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Title: Lord Skidelsky's Important Remarks at the July '09 Caux Round Table Global Dialogue
Date: 10-Nov-2009
Category: Opinion Essays
Source/Author: Lord Skidelsky's
Description: Our keynote speaker at the July Global Dialogue at Mountain House in Caux, Switzerland, was Lord Robert Skidelsky, author of a three volume biography of John Maynard Keynes, and just recently, a well-received new book entitled Keynes: Return of the Master. “The root cause of the present crisis lies in the intellectual failure of economics,” Mr. Skidelsky writes. “It was the wrong ideas of economists which legitimized the deregulation of finance, and it was the deregulation of finance which led to the credit explosion which collapsed into the credit crunch. It is hard to convey the harm done by the recent dominant school of New Classical economics. Rarely in history can such powerful minds have devoted themselves to such strange ideas.”

Lecture at Caux, 13 July 09
What is it about our present economic system –I shall call it capitalism for short - that the current economic crisis has shown to be wrong? I ask this question from an ethical, not an economic standpoint. The economic answer is fairly straightforward: the crisis showed that the efficient market theory is wrong. Financial markets are not perfectly well behaved. They can crash and in their crash involve whole economies –the global economy today –in ruin. Evidently the banking system needs better regulation; we need to reform the world monetary system. I have just written a book about this.  The ethical answer is more complex, and it is on that which I wish to concentrate today.
Two   answers are commonly given to  to the question of  what is morally  wrong with the  capitalist market system.  The first is that it promotes bad behaviour.  Its motive forces are greed and selfishness. Capitalism    needs to be controlled, therefore, from the outside –by morality, by regulation – if its vices are to be curtailed and  it is to work for the general advantage. This answer is  familiar enough. It has long been the staple of left-wing criticism of unfettered markets that they make gods of greed and selfishness; the response was  the social democratic welfare state created in  Europe after the second world war,  much of which still survives. The current economic down turn has seen an outpouring of  popular resentment against the ‘bonus culture’.      ‘The key thing that went wrong was that a culture was allowed to develop over the last 15 years or so where the relationship between what people did and what they got went way out of alignment, especially at the top end’[i] observed the British chancellor of the exchequer  Alastair Darling. A hundred years ago, the language would have been much more brutal: ‘they toil not, neither do they spin’ thundered Lloyd George in his populist assault on aristocratic rents.
The second answer to the question of what is wrong with capitalism  is that it sets no limit to wealth accumulation. Its  only goal is to make people  richer and richer.  But getting rich without limit can hardly be an ethical goal. So a limit on aggregate wealth-creation has to be imposed from outside.  
Two observations on these criticisms of capitalism can be made straightaway. The first is that they are united by a single nexus: greed. Greed makes economic actors behave badly; and it also makes people strive for riches regardless of the objects to which wealth should be applied.  So the curtailment of greed is the common ethical goal of both sets of criticisms.
But,  secondly, it may be thought unfair to blame capitalism for the ethical or moral failings of society. The capitalist market economy is simply a tool for producing  wealth. It is just as absurd to blame it for producing results which many  find offensive, as it is to blame a tool for being misused. This is a powerful defence. On the other hand, it could be argued that the pursuit of wealth tends in and of itself to obliterate the older moralities which would have acted to restrain it. In other words, it undermines the moral foundations of the societies in which it is unleashed.  It does this by imposing a logic of efficiency and gainfulness on an ever-widening range of activities. The economic aspect of activities crowd out older logics, which, so to speak, do not count the cost of behaviours, at least in material terms. It becomes increasingly hard to make a non-economic argument against a proposed course of action which has behind it a robust economic rationale.  
Since I have just written a new book on Keynes I will turn to Keynes’s consideration of these ethical questions, for he was a philosopher and moralist as well as an economist, an almost extinct species. He never ceased to question the purpose of economic activity. Briefly stated, his conclusion was that the pursuit of money – what he called ‘love of money’ -was justified only to the extent that it led to a ‘good life’. To make the world ethically better was the only justifiable purpose of economic striving.
