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BOOK REVIEW
Peter Clarke (2009). Keynes: The Twentieth Century’s Most Influential Economist
(London: Bloomsbury).
INTRODUCTION
While this brief intellectual biography of John Maynard Keynes is preoccupied with
his reputation as an economist, policy maker, and Bloomsbury writer, and justifiably
so, the portion of this study that will interest even those who are not interested in his
public persona as such is the epistemological status of macroeconomics itself. There is a
good reason for this.
It appeared until recently that the particular approach to macroeconomics that
Keynes advocated in his important works had served their theoretical purpose as
necessary tools of policymaking during the New Deal, but the ‘institutionalization’
of Keynesian ideas across the political spectrum was also, to some extent, their
undoing.
When even die-hard conservatives in the United States like Richard Nixon
proclaimed themselves as ‘Keynesians’ in the post-war period, it was obvious that
Keynes’s theories had passed on from what was an important set of specific policy
prescriptions to handle the challenges of depression-era economics in the 1930s to

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becoming the new socio-economic ‘consensus’ that both the left and the right were
taking seriously in the Anglo-American world.
This consensus remained the core of policy making until the revolution in monetary
economics under Milton Friedman gave the impression that the main significance of
Keynes’s macroeconomic prescriptions was really specific at best to the socio-economic
needs of the depression era and the policy requirements of the New Deal.
It also appeared that Keynesian approaches were not really required even during
that period and that the economy would have revived on its own.
John Maynard Keynes
How are policy makers expected then to make sense of all this? Should they
approach Keynes as the embodiment of a general theory or a special theory?
It is certainly worth asking whether Ben Bernanke and Janet Yellen are ‘Keynesians’
in their approach to monetary policy?
Is not Quantitative Easing (QE), the best known instance of ‘unconventional
monetary policy,’ but a Keynesian response to the financial crisis?
Or, to put it simply, Ben Bernanke’s ‘unconventional monetary policy’ is the Fed’s
version of Keynesian fiscal policy in disguise.

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THE AFTERMATH OF THE FINANCIAL CRISIS
The economic meltdown and the financial crisis of 2008 has led to a quick revival of
Keynesian approaches to policymaking since it became clear that markets are
efficient when things are going well.
But they don’t necessarily correct themselves at the speed that is required to stabilize
the macro-economy during a financial crisis.
Hank Paulson and Ben Bernanke
There is therefore still a lot of work for the federal government to do in order to
stabilize the financial markets.
A large number of important and urgent policy measures were therefore announced
by Ben Bernanke of the U.S. Federal Reserve and Hank Paulson of the U.S. Treasury
in 2008 including the controversial Troubled Asset Relief Program (TARP).
These programs and policy measures were both initiated and undertaken
proactively by the Bush administration despite its traditional faith in the efficacy of
the financial markets.
It was however the prior institutionalization of the Keynesian way of doing things –
at least during a crisis, then, that made these policy measures possible to some
extent.

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What we are witnessing now in the Obama administration is not merely a re-
invocation of Keynesian measures, but what appears to be full-fledged return to the
Keynesian paradigm as such in macroeconomic thought given the extent of the
economic slowdown.
The President himself identifies strongly with FDR and the corrective measures of
the New Deal era.
It is therefore a good idea to consider whether the Keynesian paradigm, which
reserves a strong role for government and fiscal policy, represents a ‘general theory’
or a ‘special theory’ in macroeconomics.
Or, alternatively, whether different socio-economic demands and ‘contingent’
circumstances of policy making will dictate which of these theoretical approaches
should apply going forward.
EPISTEMOLOGY OF ECONOMICS
The epistemological status of macroeconomics is all the more important given that
Keynes entitled his most important work as a ‘general theory’ rather than as a
‘special theory.’

