Sunday, April 24, 2011

A Conservative Case for Keynesianism?

The most serious blow to the world economic system after 1973 was the dismantling of the post-WWII Keynesian system that gave us the golden age of capitalism (1945–1973). This attack on the post-war consensus in economics occurred in the 1970s and 1980s when monetarism, New Classical economics, and then the New Consensus Macroeconomics came to dominate the economics profession and public policy. Of course, conservatives like Reagan and Thatcher were leaders in that neoclassical assault. The post-1979 era has been one of neoliberalism, globalization and neoclassical economics. And look how that era has ended: with world-wide financial meltdown and the globe on the verge of depression. Keynesianism pulled us back from the brink.

By contrast, the previous post-WWII economic system was that of the mixed economy with financial regulation, Keynesian macroeconomic management, and even nationalized industries in some countries. Certain versions of the mixed economy – particularly those in social democratic countries in Europe – have probably been the most successful, efficient and humane economic systems humankind has ever devised, systems that have increased wealth tremendously by delivering high employment and maximal use of resources.

Now don’t get me wrong. Perhaps there are better systems – maybe our descendants will be clever enough to discover even more successful ways of managing economies.

But one can only note that the demand that modern governments should return to the tried and tested Keynesian system we once had isn’t a particularly “radical” proposal.

One central proposition of conservatism is the idea that we should favour historically successful ways of organising society – methods that are tried and tested – rather than radical and untested systems and policies. While I am not always convinced by this maxim, and I do not regard myself as a conservative, a return to a Keynesian system and effective financial regulation could actually be constructed and defended as a conservative policy.

I wonder what has become of the old-style conservatives with a social conscience who had no fanatical devotion to free market economics. In fact, mainstream conservatives after World War II largely accepted the Keynesian consensus (for how they did in the US, see “Keynesianism in America in the 1940s and 1950s”).

After all, why should conservatives necessarily be committed to laissez faire? Conservatives began in the 19th century as the enemies of Classical liberals, the historical proponents of extreme free market economics.

For example, one can point to various types of British Toryism that have been critical of extreme capitalism. The early factory system and its cruelty were attacked by Tory radicals and Tory paternalists of the early 19th century who had a marked anti-capitalist ideology, and they even helped to introduce legislation reforming working conditions in UK factories.

Under Thatcher, the Tories were divided over battles between the “Wets” and “Dries.” The former being old-style conservatives like Sir Ian Gilmour and Jim Prior who opposed Thatcher’s monetarism and more extreme free market ideology (Evans 1997: 45).

In regard to Gilmour, I can only say: whatever happened to this type of Tory? I quote from his Guardian obituary:
“Ian Gilmour, the liberal Conservative politician, Lord Gilmour of Craigmillar, … died aged 81, served briefly as Edward Heath's defence secretary and for two years as lord privy seal under the less congenial leadership of Margaret Thatcher …. his reputation rests less upon his time in office than on his longer term opposition to Thatcher and Thatcherism. His background as proprietor (1954-67) and editor (1954-59) of the Spectator, and his books, made him a different kind of Tory. He was also one of the most consistent, and constructive opponents of Ricardian free market economics and their social consequences to be found in parliament. …. He first attracted attention with his purchase of the somnolent Spectator in 1954 .... Gilmour’s Spectator was humanitarian in social matters, anti-adventure in foreign affairs and Keynesian in economics.
Edward Pearce, “Obituary: Lord Gilmour of Craigmillar,” Guardian, 24 September 2007.
More interesting still is that the best biography of Keynes there is – a 3-volume work no less – is by the former Tory Robert Skidelsky, who is now an eloquent supporter of Keynesian economics in the UK.

Modern conservatism does not necessarily need free market economics, and it could just as easily return to support for Keynesianism.

I suspect the coming disasters we will see due to austerity and neoliberalism will teach the mainstream conservatives this lesson – what they in fact once learned but have forgotten.

Evans, E. J. 1997. Thatcher and Thatcherism, Routledge, London and New York.

Honderich, T. 2005. Conservatism: Burke, Nozick, Bush, Blair? (rev. edn), Pluto, London.


  1. Careful, Lord Keynes!

    You may have just been a tad bit too selective in appealing to Tories.

    Former British Prime Minister Lord Salisbury, of the Conservative Party, was one of those Tories who worked for pro-worker legislation. Sure he did some admirable work in ensuring worker's working conditions and safety. Sure he had the right idea in mind when he said, "Laissez faire must work both ways", referring to how businessmen had manipulated the law to avoid liability for workers and thus his reason for safety legislation.

    But this man, even if he opposed free market classical liberals, still once said that democracy is wrong because it allows debtors to outvote creditors, because they outnumber them.

    Do you understand what it means?

