Towards a Keynesian Politics? A Review Essay

Australian Journal of Politics and History: Volume 56, Number 3, 2010, pp. 455-464. Towards a Keynesian Politics? A Review Essay GEOFF DOW Political Science and International Studies, The University of Queensland Peter Clarke, Keynes: The Twentieth Century’s Most Influential Economist (London: Bloomsbury Publishing, 2009), £15.49 (pb). Paul Davidson, The Keynes Solution: the Path to Global Economic Prosperity (New York: Palgrave Macmillan, 2009), £14.99 (hb). Paul Davidson, John Maynard Keynes (London: Palgrave Macmillan, 2007, 2009), Great Thinkers in Economics Series, £18.99 (pb). Robert Skidelsky, Keynes: the Return of the Master (London: Allen Lane, 2009), £20.00 (hb). If, as Lytton Strachey once insisted, ignorance is the first requisite of the historian, the three decades of the anti-Keynesian revolution are now ripe for serious appraisal. These are the decades that Australians recognize as the period of economic rationalism. Conventional interpretation of the period cites its accomplishments as derivatives of understanding — an understanding of wealth-creation arrangements, of market processes, of the necessity of liberalizing “reforms”, of cumulative insights into how economies work and of the effects of (modest levels of) democracy in the modern world. All this is now recognized as sophisticated ignorance. In political science as much as in economics, the decades since the mid-1970s produced not knowledge but prejudice, not advancement but systemic misunderstanding, not openness to enquiry but a repudiation of heterodox traditions of analysis that promised much and that need, now, to be re-invoked. If we have been over-whelmed by proximity to the recent past, it has not been as enlightening an experience as its proponents’ hubris proclaimed. Much is still to be known — about the processes that were set in train by the long boom after 1945, about what went wrong after 1974 and about what possibilities for the early twenty-first century have been uncovered by recent events. This is the mission of the four books under review. In important respects it is unfulfilled. All three authors have spent lifetimes in Keynes’ world. Robert Skidelsky and Paul Davidson have illuminated this world in multiple books and articles (including the massive and well-regarded and sometimes passionate three-volume biography by Skidelsky and Davidson’s series of extrapolations of radical aspects of Keynes’ ideas on money and neglected aspects of the “Keynesian revolution”). Peter Clarke has written historically about the period that produced Keynesian challenges to policy orthodoxy in the1920s and 1930s and about its post-1945 social democratic possibilities. It has been a pleasing characteristic of writers on Keynes that they’re © 2010 The Author. Australian Journal of Politics and History © 2010 School of History, Philosophy, Religion and Classics, School of Political Science and International Studies, University of Queensland and Blackwell Publishing Asia Pty Ltd. 456 Geoff Dow impressed by their subject’s literary inventiveness, by the conscientiousness of his formative milieu and by the thoughtful interdisciplinarity which transformed his “presuppositions” into new knowledge and new political commitments. Commonly scholars in this tradition seek to honour, if not to replicate, the best of Keynes’ antiformalist and intuitive approach to unorthodox economic understanding. Such qualities are present in these most recent contributions. Surprisingly, however, particularly in view of the suggestiveness of Keynesian ideas for the evolution of politics and policy in affluent societies, none of them really reexplores the truncated concomitants that seem still to limit contemporary political achievements. In the 1940s a post-Keynesian tradition (to which Davidson explicitly subscribes) emerged, arguing that “new political institutions” would be needed in the advanced economies to deal with the contours of national economic management that Keynesianism helped to constitute. Intervention was both possible and warranted to iron out fluctuations in economic activity, incomes and employment. For Keynes, this required public control of private investment. The aim was not merely to prevent unemployment but to subject the rise and fall of industry to deliberated processes, requiring institutions able to develop the necessary public competences, because Keynes and the Keynesians expected conventional means — fiscal and monetary policy — would be insufficient to the task. Once such full employment had been achieved, either as a result of policy or via spontaneous developments such as post-war reconstruction, a second issue would arise to demand Keynesians’ attention. The heightened bargaining power of organized labour in such circumstances would be likely to unleash inflationary pressures, in turn necessitating economy-wide institutional responses or “settlements” or labour-capital accords that accompanied (and perhaps defined) the post-1945 welfare state era. These