Keynes and the Cambridge tradition

John Vaizey

For seventy years or so, from 1880 to 1950. Cambridge economics dominated the British intellectual scene. The London School of Economics after 1930 began its career as the British embassy of the Austrian-American school of extreme laissez-faire, and Manchester provided a steady muttering of 'industry, competition, cotton'. But the ideas and excitement came from St. John's, Trinity and King's. The reason for this was simple. Alfred Marshall imposed himself; and his pupils, of whom J. M. Keynes was one of the youngest, kept up his reputation for nearly thirty years after his death. Marshall was the greatest English economist. Without him, Keynes would have had a very different career and reputation.

Born in 1844, son of a Bank of England clerk. Marshall read mathematics at Cambridge. He became a Fellow of St John's, became the first Principal of what was to become Bristol University, a Fellow of Balliol teaching Indian civil servants, and then came back to Cambridge as Professor of Political Economy. Marshall was a valetudinarian, almost always ailing, but he had the remorseless invalid's quality of persistence. He married Mary Paley, a brilliant girl from Newnham. Childless, she was pushed into the service of his genius. Working in quarter-of-anhour spurts, he ploughed through economics, unwilling to publish, delaying and delaying, but surrounding himself with brilliant pupils whom he sent into the world to do good. Marshall had the moral fervour of the late Victorian unbelievers. He also had their omniscience. He toured factories, visited trade unions, and could tell to the nearest farthing what people earned. Nobody has ever known more about the British economy; nobody has ever read wider and deeper in the literature of the social sciences. His influence was immense.

First of all, he believed in moral improvement through good works. His pupils were not to sit on their bottoms theorising; he found mathematics dizzily exciting and, like chess, put it behind him. The poor were always with him and their poverty cried out for relief. His powerful mind was perfectly capable of drawing up abstract schemes, but his emphasis was put continually on the hard, recalcitrant stuff of reality. This led him to two other characteristics of his thought—time, and partial equilibrium analysis.

The abstract systems, like those of Menger and Walras, in Austria and Lausanne, made timeless general equilibrium the basis of their work. Everything depended upon everything else simultaneously, so their economics took the form of an infinitely extensible system of simultaneous equations. This

had two benefits—no evidence was relevant to whether the system was true oi not, since it was self-containedly logical, and it also carried the political message that any interference by government with one bit altered, for the worse, all the rest. In these systems prices, including wages, were infinitely flexible and the market was always cleared. Marshall, on the other hand, believed that circumstances alter cases and in particular that time was the clue to the development of an economy. As the economy moved on through time, the very short run (in which very little could change) was differentiated from the normal period, and from the long run, in which everything (population, ideas, the stock of capital) could be changed. This idea of three sorts of period is fundamental to Cambridge economics; no Cambridge economist can think in any other terms, and it most sharply differentiates Cambridge from the market-clearing simultaneity of the Austrian-LSE school, which elevates relative prices to an absolutely dominant role. Marshall'es other idea was one of partial equilibrium. He dealt with the economy sector by sector, holding the rest of the system constant as he did so. He did not believe in economy-wide truths, holding that each industry—its techniques, its capital, its labour form, its geography—was sui generis. This, too, is a fundamental difference from the Austrians.

Lastly, Marshall was convinced that the Ricardo tradition that money altered the economy was correct. In other words, he differentiated, in a way that the continentals did not, monetary economics from other economics, and thought that money was a separate subject needing special analysis to explain boom and slump. This part of his teaching was mainly oral. It was the part that most interested Keynes.

This corpus of teaching was extremely powerful. It was handed on to Keynes's father, Pigou, Lord Brand, Lord Stamp, Lady Wootton, D. H. Robertson and— above all—to J. M. Keynes. By modern standards Cambridge in the 1880s and I 890s was a small university, and the embryonic Faculty of Economics was tiny. It attracted brilliant and committed young men and Marshall had an individual influence on them all whether they went into the City, Whitehall or academic life (Keynes did all three).

Pigou succeeded Marshall. In many ways his was a bad influence; though a historian, he believed in a mathematical system, and what Marshall left untidy and allusive he made clear and, often enough, banal. His cast of mind was conservative, and he strongly influenced Robertson. Both Pigou and Robertson were extremely economical. Rob