This doctrine is  alien to today, since  there is now no generally agreed idea about what constitutes  the good life.  The morality we are still able to bring to the discussion of capitalism is almost wholly concerned with the principles of good behaviour. We can still talk about the duties of wealth. The tradition that we should treat people as ends, not means, survives in the form of what is called ‘virtue ethics’. But on wealth as an object of desire we have nothing to say: if that’s what people want, then that’s what they should have. Moreover, the accumulation of wealth has behind it one powerfully resonant ‘moral’ argument: it lifts people out of poverty. And this is universally acknowledged to be good, even though traditional religious teaching tended rather to the view that poverty made for saintliness. The only questions that economists and philosophers  feel they can ask about wealth are second-order ones: does its increase in fact make people happier? Has it been justly acquired? Is it fairly distributed? But on  the relation of wealth to ethical ends they are  silent.  
I will consider Keynes’s ethical principles under three heads: the relationship of wealth to goodness, his evaluation of the psychology of capitalism, and the role of justice. Finally, I touch briefly on his relationship to Christianity.
Wealth and Goodness
Keynes was neither a Christian nor a socialist, so his conception of the good life made no explicit appeal to either of these traditions. Rather the appeal he made was to rationality. His ethics seems very old-fashioned, because he attached rationality to ends as well as to means. His philosophical education came before the logical positivist revolution of the 1930s, which dubbed ethical beliefs irrational, a mere expression of private preference. The key to Keynes’s ethics is that although he was an atheist, he was close enough to the ‘believing’ generation to feel the need for ‘true’ beliefs.
The ethical framework within which Keynes thought about economic problems was provided by the Cambridge philosopher G. E. Moore’s, whose Principia Ethica was published in 1902, Keynes’s first year as a Cambridge undergraduate. This work provided him with his ethical criteria. Moore made a sharp distinction between ethics and morals, and subordinated the latter to the former. For Moore, the primary ethical question is ‘what is good?’ or ‘what sort of things ought to exist for their own sake?’ The moral question, ‘what ought I to do?’, ‘How ought I to behave’ can be answered only by reference to the primary question as well as to the probable consequences of action.
Moore’s doctrine is both startling and austere:
By far the most valuable things we know or can imagine are certain states of consciousness which may be roughly described as the pleasures of human intercourse and the enjoyment of beautiful objects…It is only for the sake of these things –in order that as much of them as possible may at some time exist –that one can be justified in performing any public or private duty;…it is they… that form the rational ultimate end of human action and the sole criterion of social progress.[ii]
Things ‘good in themselves’ are states of mind; actions –more broadly behaviours - good only as means – only if they contribute to bring about good states of mind. The following comments are in order:
1.      Moore’s list of intrinsically valuable goods is very short; for example, it leaves out justice. Keynes added ‘love of knowledge’ to this list. The most ethically valuable goods for Keynes were states of consciousness described by such phrases as ‘being in love’, ‘experiencing aesthetic emotions’, and ‘the pursuit of knowledge’.
2.      These ethical goods are not to be construed as statements of personal preference. Good was an objective, indefinable quality of things, intuitively known to be present or absent, in much the same way as we perceive an object to be green or yellow without being able to define ‘green’ or ‘yellow’. Rational people know what is good. There is a strong connection between ethics and truth. It is this belief more than any other which distances Keynes from the economics (and indeed the ethical philosophy) of today. It aligns him with tradition of Platonic philosophy and Christian religion, in which all rational people held unanalysed notions of what is good.
3.      Moore’s ethical doctrine may be described as ‘ideal’, as distinguished from hedonistic, utilitarianism, because that which is to be maximized is not happiness or pleasure but goodness. The ethicist is enjoined to ask: what wealth-producing activities tend to increase or retard the production of the greatest possible amount of goodness in the universe? The link between wealth and goodness is thus  far more problematic for Moore and Keynes than it was for Bentham. A sensationalist psychology combined with the greatest happiness principle yields the straightforward conclusion that any desired increase in the aggregate of pleasure-producing goods is ethically desirable. This is not so in Moore’s system. The connection between pleasure and goodness is indirect and always has to be argued. Keynes follows Moore in treating pleasure as extrinsic to goodness. Being in love is a source of both pleasure and pain and the same is true of intense aesthetic and intellectual experiences.
4.      In place of Bentham’s ‘felicific calculus’, Moore offers the principle of ‘organic unity’, not as a way of measuring, but as a way of judging the quantity of goodness in any state of affairs. In other words, you can’t sum up the quantity of goodness simply by adding up individual states of consciousness. Good states of affairs are ‘complex organic unities’; their ethical value could be more or less than the sum of their parts.  The  doctrine of organic unities is incompatible with methodological individualism, the doctrine that any ‘whole’ is simply the sum of  the individual parts. Keynes rejected methodological individualism in both ethics and economics.