institutional innovations were intended to eliminate the conflicts over income distribution that would otherwise have resulted in inflation. The corporatist arrangements which resulted (in Australia, the arbitration system) remained subject to internal disputation, mainly along the lines of arguments for and against the efficacy of the state (with many leftists joining liberals in their scepticism), but anti-inflationary wage-setting systems retained popularity until globalization and structural change rapidly changed the discursive temper from the mid-1970s. The Keynesian elements here lie in the critique of tight money “solutions” to inflation (which has hardly ever been the result of “too much money”), the need to ensure relatively egalitarian income distribution (the post-Keynesians have always maintained that income equality and high employment were mutually reinforcing), and the complicity of short-run policy questions in long-term institutional change. These incomes policy matters are discussed most sympathetically by Clarke (ch.3) and Davidson (ch.5, ch.11 in the textbook) though somewhat ambivalently by Skidelsky (ch.5). A third institutional prerequisite for a Keynesian combination of full employment, low inflation and equality would have been experiments to eliminate the market elements of the “labour market” (because they depend on the “commodification” of labour and they have been widely regarded, outside Economics, as abhorrent and illegitimate). Labour market policy gets short shrift from Skidelsky who seems to accept both that labour’s involvement in policy and was empirically unwise (encouraging policy-makers to acquiesce in the build up of inflation pressures) and intellectually irresponsible (contributing to a “wave of Keynesian hubris” and a “revolution in entitlements” which jointly justified the “conservative [more correctly, Review Essay: Towards a Keynesian Politics? 457 liberal] counterattack in both politics and economics” (p. 130). None of these institutional shifts was consolidated before the anti-Keynesian counter-revolution took place. It is not that Clarke and Skidelsky don’t accept most of these institutional reforms in principle but that they haven’t tried to explore the possibilities and limits to the emphatic “Keynesian politics” that is implied (something more than usual understandings of social democracy, the welfare state and the mixed economy). Trends in capitalist economies towards larger government, larger private organization, more complex forms of governance, more intricate problems needing political resolution and the global expansion of technological opportunities seemed to make politicization more possible, perhaps inevitable. Of course, the tenor of the times depicted a failure of the Keynesian project as if it were coterminous with the stagflation of the post-1974 years and with what liberals have labelled “state failure” and over-loaded government (each seen as endemic, not contingent). But is it prescience or opportunism in the appearance since the global financial crisis of so many defences of Keynesianism? At least one of these authors was implicated in the intellectual maelstrom that produced Thatcherism and the economic liberal revival and the retreat from official commitments to full employment since the mid-1970s. Skidelsky was among those who, in the 1970s, associated Keynesianism with sclerotic institutional development, even blaming Keynesian commitments to full employment for systemic cost-push inflation 1. “Post-Keynesian” writers like Joan Robinson and Michal Kalecki (those criticizing the bastardization of the Keynesian revolution as early as the 1950s) at the time and since instead pointed out that the “end of the Keynesian era” was a political and institutional defeat, not an intellectual one — there was always a Keynesian explanation for the stagflation of the 1970s. The return of unemployment and inflation was a function of the triumph of orthodox policy (monetary policy, which, depending on the “preference for liquidity”, is always ineffective at raising the level of economic activity, and pusillanimous fiscal policy, more concerned with keeping budget deficits and public debt low) rather than the interventionist investment policies, accompanied by incomes policies, that the true Keynesians had been demanding since the end of the Second World War. Skidelsky doesn’t seem to share the post-Keynesians’ claim that there never was a Keynesian period, asserting that “Keynesian ideas ruled triumphantly” (p. 101). For this reason he cannot imagine the subversive connotations of the institutional proposals mentioned above. Peter Clarke’s book is probably the most intimate of the four, highlighting the personal elements behind Keynes’s audacious challenge to the Treasury view (the arguments underpinning most liberal economics). These were that the state cannot increase production and wealth without risking inflation; public debt is always undesirable and risks inflation (budgets should be balanced each year, not over the cycle); and the Gold Standard (that era’s equivalent to monetarism’s anti-democratic restraints on the polity) was the best prophylactic against public profligacy (and inflation). Praising his subject’s “lambent lucidity” as a writer, Clarke nonetheless notes that Keynes overestimated his own capacity to influence majority opinion at the 1 Robert Skidelsky, ed., The End of the Keynesian Era: Essays on the Disintegration of the Keynesian Political Economy (London, 1977), p. 39. 