Masters of money: John Maynard Keynes

  • 17 September 2012
  • From the section Business
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John Maynard Keynes Image copyright Getty Images
Image caption Keynes personally helped create institutions like the World Bank

It's hard to think of a British man born in the 1880s whose name you hear more often, in current debates, than John Maynard Keynes.

I've made a TV series, with help from the Open University, about three economic thinkers from the past who have something interesting to tell us about the financial crisis and how to get past it: Friedrich Hayek, Karl Marx and, tonight, Keynes.

You might think it an odd trio for a series. Even for BBC Two.

Keynes has gone down in history as the first of the big spenders - the man who thought government could spend their way out of problems. (In fact, there's a lot more to him than that, but I'll get to that in a minute.)

If you've heard Hayek's name, it will have been as Keynes' arch enemy - the "Austrian" economist who wrote the Road to Serfdom and believed that markets should be as free as humanly possible.

And Marx - well, wasn't he some some kind of Communist?

But what all three had in common was that they understood both the genius of capitalism, and its inherent instability.

I spoke about Keynes on the Today programme this morning. He was very, very clever. Even his enemies will admit that.

Media captionStephanie Flanders: Keynes' basic idea... was gradually built into the fabric of every western economy

In the programme, Nicholas Wapshott says Keynes "caused more inferiority complexes with justification than anyone else in his generation".

He was one of the first to say, in the 1930s, that economies could just get stuck: they might sink, and then NOT float magically back up. When that happened, he said, the only solution was for the government to borrow its way out.

You can see why the shadow chancellor, Ed Balls, would like to talk about Keynes. A lot.

But he also said governments should balance the books when the sun was shining. George Osborne would probably also want to point out that when Keynes was telling the Treasury to borrow more, 80 years ago, it was barely borrowing anything at all - not more than 10% of Britain's national income - in the first year of the financial crisis alone.

Yes, there really is something for everybody in Keynes. It turns out being a brilliant economist wasn't even his main interest.

He also found time to be a world class investor, help found the Arts Council - and to shock even his friends from the Bloomsbury Set by marrying a Russian ballerina. (They thought, with good reason, that he was gay.)

"If one considers how small a share of his time and energy he gave to economics, the fact that he'll be remembered chiefly as an economist is both miraculous and tragic."

That was Friedrich Hayek's rather barbed comment, years after Keynes' death. But, he added, "Keynes would have been remembered as a great man by all who knew him, even if he had never written on economics."

In one of the only long television interviews that he has given since becoming governor of the Bank of England, Sir Mervyn King told me the financial crisis had helped him get a keener understanding of Keynes' analysis of the 1930s.

But, Sir Mervyn said, the most important message he took from Keynes right now was the need for countries to work together to tackle global economic issues - whether it's the crisis in the eurozone or the massive financial imbalances that helped cause the crisis in 2008, and could yet come back to bite us.

If you beggar your neighbour (and trading partner), you might very well beggar yourself. Keynes saw the world learn that lesson the hard way in the years after World War I.

When he personally helped the Allies create institutions like the World Bank, at the end of World War II, he was trying to make sure we wouldn't get into such a mess again.

He was only partly successful. Unfortunately for us. We debate that, at length, in the film - and the parallels between the events of the 1920s and 1930s and the eurozone crisis today.

But at a national level, Keynes' basic idea that governments should intervene when things go wrong, was gradually built into the fabric of every Western economy from the 1940s onwards.

It's still there now. That is why nearly all of them ran a large budget deficit in the wake of the global financial crisis. And why George Osborne is still running one, even though he'd rather not. It is built in. The debate is over how much to borrow, when the economy is still weak, not whether to borrow at all.

Yet, when you read what Keynes actually wrote, you can't help feeling he had another, equally powerful message for governments today: that the world was a deeply unpredictable place, and uncertainty an inescapable part of economic life.

He might be the grandfather of activist government, but Keynes also said, in effect, that you should never think you have it covered, that you've abolished boom and bust.

For me, that's the great paradox. The man who did most to make economists and politicians arrogant - to make them think they could bend the world to their will - also gave them, or ought to have given them, the very best reasons for self-doubt.

The first episode of Masters of Money is broadcast on BBC Two at 21:00 BST on Monday, 17 September.