While we were writing Capitalist Revolutionary: John Maynard Keynes (Harvard University Press) we spent some time thinking about how history can be relevant to economics. Our aim in the book is to recover the historical Keynes from the Keynesianism that dominated the period after the Second World War and which re-emerged in 2008, but of what relevance is this to policy if we do not want to claim that he holds the answers to all our current problems?
Most economists probably think that the history of economic thought is about establishing who said what when, and with exposing the errors of past economists. Maybe this is useful for a heavenly tenure and promotions committee, for it establishes priority and thereby distributes academic “credit”. Economists can also see the value of history that tells them about good ideas that have been forgotten. However, if this is all we do, we will not write history that we (or other historians for that matter) will find satisfactory. There are, of course, intellectual challenges in tracing the lineage of economic ideas, but such history does not explain why economists thought as they did.
To understand past ideas we need to re-create the contexts in which they arose. If we cannot say why Keynes thought the way that he did, we do not understand him. Without finding or creating a context we will read his statements in the light of our own concerns. It is this re-creation of the context of past ideas, essential to historians, that economists often find problematic. It can evoke fascination, as when game theorists read Robert Leonard’s recent account of the origin of von Neumann and Morgenstern’s Theory of Games and Economic Behavior (1944) but more often it produces skepticism, as when modern economics is placed in the context of the Second World War or the Cold War. The context that matters to historians is seen by many economists as an irrelevance. History can even be seen as threatening, the more so if it concerns contemporary figures or economists whose names still carry weight in legitimating modern ideas. The historical Keynes may be a threat, both to economists defending a particular view of Keynes and to those whose own ideas have been developed in opposition to a position they see as Keynesian.
So how can history that pays attention to context be relevant? The first is that it invites us to think about the relationship of economic ideas to what is happening in the world. The relationships between events and ideas are complex (this is why intellectual history is fascinating). Perhaps it is useful to know, for example, of the many ways in which Keynes has been interpreted, or how his ideas evolved in response to the challenge of the Great Depression: there is no reason to expect that new economic thinking will bear any simpler relationship to the recent crisis. This may not be a welcome message, but it may be an important one.
A second reason is that, as Keynes emphasised, part of the difficulty in generating new economic ideas is escaping from old ideas. Understanding Keynes’s world—one in which the moral foundations of capitalism were being called into question, and in which he was worried about spooking the bond markets—may take us out of our own. We may well decide that his solutions, such as trying to stimulate private investment through committing government to invest when private investment was low, or reorganising the government budget to allaying fears that public works would lead the government down a slippery slope to budget deficits, would not work today because the world has changed, but seeing his world may help us imagine possibilities that we might not otherwise have seen and to think more creatively about new solutions.
A final reason why understanding the historical Keynes, or any other historical figure, can be useful is that economic thinking involves more than the development of new technical solutions. Clearly, rigorous technical analysis does matter, but policy in practice requires more than that. Like it or not, ideas and even slogans can be important simply because they capture the imagination. Economists certainly have produced many theories about why deregulation, privatization and liberalization would be economically beneficial, but the main reason why “free-market” ideas caught on in the 1980s and 1990s was surely that talk of freedom caught the public’s imagination. Milton Friedman and others had been able to offer a vision of what a better economic world might look like.
The world has changed dramatically since Keynes’s time. The structural changes in the world economy have been immense. Perhaps we are less altruistic than our parents’ generation, whose attitudes were shaped by their experiences of the Great Depression and the Second World War. For many reasons, Keynes’s vision of the type of capitalism he wanted to create—and it was capitalism, for he was never a socialist, despite the allegations of some conservatives—is unlikely to become ours. However, understanding Keynes exposes us to a vision of capitalism that is different from the one that has dominated the world for the past thirty years. That in itself could be liberating even if his view of capitalism as essential but ethically flawed and highly objectionable, did not resonate with recent experiences. If we are exposed to other visions of the capitalism we might like to create, perhaps we have more chance to develop our own. For this to happen, we have to see historical ideas in context.