458 Geoff Dow time. (Keynes, of course, a recurrent Cassandra, resigned in disgust as the Treasury’s representative at Versailles and again, a quarter-century later, failed to achieve his country’s objectives at Bretton Woods: the British wanted full employment, the Americans wanted free trade). On the other hand, Clarke notes Keynes’s “long lovehate relationship with the British Treasury” (p. 82) and wonders at the elite institutions’ “blithe obliviousness of the consequences” of iatrogenic policy advice nationally and internationally — then and now. He also identifies previously submerged similarities between Keynesian and Weberian ideas concerning national development that have come to the fore only since the 1980s but which is of clear significance when stimulus spending is planned, in any era. “Prosperity is cumulative”, Keynes proclaimed as if in anticipation of the Keynesians’ more robust criticisms of self-defeating and wealthdestroying austerity responses to downturn, especially during the Thatcher years. The intellectual temper informing Keynes’ ideas can be attributed to the “presuppositions of Harvey Road”, to his Cambridge clique and, later, to the Bloomsbury group. It consisted of philosophers, historians, scientists, artists, dancers, musicians, dramatists, novelists, poets and critics as well as economists. Alert to the possibility of setback, this milieu encouraged forward-thinking as a vocation in the arts, science and politics. The debates this principled promiscuity unleashed entice us to ponder a politics wherein rationality was always necessary but tempered in principle by a prudential anti-rationality and experimentation. All four books acknowledge the intellectual failures that have dogged us in the past century: those crises that began in the 1930s, in the 1970s and the 2000s. The first of these was the one Keynes himself explicitly addressed; the second occurred because Keynesian policies (and institutions) were disrupted or ignored or stillborn precisely when they were needed (from 1974). The third, the “global financial crisis” of the very recent past, precipitated “Keynesian” policy responses (such as stimulus packages) that potentially signal an epochal shift towards intervention, regulation, controls on financial innovation and systematic institution-building of a kind that was initiated then abandoned in the post-1945 period. None of the present authors dares suggest that a resurgent Keynesianism in public economic management and institution-building will be unlikely this time either. But don’t present politics in the UK and USA promise only a continuation of a dispiriting business-as-usual? In most countries stimuli have been too small to jump-start economies or to reinvigorate industries especially where infrastructure spending had earlier endured long-term decline. In the absence of a more visionary discussion, we would probably be prudent to assume that only anodyne developments will ensue. In the light of actual developments in capitalist economies over the half-century just passed, this would be tragic. It would portend yet another recurrence of truncated understanding and impoverished political capacity. All three authors mount their defence of stimulus packages since 2008 in terms that indicate annoyance at dismissive attitudes to Keynesian premises since the 1970s. Both Skidelsky and Davidson attribute primary responsibility for the financial crisis to Economics itself and to that discipline’s inability to recognize even the origins of prosperity in capitalist economies let alone strategies to regenerate non-financial activity when it falters. Davidson is most prepared to see that booms and slumps are intrinsic to market-driven economic activity (— the post-Keynesian position overlaps Marxian political economy most closely on this point). There is less agreement on whether financial crises are “black swan” events — essentially unforeseeable. Methodological controversies have raged over these issues: the models used in the Review Essay: Towards a Keynesian Politics? 