    It means that if Lord Salisbury and other Conservatives were still alive today, they would take the side of financial markets against the Greek, Spanish, and Portuguese democratic governments.

    It means he was far more for property rights than many of the classical liberals who wanted an increase in democracy more than an increase in property rights. Such as von Mises himself, who was also a democrat.

    Are you 100% sure you want to use the "Proof By Conservatism" argument? Do you realize that Conservative arguments put a sharp cut on the very social democratic ideals you want to protect?

    19th century British Conservatism is a whole different game. It's neither "right wing" nor "left wing". It's neither pro-capitalist nor pro-socialist. It's neither pro-progressive-legislation nor anti-progressive-legislation. It is, however, very anti-democracy.

    Yes, Conservatism =! Free Markets. But, as Salisbury's push for creditor's rights shows, old British conservatives would still probably agree with today's radical free marketers on 90% of issues and would still disagree with today's democrats on 90% of issues.

    Again, you would have to be very selective in protecting progressive ideals through conservative arguments.

  2. You are right that 19th-century British Conservatism was in general more pro-free market than post-WWII conservatives, and that some had a marked hatred of democracy.

    This sort of conservatism is not what I had in mind above.

    You will note that I used Sir Ian Gilmour as an example of an old-style conservative.

    Even Ted Heath was left of Thatcher on economics and probably left of Blair too.

  3. Yes, I agree, and I hate to use such terminology, but some Conservatives are to the "left" of Labour officials and some Labour members are to the "right" of conservatives. Robert Skidelsky is a great example. All just a reminder of how misleading such labels are.

    Aren't the Conservative Party and the Labour Party basically coalitionary? Don't some party members defect between them?

    I enjoy watching British PMQs, and it seems both parties umbrella people of broad backgrounds, with working class Conservatives and wealthy Labour members, or Conservatives who took an interest in politics after reading Karl Marx and Labour members who got into politics after reading Milton Friedman.

    I'd say the good thing about 19th century British politicians was their realpolitik and pragmatism. They were probably the least ideological statesmen in Europe - far less so than the French, for example.

    I don't agree with the oft-perpetuated idea that Britain had a "free market ideology" or a "free trade worship". Britain had its protectionist days too, and its protectionist and somewhat free market stances came not from ideology but from pragmatic businessmen and workers who shifted according to needs of their time. British liberal policies were a bottom-up thing, not top-down.

    That crude mixture of small and honest government, relatively liberal trade policy compared to France, and good representation of foreigners and their rights in courts was all just an accidental creation of British circumstances and responses to them. And those circumstances were several hundred years in making.

    It was nothing like the Clement Attlee government which sat down, took documents by William Beveridge, and made a whole blueprint for how all of British society, industry, trade, and finance were to be formed from scratch in the course of five years. It would be false equivalence to say that any statesman took a book by a free market economist, treated it like a bible, and forced a change into all of society based on it within five years.

  4. Great post. Indeed, the harshest critics of laissez-faire were probably not socialists or communists but traditional conservatives such as the Vicomte de Bonald and Louis Veuillot.

  5. As a matter of fact, socialists and communists had a great admiration for capitalism and laissez-faire.

    They merely saw socialism as the logical step beyond capitalism, not a replacement to it. Capitalism, according to Lenin and Marx, would push industrial productivity so high, rate of return on capital so low, and wages from scarce labor so high across the world that capitalist would have metaphorically hung himself by the rope and the workers would have had all the power.

    Many Marxists saw price controls and industrial policy as inefficient "bourgeois reforms" that only serve to delay the progress of capitalist society to what they saw was its logical end. In fact, J. Bradford DeLong refers to free marketers as "right wing Marxists", adding that Marx was the original liquidationist.

  6. That is a curious argument.

    Marxists and Austrians are ideologues with opposing positions: Austrians thinking that the evil "socialist" modern system will give way to anarcho-capitalism, while Marxists thinking the evil capitalist system will give way to socialism.

    This all depends on one's definition of capitalism. Perhaps I will write a post about it.

  7. When did Marx ever say capitalism was "evil"?

    Marx's own position was that morality was irrelevant and only economic incentives matter.

    In his and Engel's newspaper, he even wrote, "We ask no sympathy from you, and you need have no sympathy for us." He did not EXPECT capitalists and the bourgeois to treat revolutionaries and the working class nicely.

    Evil was not a concept that mattered to him. All that interested him was that capitalism was inefficient, not immoral. He, however, saw it as an improvement over feudal life, as far as efficiency was concerned. He even once said that capitalism was to be praised for liberating peasants from the "idiocy of rural life".