ertson, the son of a headmaster of HalleY; bury, then subsequently a poor parson, hao a desperate fear of poverty allied to a great belief in consols. These two were Keynes's intellectual intimates. His interests were wider, especially in logic, derived from his father, the logician, and pure philosoPhY with Moore and Wittgenstein. But in economics he talked to Pigou and Robertson, till, both were superseded by Kahn, Sraffa artu the younger Keynesians after about 1930. Keynes swallowed all of Marshall, though he rejected two sets of doctrines develoPed by Pigou. One was an excessive reverence for the price system; he regarded it as a Purel! pragmatic matter whether or not prices we' the best allocative mechanism. The other, ill' finitely more important, was that he followed Marshall's hints and unsystematised notions about the rate of interest and money into 3 rejection of the idea that capitalism tended to sustain an equilibrium rate of employrn1 provided that wage levels were sufficientY flexible. This rejection of Say's Law, that supply creates its own demand, was the e°1‘ nerstone of Keynes's theory of unemPI°Ymerit. Keynes, then, was not a rebel against the Cambridge tradition, though the Cambridgei tradition was insulated against continent economics. The subsequent lumping toge: ther of Marshall's careful version of the vv" the economy actually worked with walras and Menger, under the title of neo-classics. tends to exaggerate grossly the extent t° which Keynes was a radical. He had a 10°found sense of reverence for his forebears,' not least his father, who outlived him, glue his biography of Marshall was among th, finest essays he ever wrote. On the othedt hand, together with this reverence, he hal the Bloomsbury urge epater le bourgeols', le there were two ways of saying something.h., chose the more shocking. This was partlY habit of mind and partly because he Was great and fluent stylist, with a style at one` robust and rococo. Austin Robinson once told me that lkeYei nes wrote several thousand words a day afld rarely threw any of them away. His Collecle;" Works show that he had no need to do so. ti suggests, however, what Lord Kahn "loci Joan Robinson have emphasised, that t,s search foi a narrow consistency in KeYnes,./ thought is to misunderstand his nature. working. He chose,at Marshall's promPtIll to specialise in money and banking. "kis knew more about the City than any of contemporaries except those like Brand worked there, and Hawtrey in the TreasuLY_A

He was himself an inveterate speculator a"", veo

gambler, chiefly in commodities. He ,d

intellectual speculation as well: he prefer('

the stimulus of a bright idea to the certainty of the carefully phrased finality. It is probahlY this that attracted him to `money'—ie the City—as a subject of study ; Marshall regarded his own doctrines in this field as unfinished, whereas his work on industry and the market system seemed pretty final. It is this speculative nature—the Etonian Engrandee, perhaps, as opposed to the Bank iof gland clerk's son—that made him so nslnring a teacher of clever people. ChamPagne, quicksilver, lightning are some of the nletaPhors used to describe Keynes's Intelle.ctual challenge to his pupils, as at the Politica Economy Club, which met in his rooms to read and discuss papers, the discussants heing chosen by lot. (The tradition was car On by D. H. Robertson in his icy rooms In Great Court, a frugal tea served between the Paper and the discussion. Another older tradition lingered. Marshall was a bad lecturer. vve were morally obliged to attend Mr Guillebaud's lectures and protest was silenced by 'Mr Guillebaud is Marshall's nePhew.)

After the Great Depression in 1929-31 KeYnes moved for a decade with a younger set, mediated through the brilliant Richard

ahn. A new, genuinely radical note arrived in Cambridge economics. Kahn, more than a„flYone else, was responsible for the General heory, by explaining that an economy enuld be in equilibrium and still have masSiVe unemployment. But another deadlier thread had been drawn out of the fabric of Marshall's thought by Piero Sraffa, friend of tche great Wittgenstein and of the Italian shninmuallnist leader Gramsci, who took Mar

key tool of the representative firm and ;urns:lowed that competition and increasing re

t° scale (a characteristic of large-scale crllstrY) were incompatible. Mrs Robinson thevel oPed this idea, so that the modern s"e°rY, that prices are determined not by mPPUIY and demand, but by cost plus a profit 2-irg'n, was much in the air. Marshall's alle-Cnce to the price system had been pragmate-I; n(lt a priori. There was no longer any ins "eetual reason to suppose that the price Ptenl allocated resources any better than wny other system; in any particular case it

a,s,a matter of fact and judgment.

fietI%-deYnes contributed to economics in many trio'ns* "is major work was on the theory of v-eY and, eventually, on the theory of emno:icse.nt—w hat is now called macro-ecoofrtokeyn:she evidence from Dr Es hag's study S work on the rate of interest, and lisht tue long correspondence now pubthat ,-`1, i with other Cambridge economists, s in ,iote ",,eYnes's thought was deeply embedded the Cambridge tradition. After all, he rn Preface for the Cambridge econosere; handbooks, probably the most brilliant ciaies Of textbooks ever produced in the soby Er', ,ences, and the series included a book fere • 0 called Money. The dd.Robnees between Keynes's approach and comertson's were exaggerated in the heat of Gen-er,?v,ersY after the appearance of the has Theory' but Harry Johnson's work surlyvn how formally the two can be re

duced to very similar formulations.