459 finance industry cannot represent everything important yet Keynesians tend to argue that financial and (real) economic crises are recurrent (and therefore largely predictable). However, Skidelsky can also see that Economics has never been a means of understanding actual economies but rather a method of analysis of hypothetical problems based on the presumption of scarcity as a fundamental and irremediable part of the human condition. This is a theme that Skidelsky returns to again and again; he clearly wants economists to acknowledge that unemployment is normal because investment is volatile (ch. 4). Among the controversies that Keynes reignited in the 1930s was the rehabilitation of Malthusian methods as against those of Ricardo which set the temper for the development of modern classical economics. In invoking Malthus’s idea that progress is “never uniform”, Keynes repudiated the mainstream discipline’s celebration of abstraction, preferring instead a more empirical and anti-formalist and intuitive approach. Essentially his claim that economies were unknowable by the standard methods of orthodox enquiry was politically, not just intellectually, pregnant. Heterodox forms of analysis were shunned in the period now called “Keynesian”, largely because they delivered policy recommendations challenging the market economy’s “self correcting” propensities. Keynes was sympathetic to underconsumptionist ideas — the view that “vast powers of production” were not consistently put to productive use. In recent decades, post-Keynesians and institutionalists, in examining contemporary problems, have developed underconsumptionism (which has of course Keynesian and Marxist and institutionalist variants) into a theory of the mature economy wherein productive potential is squandered and civilized priorities distorted. And if modern capitalism produces permanent “excess capacity”(Davidson, p.139; Clarke, p.152; Skidelsky, p.67), it makes no sense to characterize economics as the “science of resource allocation under conditions of scarcity”; it could be that the real problem for policy is how to stimulate economies when there is over-investment and over-capacity in virtually every line of production worldwide. It’s hard to understand why the obvious solution, infrastructure spending to redress long-standing neglects in the public sphere — water, energy, transport, health, education, environmental degradation — is resisted so fiercely. Clarke (p.150ff) and Skidelsky (pp.71ff) deplore the huge shift within wealthy societies towards promiscuous (and socially corrosive) consumption at the expense of investment. This was the very essence of Keynes’s challenge too: it was not so much a shortage of demand that created recessions as it was a shortfall in investment (so demand deficiency was a symptom). Today we can see that this problem has become chronic. Keynes wanted a “somewhat comprehensive socialization of investment” to regularize what business was unable to (a claim repeated through the 1920s and 1930s); and there are plenty of instances showing how this can be achieved (— Sweden’s counter-cyclical investment funds, Austria’s innovative use of public enterprise investment to modify private investment, Germany’s industrial banking policies, Japan’s close government-corporate relations; only the Anglo economies have renounced any acknowledgement of the market’s tendency to generate insufficient investment). In chapter 5, on “Keynes’s politics”, Skidelsky cites exchanges with Hayek in the 1940s, noting, firstly, that the latter’s case against central planning did nothing to undermine the case for national economic management and stabilization of investment whenever it became insufficient to achieve a full employment level of economic 460 Geoff Dow activity and, secondly, that both accepted that “inescapable uncertainty” exists in capitalist (monetary) economies. For Hayek, however, uncertainty was a consequence of dispersed knowledge and multitudinous calculations; for Keynes it was more specifically a result of the fact that the results of investment decisions (success or failure) could not be predicted. They depend too much on the innovations, production competences, business strategies, financing possibilities and distributional arrangements of others. Government could not be expected to know the preferences of all citizens; but it could, particularly with the help of national statistics, be reasonably well aware of the size, demographic composition and macroeconomic needs of a subject population. For these reasons Skidelsky is incorrect to label Keynes a liberal (though he’s not alone in this ascription): Keynes sometimes referred to himself as a liberal socialist — implying acceptance of private property and inheritance, but underwritten by collective management capabilities, efficient social organization and policies to redress the perennial tendency towards unemployment.2 This conscious critique of Treasury (and Bank of England) policy has not been well-appreciated nor well-developed by subsequent commentators; but it is definitely a disavowal of individualist capitalism, a position Keynes had incorporated into his writings already by the early 1930s. Neither was “liberal socialism” a novel formulation: it could have described early twentiethcentury institutionalism (in, for example, Veblen’s thought) as well as the emergent economic sociology of the same period — in Durkheim and Weber who independently thought individualism and rationality needed to be tempered by deliberated politics, not to mention