  8. You will note I said "Marxists", not Marx.

  9. It is only natural that all three major strands of collectivism (religion, conservatism and socialism) are always at least against "radical" (ie truly) free market policies. It is so obvious that I don't even see why you need to "prove" that conservatists are pro-Keynes when ALL crisis-affected countries (including those with conservative governments) manage their economy according to solid Keynesian principles, pumping new fiat money like crazy with ultra low interests rates etc, therefore prolonging the crisis indefinitely (like Japan has been doing for the last 20 years).

  10. Japan's lost decade ended in 2002. It hasn't prolonged the crisis "indefinitely".

    For what happened in Japan, see here:

  11. LK, stats beg to differ, I'm seeing -2% to +2% GDP growth oscillation since 1991:

  12. The downturns in Japanese GDP in 2001-2002 and 2007-2009 coincide with recessions, ones that happened in many countries, even ones with robust economic growth.

    The graph you link to proves my point. the graph also shows decent growth in 1995/1996, which was the result of moderate Japanese stimulus packages. When that stimulus was cut in 1996/1997, GDP plunged when the economy was still suffering debt deflation and was hit by the effects of East Asian financial crisis.

    My points proven again.

  13. Lord Skidelsky was a founding and finishing member of the SDP who went on to resign from the Conservative front bench in order to oppose the bombing of Kosovo and whose latest book is entitled Keynes: The Return of the Master. He is also active in Balanced Migration, which is co-chaired by a Labour MP, Frank Field. Other participants include a leading Co-operative MP, a veteran trade union leader, a prominent Muslim peer, a former Socialist Campaign Group MP (the widow of another and the mother of a third), a London-based Kurdish journalist, and a figure who resigned from the Blair Government in order to act as its critical friend before opposing the invasion of Iraq.

  14. Ah, Skidelsky was a Social Democrat.

    He is very much behaving like Keynes himself, who wished to use the Liberal Party to provide ideas for Labour and Conservative governments.

    He isn't very Conservative to begin with, since he seems to believe that financial markets and democratic governments are in a conflict. At least Conservative pragmatism and realpolitik suffices for them to understand that a government in opposition to finance is a government in opposition to its source of funding.

  15. even ones with robust economic growth

    Looks like you do have enough decency after all to admit Japan is not one of those. Indeed, Japan has not had robust economic growth since MC Hammer's U Can't Touch This.

    decent growth in 1995/1996

    20 years ago, Irish were two times poorer than Japanese, now it's the inverse, recent crisis notwithstanding. What sort of mind boggling bias does it take to focus on two years out of the two decades and call 1-2% a "decent" growth whereas many countries have had higher growth even during global crisis years?

  16. Indeed, Japan has not had robust economic growth since MC Hammer's U Can't Touch This.

    I repeat: Japan came out of the lost decade in 2002.

    Growth rates:
    2003 -.30 %
    2004 2.70 %
    2005 2.90 %
    2006 2.60 %
    2007 2.20 %
    2008 2.00 %
    2009 -.70 %
    2010 -5.20 %
    2011 3.00 %

    Japanese negative growth was caused by global recessions, and same thing happened in other countries.

    Growth rates of 2% to 2.9% are only slightly lower than the OECD average for real GDP between 1995-2005 of 2.7%.

    In fact, Japanese real GDP growth was higher than France in these years:

    Does anything think France was in a "lost deacde" from 2002-2010 just because its real GDP growth rates were slightly lower than the OECD average? Of course not.

    Again, my point stands.

  17. LK, I thought Japanese, what with their top work ethics and all, should be doing better than "slightly lower than the OECD average", but I guess that's the best they can get with ultra-keynesism. Personally I am a mortgage borrower (and on average the bigger mortgage, the higher income) so I obviously love ultralow interest rates paid mostly by the poorest via inflation tax (as they hold more cash in proportion to their income), same as any other high income person (and especially financiers who get the new fiat money first). My crusade here is therefore purely ideological, I simply care about the poor. But then as a liberal you are supposed to care about the poor even more, so I wonder how you work this point around ideologically?

  18. Joanna, you should know that the japanese may work long hours, but they don't necessarily work that hard. In fact, their hourly productivity is relatively low by western standards. They stay long hours at work because of cultural pressure mostly.

    Plus, if a population already has low unemployment and long work hours, it is an impediment to GDP growth, not a boon for it, as they are in effect in a position of labor shortage. They can't increase their total production by putting more people to work, most of those who can work already do. Nor can they do so by making people work longer, as they already work long hours. Sustainable high economic growth tends to come when an economy adds a lot of workers, whether it be because a large young generation is coming of age or because previously idle people are joining the work force (like women). If an economy is not industrialized, industrialization can also lead to a lot of growth, but western societies are past that.

    By the way, you got it all wrong. Inflation is more a threat to creditors, who are mostly rich, and not to the poor, whose income mostly come from wages. Inflation tends to result in higher wages, so workers are advantaged by it relatively, as it also means that the real value of their debts is lowered. Inflation is something feared mostly by rich investors.