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This was an interesting philosophical analogue to the analytic distinction between
these terms in Einstein’s theory of relativity.
A general theory is much more likely to pitch for the epistemological status of
economics a science since it is not reducible to a particular set of social conditions,
but works instead with structural notions that should be applicable across different
eras.
Keynes, needless to say, was more interested in aggregate economic phenomena given
his interest in developing a general theory as evidenced by the following line on
methodology, where he argues that his focus is on:
‘the economic system as a whole, - with aggregate incomes, aggregate profits,
aggregate output, aggregate employment, aggregate investment, aggregate saving
rather than the incomes, profits, output, employment, investment and saving of
particular industries, firms, or individuals.’
It is the theoretical relationship then between the notion of the ‘aggregate’ phenomena in
question and the demands of a general macroeconomic theory as such that is in contention in
Keynesian theory.
John Maynard Keynes

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The preoccupation with monetary theory on the part of policy makers then is not
necessarily a repudiation of Keynesian theory since recent events have shown that
they are often invoked during a crisis as a default mechanism.
It is important to understand this clearly since the invocation and deployment of
policy measures based on ideas in economic theory are not mutually exclusive in
terms of their intellectual origins.
They ‘combine’ important features from different theories, or do not sufficiently
recognize the extent to which a previous theory has already been incorporated into a
new theory.
So while macroeconomists continue to discuss the epistemological implications of
different theories, policymakers prefer to invoke a range of measures that are
generated by these theories ad hoc, or as pragmatist measures; which, no doubt,
involve some trial-and-error, and necessary course corrections along the way.
It is therefore not important for a policymaker to know once whether Keynes’s
theoretical achievements should be situated under the aegis of a general theory or a
specific theory in the strong epistemological sense of the term.
THE POLICY RESPONSE
While the theoretical differences between Keynes and Friedman have received a lot
of coverage and generated discussions both in academia and media, what is equally
important is Keynes’s missed encounters with Joseph Schumpeter and Friedrich
Hayek.
Clarke’s biography of Keynes is not meant to exhaust the topic, but is designed as an
introduction to the educated layperson who wishes to brush up on his economics in

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order to not only make sense of the recent financial crisis, but also to understand
how a great economist thinks.
He does not presuppose too much understanding of the technical elements of
macroeconomics in the lay reader, but does work on the assumption that the reader
will want to at least explore the relationship between the life and the work without
making the obvious error of reducing the work to the life.
John Maynard Keynes
Again, Clarke is keen on differentiating between the responses of U.S. policymakers,
as opposed to those in the United Kingdom, given that Keynes was the main
intellectual source for the New Deal and for much of the work in public policy that
subsequently drew upon macroeconomic theory.
While it is difficult to capture the extent of this influence in the space of just four
chapters and an epilogue, Clarke manages to distill the essence of the man and the
work with not only brevity, but with a sense of humor that is rare for somebody
writing in this area.
He reproduces a cartoon, the morals, and jokes of the era as a way of humanizing
Keynes, who can quite easily become an intimidating character.

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In addition to economics, Keynes also had multiple interests in the arts, culture, and
literature given his association with the Bloomsbury group in London. Amongst the
achievements of this book is Clarke’s ability to invoke the cultural milieu of
Bloomsbury with a finesse that is usually the hallmark of great literary biographies.
KEYNES ON MONEY
Clarke also discusses the most important of Keynes’ publications including his early
Treatise on Money, and the magnum opus that got him a place in the economic
pantheon of fame, the General Theory of Employment, Interest, and Money.
There is also a serious attempt to dispel a number of misunderstandings about
Keynes in this book given that his popularity as a writer led to a situation where he
found himself sometimes quoted out of context.
So, for instance, as Clarke takes the trouble to point out, Keynes’s famous statement
about the fact that we are all ‘dead in the long run’ does not mean that he was a
short-term planner.
What he meant by the term ‘long run’ was in the ultimate analysis and should not be
misunderstood as support for only short-term economic planning.
This confusion is related to the fact that, as Keynes himself was at pains to
emphasize, what is true at the level of the micro-level of analysis is not necessarily
true at the macro-level of analysis as instantiated by the famous example of ‘thrift.’
While it is important for individuals to practice thrift, it is not a good idea if
everybody were preoccupied with it to a fault since both savings and consumption
are important in the macro-economy.

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Reading Keynes, or even about Keynes, without respecting these theoretical levels of
analysis can lead to serious misunderstandings. And, then again, this book is an
invitation to learn more about Keynes and his contribution to macroeconomics,
without pretending to sum him up once and for all.
SHIVA KUMAR SRINIVASAN