the conservative “social economy” tradition formulated within turn-of-thecentury Christian social thought. Davidson’s books are strongest in their dealings with the “great financial crisis” of 2008-2009. The Keynes Solution is a sustained critique of the dominance of a destructive set of ideas in Economics, while the second is an updated edition of a textbook on Keynes, revised to incorporate a coruscating denunciation of financial markets’ behaviour and evolution after the deregulations of the 1990s. The broad trajectory of the crisis is now reasonably well-known. It was the Clinton-era repeal of restrictions on the ability of deposit-taking banks to become investment banks (the Glass-Steagall Act of 1933) that ushered in financial innovation particularly the “securitization” and on-lending of mortgages and the creation of other “derivatives” of these debts (known as CDOs). Pension funds contributed to a “shareholder revolution” and enhanced priority to financial sector criteria (for example, short-term profits rather than production). Reckless (“subprime”) lending in conjunction with a fall in house prices (in the USA) led to crises for some financial institutions and their insurers followed by flow-ons to the real economy, particularly the US motor vehicle industry. A key Keynesian assertion was always that finance should be the servant of the productive economy and not a source of speculative diversions of investment away from real activity. Various indications of the direction that renewed political control of the economy might take have been proposed by post-Keynesian analysts. They include stricter capital requirements (reserves to more adequately cover debts), more stringent evaluation of financial assets, less permissiveness with respect to unregulated “financial instruments”, penalties for excessive risk-taking (instead of rewarding risky 2 Rod O’Donnell, “Keynes’s Socialism: conception, strategy and espousal”, Macquarie Economics Research Papers no.20/97 (Sydney, 1997), pp. 1-23. Review Essay: Towards a Keynesian Politics? 461 lending with bonuses), expanded central bank monitoring of investment banks and equity funds, implementation of a “precautionary principle” such that “anything not specifically permitted is prohibited”,3 incentives for institutional investors to hold assets in an inflationary environment, a compulsory transactions tax to reduce volatility in financial trading, and reinstating the “mixed economy” trajectory which guided policy from 1945 to 1974. Keynes himself eventually advocated “buy and hold” investment (Skidelsky, p. 71); Davidson wants to end (again) the saleability of mortgages (p. 21); in each case the presumption is that investment is too important to be left to speculative or capricious impulses. Davidson is also concerned that the financial crisis is leading to lower-quality employment and a continuing housing crisis (in the USA) and calls for new international financial arrangements to demand (as Keynes wanted) that full employment be favoured over free trade (ch. 7). Joseph Stiglitz has recently criticized Skidelsky for being too timid on these issues4 and it is true that The Return of the Master underplays the economic crisis aspects of the financial crisis. After all, Keynes, despite his methodological eclecticism, produced an account of the boom-recession cycle surprisingly similar to Marx’s (and, for that matter, to Schumpeter’s). Crises would be recurrent because of fluctuations in investment, claimed Keynes, not because of the financial excesses. Though Keynes famously insisted that “[w]hen the capital development of a country becomes a byproduct of the activities of a casino, the job is likely to be ill-done”,5 a serious problem emerges only when entrepreneurship (new investment) is disrupted. Skidelsky notes, though, that Keynes eventually adopted a “buy and hold” approach to investment, in recognition of the role it had to play in storing wealth and providing societies with the living standards their economies were capable of producing (p. 71). On the surface, this argument is stronger than the Marxian one which sees disruptions to capital accumulation (that is, crises) more a function of insufficient income (underconsumption) than volatility in capital’s (investment) behaviour. Nonetheless, structural shifts are occurring. Since the 1930s, government spending has risen to almost 50 per cent of GDP in the OECD countries; taxation revenues are almost 40 per cent (implying that public deficits are close to 10 per cent); and social transfers (welfare, unemployment benefits, housing and health subsidies, pensions) have reached almost 25 per cent of GDP (thereby “politicizing” consumption to an extent unimaginable in Keynes’ time). These trends, registering the gradual transition of rich societies away from market regulation, are unlikely to recede, driven, as they have been, as much by unconscious demographic and democratic pressure as by explicit deliberation. Given that the decades since the anti-Keynesian backlash have been characterized by unemployment apparently stuck between 5 and 10 per cent (even since 1994 it’s been over 6 per cent in the OECD economies — currently 8.5 per cent, or 35 million people — with a commensurate widening of income inequalities), the era of economic liberalization can hardly claim substantial achievements.6 Post- 3 See James Crotty and Gerald Epstein., “Avoiding another meltdown”, Challenge: The Magazine of Economic Affairs, Vol. 52, 1 (January-February 2009), pp. 5-26. 