In the City
Calling up Keynes
Nicholas Davenport
The City so far is taking the crisis very coolly, refusing to be alarmed at what seems to be a very alarming situation. Last week, government bonds recovered and the equity share index bounced back to over 500 with a rise of 25 points. The market Obviously took heart at the collapse of the Power engineers' strike and the emerging Split in the miners' leadership. It was also encouraged by the recent opinion poll Which showed an overwhelming support for the Government's anti-inflationary pay guide-lines. So was Mr Callaghan, but I hope the market is not imagining that the Prime minister is likely to call out the troops. It is not his style. Of course the eountry as a whole is sick of the strikes and Is moving to the right but the revolutionary Minority is also moving to the left. I doubt Whether the City has got its measure. I wonder what my old guru Keynes would have thought of this appalling situation. He had never had to deal with an alienated working class. He was anti-Marx, whom he pretended he could never read, and he was anti-socialism, although I once got him to write two articles in the New Statesman (in September 1932) in favour of Dalton's National Investment Board which 1 was then pushing. To quote his words: should , expect that its [NIB] chief problem would ,he, to maintain the level of investment at a mgh enough rate to ensure the optimum level of employment. . . The grappling with these central controls is the rightly conceived Socialism of the future'. This showed that he had a flexible mind which would admit socialism into his economic model, and I do not believe that he would ever have allowed the workers to get into their noncooperative and alienated frame of mind. He would have offered them a slice of the national equity, as I have been urging now for some years. This did not occur to the authors of the articles on Keynes which were published in the Spectator over the course of last year, but they are well worth re-reading, having much valuable comment on our present discontents, These have now been enlarged and reprinted in book-form by the Macmillan Press under the title The End of the Keynesian Era.* They were edited by Robert Skidelsky and the contributors were John Vaizey, Marcella De Cecco, Peter Lilley, Samuel Brittan, Aubrey Jones, Robert Lekachman, Stuart Holland, J. T. Winkler, the late Harry Johnson, David Calle° and Geoffrey B arraclo ugh — a very distinguished team. I found all their pieces fascinating, and having worked with Keynes, having written under his direction in the Nation and the New Statesman from 1926 to 1949 and having known how his mind worked, I was impressed by their perspicacity. They have certainly got him 'taped'. They have in fact 'buried' him. As Robert Skidelsky tersely remarked: 'Keynes overestimated the possibility of rational economic management by democratic government'.
Poor Maynard: he will now always be remembered as — to quote Geoffrey Barraclough 'the creature of that fearsome weapon of aggregate demand management — the magic long-term formula for continuous growth'. He would have been the first to denounce its misapplication to the post-war inflationary world if he had lived after 1946. Having handed over the bargaining power to unionised labour in the war-time White Paper on Full Employment (which became the top economic priority in both the US and the UK) he would have been the first to point out that a wage-cost inflation would follow and would have to be countered by forcible savings deducted from the pay packet — and invested in something like a public unit trust. Unfortunately never had the opportunity to discuss that institution with him but I feel sure he would have approved of it. As he was chairman of a mutual life office, on whose board I sat, and a keen personal investor, 1 know that it was just the sort of solution he would have favoured.
I have made the point before in this column that the inflationary ritual of the annual wage claim came to be adopted by the TUC after the Tories in 1951 had dismantled the Keynesian monetary controls which had enabled us to fight the war on a 3 per cent basis and had introduced the annual 'demand management' budget on Keynesian lines. If the government intends to manage annual demand, said the TUC, we must manage annual wage claims to protect our standard of living. So the Tory `stop-go' budgets had disastrous results for industrial relations. As I predicted in my Split Society of 1964 the complete alienation of the working class from any feeling of partnership in the national economy was the result of the Tory 'stop-go' management budgets. After all, why should workers have to bear the brunt of the suffering — through unemployment — when a demand management budget imposes inflation? I think the authors of this Keynesian critique may have overstressed the social radicalism of Keynes. True he said: 'The outstanding faults of. the economic society in which we live are its failure to provide full employment and its arbitrary and inequitable distribution of income and wealth'. But if he had lived to see wealth taken away from the middle class and handed over to the working class he would have become even more conservative. Realistic politicians like Mr Callaghan have now abandoned any idea of finetuning an economy through either Keynesian or Friedmanite techniques. The Keynesian techniques he has now denounced as inflationary and the Keynesian economics he learned at Nuffield (like Kahn with his multiplier or Harrod with his capital-growth equation) must seem like dim shadows of the past to our pragmatic prime minister. Trade cycles, I have always argued, should have been measured in terms of psychiatry, not economics, for they were more alternations of fear and greed on the part of the businessman, but they have now taken on a new phase, the alternations of a power struggle between social democrats and Marxist revolutionaries. 'Can Democracy manage an Economy?' asks Samuel Brittan in these essays on The End of the Keynesian Era. No is the answer until democracy is run on consensus tines between capital and labour. The only politician likely to achieve that miracle is Jim Callaghan, who learned his Keynesian economics while out of office and unlearned them painfully in these latter days of office.
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