This is not to deny the extreme originality of Keynes's thought on the determination of the level of employment. On the fundamental issue, whether unemployment was due to too high a money wage level, Pigou was on one side and Keynes on the other and it was not till Keynes had been dead for some years that Pigou announced that he had been converted to Keynes's view, a conversion that caused much wailing and weeping and remarks about senility. But the fact that even in old age Pigou could still go along with Keynes's fundamental revision of the theory of employment suggests that the Keynes innovation, though great, was well within the general corpus of Cambridge theory. That is a point of view that the Keynesians would have contested at the time, but it is clear from the preface to the French edition of the General Theory that Keynes himself was aware of the complexity of his own position :

'For a hundred years or longer English Political Economy had been dominated by an orthodoxy. That is not to say that an unchanging doctrine has prevailed. On the contrary. There has been a progressive evolution of the doctrine. But its presuppositions, its atmosphere, its method have remained surprisingly the same, and a remarkable continuity has been observable through all the changes. In that orthodoxy, in that continuous transition, I was brought up. I learnt it, I taught it, I wrote it. To those looking from outside I probably still belong to it. Subsequent historians of doctrine will regard this book as in essentially the same tradition. But I myself in writing it, and in other recent work which has led up to it, have felt myself to be breaking away from this orthodoxy, to be in strong reaction against it, to be escaping from something, to be gaining an emancipation.'

And in the preface to the Japanese edition he makes a more explicit claim:

'Alfred Marshall, on whose Principles of Economics all contemporary English economists have been brought up, was at particular pains to emphasise the continuity of his thought with Ricardo's. His work largely consisted in grafting the marginal principle and the principle of substitution onto the Ricardian tradition ; and his theory of output and consumption as a whole, as distinct from his theory of the production and distribution of given output, was never separately expounded. Whether he himself felt

the need of such a theory, I am not sure. But his immediate successors and followers have certainly dispensed with it and have not, apparently, felt the lack of it. It was in this atmosphere that I was brought up. I taught these doctrines myself and it is only within the last decade that I have been conscious of their insufficiency. In my own thought and development, therefore, this book represents a reaction, a transition away from the English classical (or orthodox) tradition'.

—that is, that in the ten years after Marshall's death it was the other Cambridge economists who were out of step with Marshall.

The other chief contribution that Keynes made was to policy. I do not mean by this that his ideas were usually or even occasionally adopted as a result of the minutes that he wrote in government service, or the constant flow of journalism which he kept up. It was this constant concern with the actual which differentiated his thought most dramatically from the work of other economists, which was more abstract, or more concerned, not with political economy, but with statistical series and a narrow concept of economics. His literary and journalistic work covered an enormous breadth of intellectual life, which deeply affected his economics. In this respect he was, of course, a broader man than Marshall (to imagine Marshall at the ballet is like imagining Wagner at an economics seminar).

Keynes shifted, then, from being the radical member of a Marshallian group, to being the more conservative member of a younger group which was predominantly socialist, while still being heavily Marshall ian. It must be said that Marshall's economic catholicity, and the sheer power of his analytical system, enabled the transition to be made with remarkably little strain. Since he believed in evidence, changing evidence could be accommodated in his theory as it could not in those more rigid systems that Hayek brought to the LSE and the refugees took to America, where they overwhelmed the native American institutionalist school, now revived by Galbraith. At any time, Keynes's break with tradition applied only to part of it; the rest he continued to embrace. He never, in print at least, faced up to the long-period consequences of his short-period analysis in the General Theory; these problems were left to his two pupils, Sir Roy Harrod and Professor Joan Robinson, and to Lord Kaldor.

In the last five years of his life Keynes was reconciled with D.H. Robertson. The breach between the two men covered the crucial decade of the 1930s. The reconciliation gives some ground for thinking that Keynes returned to his more conservative stance as the country moved to the left. I doubt whether this is true. It is idle to speculate what Keynes might have said after he was dead ; he had a genius for the unexpected. But we know that he strongly urged Hugh Dalton to pursue a cheap money policy, and that he supported the American loan. Both

involved radical departures from orthodoxy. The breach with Robertson I had supposed to come from Keynes, who had found new friends; the correspondence now proves it was Robertson who broke with Keynes over the General Theory. Robertson, brilliant, brave, waspish, was deeply conservative. The sad family history of genteel poverty, the minor parsonical snobbery, the suppressed shyness, all made him easy to like but hard to persevere with. He saw reds under all non-Etonian and some Etonian beds. He refused to be swept up in the enthusiasm for an untidy book like the General Theory.

So Keynes passed on, always tackling new problems, not particularly concerned with consistency. His intellectual heirs are also Marshallians—Kahn and Joan Robinson. But a new note, Sraffa, was introduced into the Cambridge symphony by Keynes himself, and it is Sraffa who, for fifteen years now, has superseded Keynes as the dominant influence. Keynes is praised and blamed for thoughts and actions that were not his. The great boom of 1948-1970 is labelled 'Keynesian'; the great inflation of 1967 to now is labelled 'Keynesian' ; the little men predicting the output of peas to the nearest kilogram for the next seventeen weeks label themselves 'Keynesian'. They are none of them anything to do with J. M. Keynes, the brilliant, affectionate, subtle mind that has been dead for thirty years. His followers have turned to other questions, as he would himself, and their answers are not necessarily his. He would have been the first to assert proudly : he wanted equals, not disciples.