conclusions.
If the General Theory had been written in 1926, could the economic disaster
experienced in the 1930s have been avoided?
No, I do not think that the General Theory could have been published ten
years earlier. That particular indictment of classical economics and, indeed,
of the way the economy behaved needed the great slump to crystallize it.
Keynes’s books were very good reflections of the experience of the different
decades. The Treatise on Money sums up the 1920s and had nothing to do
with the great slump. It is an open economy model where one country is not
doing very well. The General Theory is a book about a world slump and,
therefore, there is no escape except through the government. But your question,
in addition, seems to be asking: if people had been equipped with better
theory, would they have had better policy? You needed not only the better
theory but also the better theory to be accepted, and that is very different. My
hunch is that all theories of a Keynesian type, paradoxically, start to wilt a bit
if things get very, very bad. They are most acceptable when they are least
needed. In other words, everyone was Keynesian in the 1950s and 1960s
when there was no pressure. As soon as the pressure starts you find that
orthodoxy has a habit of coming back and here is a psychological puzzle:
when people are under great stress and there is a great increase in nervousness,
then people do cling to the oldest of their verities, not the newfangled
ones.
Do you think too much has been made of the Pigou effect as a way of
diminishing Keynes’s theoretical contribution? Did he not anticipate but
reject this idea himself?
In the 1920s it came under the rubric of ‘induced lacking’ which Keynes
added to Dennis Robertson’s Banking Policy and the Price Level [1926]. This
is where you increase your saving in order to restore the real value of your
cash balances eroded by inflation, and that is an equilibrating mechanism,
and Keynes suggested this real-balance effect to Robertson. Why did Keynes
not see it working in reverse, in a situation of deflation? I think the answer is
that he was not thinking along those equilibrium lines. I know Presley [1986]
makes out the case that he was, but I did not find his argument persuasive. In
the case of the Pigou effect, why did not Keynes admit it as a sort of
theoretical possibility and then simply discount it as irrelevant or very weak?
I do not know. Keynes was greatly concerned about the consequences of a
community becoming increasingly impoverished, rather than mechanical adjustments
of balances.
To what extent was there a Keynesian revolution in the UK and USA in the
post-Second World War period? Do you think Keynes would have approved of
the policies so often carried out in his name?
98 Modern macroeconomics
It is hard to say that there was not a revolution. Some commentators have
doubted whether there was. It still seems to me that if you commit yourself to
maintain a high and stable level of employment you are saying something
new, and governments had not said that before. How much you intend to do
about it is another matter. But once you have produced a form of words, even
politicians are somewhat constrained by them. And, of course, they would
only have made that pledge, had they had a somewhat different model of the
economy than they had before the war, and some experience of Keynesian
fiscal management, which came in the Second World War. So there was a
worldwide Keynesian revolution which was obviously different in different
countries. Everyone took what they wanted from Keynes and added it to their
own traditions.
How fundamental are the ‘presuppositions of Harvey Road’ to Keynes the
political economist? Surely the contributions made by the public choice
school and from the political business cycle literature have shown Keynes to
have been politically naive?
No, I would not accept that. You cannot really say that someone was naive
unless they lived through the relevant period and failed to register the findings
of that period. It is not the right word to use about Keynes and I think his
political views would have developed had he lived through the 1960s and
1970s. The assumptions that he made at the time probably fitted the facts of
the time rather better than they fitted the facts of later times.
Other than Keynes, who in your view has had the most important influence on
the post-General Theory development of macroeconomics?
Undoubtedly Friedman. Both as a challenger to Keynes and as a leader of
thought in his own right. The Friedmanite challenge to Keynes also led into
the rational expectations revolution. It is very, very important to understand
that Friedman is a macroeconomist and shares many of Keynes’s presuppositions
of the role of macroeconomics in stabilizing economies. Friedman has
always given high praise to Keynes’s Tract on Monetary Reform. The other
great economist of the twentieth century was Hayek, but Hayek disbelieved
in macroeconomics; he did not believe it to be a valid science because he was
a methodological individualist of a very extreme kind.