5.      Moore’s utilitarianism shares with Bentham’s the characteristic of treating instrumentally (‘as means’) all values not specified as being intrinsically good. Capitalism is merely an instrument. Liberty and justice, too, are not ‘good in themselves’, but means to the realization of intrinsic goods.  Duty falls out of the picture except as a means to the good.
6. Nevertheless,  Keynes accepted the Benthamite conclusion that egoism is superior to altruism as a maximizing principle. This is because we have no direct knowledge of any state of mind but our own. This is Keynes’s main justification for the system of political and economic liberty.
There is a moral prescriptivism in Moore lacking in Bentham, which arises from the central issue which Moore’s ethics raises concerning the connection between pleasure  and goodness. It cannot be readily assumed that what we desire is desirable. Here Keynes, like Moore, accepted  Hume’s distinction between ‘is’ and ‘ought’. The reconciliation between the two  urged by many ethicists (including John Stuart Mill) is to improve the quality of our desires to the point that they become ethically desirable. Keynes would not have objected to this.  Nevertheless, he would have insisted on the validity of the distinction between ‘is’ and ‘ought’. Of  any feeling deemed pleasant one can always ask: is it good?
Keynes’s argued  that the goodness of states of mind could be increased or diminished by what he called the ‘fitness’ of states of affairs. This  opened up a wide justification for business, political, and philanthropic endeavours as means to ethical goodness. Keynes made the commonsense judgment that it is easier for people to be good – in the sense that he and Moore thought of good – if they had a certain level of material comfort. In this way, economic and political action to improve material conditions could be accommodated within Moore’s doctrine. Keynes also followed Moore in treating enjoyment of beauty as an integral part of the good life, and acted on it in a personal capacity as patron of the arts and theatre builder, by public advocacy of the beautification of cities and the preservation of the countryside, and most notably by setting up the Arts Council of Great Britain at the end of his life. A follower of Moore might also interest himself, without contradiction, in raising standards of education and health insofar as these improved the knowledge, sensibility, and comeliness of the population.
However, Keynes never believed  that there was an automatic connection between goodness and pleasure. He recognized the possibility of trade-offs. Here are three examples of his hesitating line of argument. The first is an argument he used to have with his Cambridge friends:
As time wore on towards the nineteen-tens, I fancy we weakened a bit about pleasure. But in our prime pleasure was nowhere. I would faintly urge that if two states of mind were similar in all other respects except that one was pleasurable and the other painful there might be a little to be said for the former…but it was the general view that pleasure had nothing to do with the case and, on the whole, a pleasant state of mind lay under grave suspicion of lacking intensity and passion.[iii]
The second comes from a paper on Tragedy he read to the Apostles, the famous (and selective) Cambridge philosophical society, in 1921:
I am not certain that all tragic states of affairs are bad on the whole, when everything has been taken into account, or that the goodness of the states of mind, if it is very great, may not outweigh the badness of states of affairs... [But] it is possible, I think, to imagine two states of affairs, one of which is tragic or unjust, and the other not, such that the states of mind in each are exactly of equal value, and to believe that the tragic state of affairs is less desirable than the others. [iv]
This line of thought led, thirdly, to a quasi-Aristotelian argument for the importance of the dramatic arts in an ethically progressive civilisation:
In actual life many of the feelings which we deem noblest and most worth having are apt to be associated with troubles, misfortunes, and disasters. In itself we generally judge the state of mind of the hero going into battle as good – but it is such a pity that he should be killed… If, on the other hand, it were possible to sympathise with, enjoy at second hand, or admire the noble feelings without the evil happenings which generally accompany them in real life, we would get the best of both worlds. Now, as it seems to me, the object of Tragedy is precisely to secure for us a conjuncture in which this comes about. We come into contact with noble feelings and escape the bad practical consequences… [v]
The cost of heroism, or pity, in other words, can be reduced to the price of a theatre ticket: a good bargain for the social reformer. With notable 20th century exceptions the price of goodness – in the sense Keynes is using the term –has been continually falling, as revolutions and wars become theatrical spectacles, with few casualties, but mass television audiences.