4 Joseph Stiglitz, “The non-existent hand”, London Review of Books, Vol. 32, 8 (22 April 2010), pp.17-18. 5 John Maynard Keynes, The General Theory of Employment, Interest and Money (London, 1936), p.159. 6 Figures taken from OECD Economic Outlook, no.87 (May 2010), pp. 335-336 and 347-348. 462 Geoff Dow Keynesians still claim most contemporary unemployment is deliberately created, or at least deliberately not eradicated. This means it’s unnecessary and can be managed. Probably the main reason why we should be disappointed with the failure of Keynesianism to be consummated in political or institutional achievements at each of the crucial moments mentioned above is that its compatibility with several other strands of social science has been so well-known to the twentieth century’s maverick traditions. The institutional economics of Veblen and the economic sociology of Durkheim have been mentioned; each inaugurated vigorous threads in heterodox political economy sharing Keynes’s conviction that an inductive methodology and an experimental politics are essential to satisfactory economic understanding and economic management in wealthy societies. To these could be added contributions from more or less conservative German “historical school”, and the more modern quasi-Marxist “regulation school” or “social structures of accumulation” approach (documenting divergent modes of accumulation — liberal, statist, corporatist, authoritarian — and associated performance in capitalist economies over the past three or four decades) as well, of course, as post-Keynesian theory itself. Clarke comes close to capturing the significance of the alternative traditions when he cites a Keynes lecture from the 1930s: “The precise use of language comes at a late stage in the development of one’s thoughts [...] You can think accurately and effectively long before you can so to speak photograph your thought” (p. 147). Scholarship in recent decades has encouraged us to formulate new concepts into social and economic understanding. Pertinent dimensions of the modern world have been encapsulated in six terms: complexity, uncertainty, maturity, interdependency, emergence and evolution. Complexity in economies refers to the embeddedness of economies in social conditions, the possibility of regulation of their centrifugal tendencies, the materialization of the “negotiated economy” and, consequently, the existence of multiple determination. Uncertainty is a knowledge-governing condition central to Keynesianism; it exists because the outcomes of investment decisions cannot be known (businesses may fail, yet the decisions are irreversible), cycles are not readily calculable, and therefore rationality becomes an untenable assumption. Maturity (affluence) creates conditions which entail novel problems (too much consumption, too little investment) which then expose further distinctive facts: employment creation lags behind wealth creation, a need for “unproductive activity” arises, so that growth itself can be seen to transform the world (not just quantitatively) and our understanding of its primary problems. Interdependency invites organic rather than mechanical metaphors; it alerts us to the coincidence of functional and dysfunctional characteristics in the economy and, hence, to a permanent need for public support for private activity. Emergence signals that all social interaction produces novel features with coherent propensities that would not have been predictable from the originating conditions. Evolution refers to the tendency for productive and unproductive, protective and societal organizations to co-evolve — without implying that the new forms are always competent or intended or progressive; the mixed economy, however, is an example of desirable evolution away from the market model.7 7 Further examination of these concepts can be derived from within a wide range of social science, not just Keynesian or post-Keynesian political economy. Discussions concordant with the present project are, respectively: Bob Jessop, State Power: a Strategic-Relational Approach (Cambridge, 2008); the three books reviewed here; Edward Nell, The General Theory of Transformational Growth: Keynes after Sraffa (Cambridge, 1998); Wolfgang Streeck, “Beneficial constraints: on the Review Essay: Towards a Keynesian Politics? 