Keynes Lost and Found

Keynes: The Return of the Master
by Robert Skidelsky
Public Affairs, 2009, 256 pp., $25.95

Keynes: The Rise, Fall, and Return of the 20th Century’s Most Influential Economist
by Peter Clarke
Bloomsbury, 2009, 211 pp., $20

A fierce debate raged on both sides of the Atlantic in December 2008 and January 2009 as to whether it was appropriate for governments to respond to the massive, global economic downturn by engaging in deficit-financed stimulus spending. The debate in large part reprised arguments made in the mid-1930s as governments struggled with the Great Depression. John Maynard Keynes argued strongly then for aggressive government spending to put people back to work. His General Theory of Employment, Interest, and Money, published in 1936, directly attacked the economic orthodoxy of his day that insisted that the proper way to bring about recovery was for governments to balance their budgets and wait for a revival of private investment.

But despite the fame and acclaim that Keynes received in the 1930s and 1940s, remarkably, many economists in 2008-2009 repeated the old orthodoxy from the 1930s that increased government spending and borrowing was bad policy and that the better choice was simply to wait for private investment-flows to revive. Fortunately, neither Barack Obama nor Gordon Brown let themselves be influenced by such retrograde arguments, and the stimulus measures they took stopped the downward economic spiral. Even so, the fact that the stimulus packages did not receive unanimous endorsement from mainstream economists is shocking. How is it that a discipline like economics would lose track of one of the most important theoretical innovations of the last century? How did it happen that by the time the financial crisis erupted, Keynes’s ideas were so out of fashion that the mere mention of them provoked snickers among some contemporary economists?

These questions are at the heart of two new books about Keynes by Robert Skidelsky and Peter Clarke. Skidelsky, a historian and self-described nonprofessional economist, is well known for his masterful, three-volume biography of Keynes; Clarke is also a historian and has written extensively on twentieth-century England, including a volume on the Keynesian revolution in economics. Both Skidelsky and Clarke revisit Keynes’s major theoretical breakthroughs to situate them not only within the trajectory of his own development as a thinker but also within the political debates over economic policy. Clarke’s book is an easier read; it successfully brings Keynes to life and captures the distinctiveness of his economic thought. Skidelsky’s book, while also well written, is more demanding and more ambitious in scope: Skidelsky wants to explain why so many contemporary economists have been unable or unwilling to incorporate Keynes’s most important insights into their theoretical frameworks, and he contrasts Key...