Today we would say that the Moore-Keynes goal of maximising the quantity of goodness in the universe cannot provide an agreed criterion for economic action, because rational people disagree about what is good. Economics therefore is bound to take wants as data and treat the maximisation problem in terms of want satisfaction. This is a problem for any attempt to marry ethics and economics. We can ease it, but not remove it entirely by constructing indexes of ‘well-being’ which contain ‘quality of life’ measures. Keynes was touching here on an issue which has always baffled economists with a philosophical bent: the relationship between quantity and quality. The problem does not arise if goodness is thought of in numerical terms – for example, if maximising the quantity of motor cars in the universe is the ethical task, it is perfectly straightforward to measure the amount of goodness being produced. Keynes’s partial solution was to let quantitative measures rule till abundance reigned, when ethical or ‘quality of life’ values could come to the fore. On the way, though, public investment in the arts, architecture, sport, and other leisure activities should remind society of what economic growth was for. In particular, there was no need to trade quantity for quality while resources were unemployed.
However, the contemporary retreat from ethical judgment is also a sign of the weakness of ethics today in the face of science. In believing that good and bad were intuitively known, Moore and Keynes were heirs to a classical and religious tradition which was collapsing. Today society has ‘morals’ but not ‘ethics’. Morals tells us how to behave in carrying out our activities, but not whether those activities are worth doing. Alastair MacIntyre calls these ‘secondary virtues’, those attaching to processes, rather than to ends, rules of behaviour like honesty, tolerance, loyalty, fairness. Liberal society is essentially a process or transactions society: its values are second-order values, to do with the arrangement of relationships, political and social, so as to minimise conflict between competing values, religions, ethnicities. Much of this goes under the label of ‘virtue ethics’. But it leaves untouched the question: what is life for?
Similarly, the task of checking the unrestrained pursuit of wealth is transferred from ethics to politics, which supposedly establishes patterns of income distribution, property rights, regulation, and so on which voters prefer. These social arrangements take the place of ends in our moral universe. But they are unanchored in any more general view of life’s purposes. We attack greed, but have no answer to the question ‘how much is enough?’ Moreover, it  is perfectly possible for virtues to attach to destructive ends as the history of Nazism, Communism, and contemporary nationalist violence amply shows.
The Psychology of Capitalism: Love of Money
Moore’s focus on states of mind as the sole criterion of goodness gave rise to what Keynes called his ‘favourite dilemma’, the conflict between ‘being good’ and ‘doing good’. Briefly, the conflict is between the states of mind required for the enjoyment of ethical goods and those required for practical life, and especially for success in money-making. What if any ethical value, Keynes often asked, was to be attached to a life of ‘money-making and bridge’? Business life was at best only good as a means, but even as a means Keynes ranked it below public service, which at least was concerned with the public good. This was because it overturned the correct hierarchy of values, teaching society to value ‘love of money’ above love of goodness. Keynes’s characterisation -and condemnation - of a capitalism as based on ‘love of money’ echoes the Biblical statement ‘the love of money is the root of all evil’ (1 Timothy 6:10).
Keynes  followed Max Weber in defining capitalism not as a particular structure of property relations, as Marx did, but as a spiritual or psychological disposition towards abstract gain. In placing the quest for money rather than for goods at the heart of his picture of modern civilization, Keynes was being prescient, for its later dominance was only potential in his own lifetime. In Keynes’s day, neither  warrior nor priest had left the scene, and manufacture was still the main economic activity in advanced capitalist countries.
By ‘love of money’ Keynes meant two things, between which he did not always distinguish. The first was  the objectless pursuit of wealth. The second was a specific subset of the first, which was the disposition to ‘hoard’ or not spend money, the psychology of the miser. The first was the engine which drove capitalism; the second was the brake on its progress, whose roots lay in extreme risk-aversion. He would have said the first was morally inefficient, the second economically inefficient. But the two merged in his critique off the outsize role of money values in modern civilization. His speculations on love of money are in a well-established philosophical tradition, which includes Aristotle who saw that the good life is endangered when acquisition of money comes to be seen as intrinsically valuable, and Karl Marx who distinguished between ‘use value’ and ‘exchange value’.
Keyne’s starting point was  that money has no utility in itself, but is simply the means to acquire goods which possess utility. People want goods, not money. Keynes, however, saw the capitalism of his day not so much as a goods-generating machine, as a cash-generating machine: people acquired money to get more money. What should have been a means had become an end. This disposition to value money above the things it could buy was true both of the money-maker and the money-hoarder, but the pleasure in the possession of money took different forms in the two cases.