463 These conceptualizations obviously identify important aspects of contemporary economies that feature neither in mainstream knowledge nor in the public policies that orthodox ideas normally inform. As long as extant understandings are quarantined away from each other in disciplines, we are probably condemned to inhabit societies chronically unable to learn what is to be known. As indicated above, post-Keynesian writers have done somewhat better than the mainstream at thrusting contentious matters onto the public arena, though not in having them affect our capacity to control our collective destiny. I will close this review essay with some examples of theoretical achievements that need to be more sedulously accepted. The first is the Keynesians’ understanding of capital: they argued through the 1950s that capital cannot be defined the way orthodoxy wanted because it was not a homogeneous quantity. Post-Keynesianism shares with Marxian political economy a social and institutional conception of capital that reflects (a) wealth (in Marxian terms the “forces of production”), (b) the non-quantifiable (societal) components of this wealth that have themselves been created by previous economic activity (such as the health, education and infrastructure standards underwriting economic activity), and (c) the power minority control of this wealth gives to particular segments of the population in its organization of production. This insight was always resisted by Economics which hoped to make the case that returns to capital reflected its productive contributions. Unfortunately it doesn’t feature in these four books either. Secondly, the Keynesian critique of market mechanisms was that they typically send misleading (pro-cyclical) signals — urging more investment when less is needed and vice versa. So the case for intervention was based less on the presumption that public authorities were omnipotent and more on the need for the state to “do something” whenever economic conditions deteriorate (Clarke, p. 103). That counter-cyclical policy is possible has been demonstrated repeatedly, not least recently in Australia. But post-Keynesian analysis does not conclude that it would be sufficient; industry policy and related institutions need also to be forged. Thirdly, income distribution is seen as an outcome of institutional power and historical accident rather than as a proper and just reflection of productive contribution and inflation is seen as a result of institutionalized distributive conflict (whereby unemployment does not prevent unions bargaining up wages, and falling sales do not prevent businesses increasing prices). It is a social rather than a monetary phenomenon. Fourthly, post-Keynesianism is critical of the contractionary biases in conventional policy, arguing that public efforts should be oriented towards expanding production (and productive capacity) — rather than reducing incomes, employment and economic activity — whenever supply blockages occur. Keynes himself had quipped: “You will never balance the budget through measures which reduce the national income” (Clarke, p. 147). Fifthly, the post-Keynesians (particularly Kalecki) argued that the business sector was incapable of appreciating its own best interests. For a start, capital was always forced to choose between desire for profits and desire to control its own circumstances economic limits of rational voluntarism” in Joseph Rogers Hollingsworth and Robert Boyer, eds, Contemporary Capitalism: the Embeddedness of Institutions (Cambridge, 1997), pp. 197-219; Geoffrey Hodgson, “From micro-to macro: the concept of emergence and the role of institutions” in Leonardo Burlamaqui, Ana Célia Castro and Ha-Joon Chang, eds, Institutions and the Role of the State (Cheltenham, 2001), pp. 103-126; and Geoffrey Hodgson, The Evolution of Institutional Economics: Agency, Structure and Darwinism in American Institutionalism (London, 2004). 464 Geoff Dow — yet as economies have matured, these two desiderata have become increasingly opposed. Once again, Keynes had observed that the scope for rationality had also narrowed: he saw liberalism as a “worm that has been gnawing at the insides of modern civilization and is responsible for its present moral decay. […] The attribution of rationality to human nature, instead of enriching it, now seems to me to have impoverished it.”8 So we can see from what is included and what is omitted from these otherwise sympathetic accounts of Keynes’s relevance to modern economies that political problems have been exposed (by the cognoscenti) but not at large in ways that will filter through institutionally. Is this the fate of critics who challenge standard knowledge? Keynes’s access to the British policy elite was stellar; yet it wasn’t sufficient to guarantee standing for his views. Are we condemned to advance “pessimism of the intellect; but optimism of the will”? Skidelsky deserves the penultimate observation, which may explain the hostility of liberal economists: “Deep down, [Keynes] was not an economist at all” (pp. 59 and 192). The political and intellectual implications of this iconoclastic comment are still to be stated and fleshed out. 8 John Maynard Keynes, “My early beliefs” (1938) in Geoffrey Keynes, ed., Essays in Biography (London, 1951).