Given Keynes’s emphasis upon the importance of expectations in the General
Theory, what do you think he would have made of the rational expectations
hypothesis and the new classical models developed by Lucas and others?
Again, it is terribly difficult, because you are really asking a question about
Keynes’s epistemology and that takes you into his Treatise on Probability and
how you talk about the rationality of beliefs. There are flashes of rationa
expectations in Keynes – you could tell a rational expectations story about
the instantaneous multiplier if you wanted to, since you expect or anticipate
all of the effects immediately – but on the whole, surely, his leading idea was
uncertain expectations.
David Laidler [1992b] has drawn attention to the low standards of historical
scholarship amongst economists. As a historian and an economist would you
agree with this view?
Yes, I think so, partly for the reasons I have outlined earlier. Economists are
not very good historians and I believe this comes out particularly in connection
with Keynesian studies which emphasize or pay exclusive attention to a
single book – the General Theory – and which show a lack of interest as to
how it fits into the whole of his thought and the history of the time. One of
the few economists who understood that was Axel Leijonhufvud [1968], who
took the Treatise on Money seriously and tried to build up a picture of
Keynesian theory that was halfway between the Treatise on Money and the
General Theory. That was a very interesting exercise. The new scholarship
has taken seriously the problem of linking Keynes’s later economic writings
to his earlier philosophical writing, but this approach is curiously unhistorical.
They do not, for example, see the Treatise on Probability as a work of before
1914, which is what a historian would instinctively see it as, and root it there.
These new scholars simply set it side by side with the General Theory and
explore the differences and similarities. That is not history.
Which non-economic elements most influenced Keynes’s economics?
I would have thought there were three key non-economic elements. First, the
classics, which he studied at school, and his sense of the classical world and
its methods. There are lots of classical and fairy-tale allusions in his writings.
Second, theology. A lot of his language, and the way he used it, was quite
theological. After all, economics was theology’s successor and retains many
of its characteristics. Third, the arts. What is economic activity for? This
comes out especially in essays like ‘Economic Possibilities for our Grandchildren’
[1930]. Aesthetics influenced his view of the role of economics.
The vehement opposition to the UK’s membership of the ERM expressed by
leading British monetarists such as Alan Walters and Patrick Minford bears
an uncanny resemblance to Keynes’s attack upon Churchill in the 1920s. Are
the two episodes similar?
The two episodes are similar in many ways. In both cases the pound was
overvalued and insufficient attention was paid to the adjustment process.
Keynes’s opposition to the Gold Standard was based upon the argument of
the Tract on Monetary Reform, which is very monetarist. It has to do with the
100 Modern macroeconomics
lag system in the adjustment to new sets of prices or exchange rates. But I do
not think that Keynes was ever a currency floater in the 1970s monetarist
sense. He wanted a managed system, and remember he was one of the main
architects of the Bretton Woods system. In a world in which there were no
controls on capital and where you had a financial system that was much more
deregulated than it was even in Keynes’s day, one may conjecture whether he
would have thought that we cannot win the game against speculators; hence
the attempt to maintain fixed exchange rates is doomed to failure.
Despite the crisis in Keynesianism, widely recognized in the 1970s, such
ideas are now experiencing something of a resurgence. How do you account
for this? Do you see an emerging consensus, perhaps, where Keynesianism
again has a focal point in macroeconomics?
Well, yes. Keynes said two things that seem to me of permanent value and
must be part of anyone’s thinking about the way economies work. Firstly, he
emphasized uncertainty leading to volatility. Speculation is the balancer of
economies and the way it balances is through extreme volatility in other
markets. Secondly, he emphasized repercussions on income, output and prices,
rather than prices alone. These two things are very important and any modern
understanding of the way economies work must bear them in mind. If you
believe economies are volatile, that recessions are sufficiently severe and that
their effects do not go away automatically, then that dictates some role for
government. Other economists say that government should not play very
much of a role, just follow a few rules. This is where the real debate is and I
am on Keynes’s side. That does not mean that we shall exactly follow Keynes’s
own prescriptions. Times change and his policies would have changed with
them.
If Keynes had still been alive in 1969, do you think he would have received
the first Nobel Prize in Economics?
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