Keynes: The Return of the Master

I am a practicing economist in the private sector with 25 years of experience. I have likely read 200 books on economics and related areas. This is one of the best I've read. Not a technical book by any means, but a lucid and concise description of the Keynsian approach.

An excellent read for those who, like me, want a refresher on economic theory from Adam Smith to Paul Krugman. Skidelsky may be the ultimate authority on the life and work of John Maynard Keynes, having written a three-volume biography on the English philosopher turned economist, but his writing style is clear, lucid and full of information. He writes not just about Keynes, the revolutionary philosophical thinker who figured out how to counteract economic downturns, but puts Keynes's theories into perspective with easily understandable descriptions of the development of economic thinking from Adam Smith to today's headlines. Whether you agree with Keynes' theories or not, you cannot help but benefit from this penetrating survey of the history and theories of capitalism. And you just might gain some insights into the causes of the current economic problem and its solution.

This book is an excellent example of all we have lost when history of economic thought is treated as a weak elective course in our Universities. Validation of this neglect is provided by the noble prizes in Economics of the past decades: nothing new, nothing significant. Extreme and vacuous mathematization of our field is the objective. No wonder we are going through harsh economic times as a result of the "games" played by the financiers. Keynes is very explicit about the dangers inherent in this sector. We need to go back to the classics -A. Smith, Stuart Mill, Ricardo...not to reproduce their thinking but to search for the things they warned us about and we chose to forget. Economics is a human science not a mathematical model: uncertainty is its main characteristic. Mathematics is just another language, and with more limitations than other languages.

Skidelsky argues, that like Keynes, all prospective economists should study ethics, philosophy, and political economy. I would go further, and say that society would benefit if the chapter on "Keynes and the Ethics of Capitalism" were required reading by everyone with sufficient education to comprehend it. The book has concise, insightful analyses of the current economic crisis and of the Great Depression. As a college student of the 1960's, who learned Keynesian economics through the introductory Samuelson text, I learned very little about economic theory that I didn't know, but I blame this on the profession, not Skidelsky. Not emphasized then was that the government and Federal Reserve have to be very wary of the impact of their decisions on inflationary expectations. Those readers who have read Taleb's book "The Black Swan" will find several of Taleb's ideas here, and he is referenced several times, once incorrectly (p.43) - but the importance of uncertainty as contrasted to probabilistic risk turns out to be a central idea of Keynes.

Robert Skidelsky is the biographer of John Maynard Keynes and a historian with some background in economics. He divided his book in three parts. In the first part, he examines what went wrong and what this says about the present state of economics. He attacks the rational expectations hypothesis, real business cycle theory and the efficient (financial) markets theory. The main criticism is on the assumption of "Bell-Curve Economics", which describes theories that are based on Gaussian probabilities. Part II is entitled "The Rise and Fall of Keynesian Economics" and describes Keynes and his economics in the context of the Great Depression. On p. 111-3, Skidelsky points out the difference between today's mainstream macroeconomics and the idea of Keynes. Some of these points could be argued with more clarity. Skidelsky fails to point out the implication of accepting Gaussian probabilities in financial markets, which is that financial markets can not be a source of "instability". However, this implication is probably clear to most economists and Skidelsky writes about this elsewhere (p.44). In part III, The Return of Keynes, Skidelsky focuses mostly on philosophy and political economy. I reckon that this is the most interesting part of the book for most readers. Skidelsky raises "the old question of whether ideas are part of the base or the superstructure of social life - society's building blocks or weapons in the struggle for power." (p.115) and then continues to compare the ideas and performance of the Keynesian Bretton Woods System (1951-1973) with that of the neoliberal Washington Consensus System (1980-now). This is followed by a chapter on the ethics of Keynes. Based on the philosopher G.E. Moore, Keynes ponders first the question on ethics "What is good?" and then follows up with questioning morality: "How ought I behave?" (p. 136). Skidelsky thinks that we do not think about the ethic question anymore, and therefore the pursuit of money is all there is: "What should have been a means has become an end", he writes about acquiring money (p.142). Some pages later (p. 187) Keynes ia quoted on what can be understood as a critique of today's market-led globalization: "So, in conclusion, 'Ideas, knowledge, art, hospitality, travel - these are things which should in their nature be international. But let goods be homespun whenever it is reasonably and conveniently possible and above all let finance be primarily national." Summing up, this book reopens forgotten discussions which either still are or have again become relevant. What is the role of the government, of the private sector, of households? How does the international situation play out, how is power projected into the international arena? What are we striving for as human beings, and what is the role of markets in the pursuit of happiness? I am sure many economists will not like this book because they think these questions to be irrelevant and outside the realm of economics. However, rea