Keynes gave as an example of the over-valuation of money  the fetish of cheapness. He  suggested that standardization, stimulated by advertising, had ‘raised the price of idiosyncrasy’. If we all consumed exactly the same thing, prices would be much lower and we would all be ‘better off’. But variety is a good in itself. It was not good to know what everything cost. It was right to weigh concrete things against concrete things not against abstract money, ‘the ultimate object of which is vaguely conceived or not conceived at all’. 
The test of money measurement constantly tends to widen the area where we weigh concrete goods against abstract money. Our imaginations are too weak for the choice; abstract money outweighs them. The sanctification of saving tends dangerously on the side of abstract money. The growth of individual wealth does the same.
It is not right to sacrifice the present to the future unless we can conceive the probabilities of the future in sufficiently concrete terms, in terms approximately as concrete as the present sacrifice, to be sure that the exchange was worth while.
We ought more often to be in a state of mind, as it were, of not counting the money cost at all… We want to diminish, rather than increase, the area of monetary comparisons.[vi]
Since Keynes’s day, the tendency has been the opposite of what he wanted: financial innovation has made make stocks and shares increasingly ‘abstract’, disembodied from businesses which give them value.[vii]
Keynes’s fascination with the hoarding aspect of ‘love of money’ comes out in his brief discussion of Freud’s association of hoarding with the anal-sadistic character. (One of the sections of his Treatise on Money is headed ‘Aura Sacra Fames’ – hunger for sacred gold.) His interest in the Freudian mechanism of sublimation tempted him into the unwise hypothesis that the Jews had ‘sublimated immortality into compound interest’ – which brought the crushing rejoinder from a Jewish scholar that civic insecurity had made many Jews ‘extremely extravagant’ and prone to ‘reckless gambling rather than painful accumulation’.[viii]
For a brief moment Keynes toyed with the idea that the Soviet Union might have discovered the antidote to ‘love of money’. Although he found communism in many ways detestable, he thought it just possible, after a visit in 1925, that Soviet Communism might represent ‘the first confused stirrings of a great religion’. The significance of Bolshevism, he thought, lay not in its economics, which was rubbish, but in its attempt to construct a social system which condemned personal enrichment as an end and made it legally impossible for anyone to pursue it seriously. After a further visit in 1928, Keynes reluctantly concluded that the price for the creed was too high. One could not enjoy good states of mind if nothing worked.
It was to show how capitalism, despite its faults, might be evolving the conditions of the good life that Keynes wrote a futuristic essay ‘Economic Possibilities for our Grandchildren’ in 1930. His thesis was that the engine of capitalism was driven by a neurosis which he called ‘love of money’, but this neurosis is also the means to the good, because it is the means to the abundance which will make it unnecessary. Keynes reckoned that if capital increased at 2 per cent per annum, population growth levelled off, and productivity rose at 1 per cent a year, in three generations – roughly in one hundred years – the prospective population of the civilised world would in three generations have a standard of living between four and eight times as high as in the 1920s, obtainable at a small fraction of current effort. With the economic problem solved, mankind would face its permanent problem, how to live ‘wisely and agreeably and well’, by which Keynes meant that people would be able to shed their pathological ‘purposefulness’ and ‘love of money’ and trade even higher incomes for more leisure and enjoyment of life.[ix]
With the coming of abundance, ‘love of money’ would be regarded as a ‘somewhat disgusting morbidity… which one hands over with a shudder to specialists in mental disease’. People will be free to adopt once more the ‘sure and certain principles of religion and traditional virtue’, valuing today over tomorrow, ends over means, the good over the useful, and living like ‘lilies in the field’. But for the time being we must go on pretending that ‘fair is foul and foul is fair; for foul is useful and fair is not. Avarice and usury and precaution must be our goods for a little longer still. For only they can lead us out of the tunnel of economic necessity into the daylight’.[x] One can see here that Keynes was not much of a Promethean, or believer in technological progress for its own sake.
In terms of arithmetic, he was almost spot on in his predictions of growing wealth, but attitudes have changed less than he expected. Although real incomes in rich countries have doubled in the last thirty years, their populations work harder than ever and are no happier.[xi] This raises the question of why they are still on the growth treadmill. Is it because capitalism needs constantly to expand markets, and ensnare by advertising more and more people into useless consumption? Is it because economists have ignored the fact that as societies become wealthier, positional goods –goods which satisfy not our needs but our longing for status become more and more desirable? Is it because globalisation has made affluence too insecure and too uneven in its spread for most people in wealthy societies to ease off work? Or is it because we lack any agreed idea of the good life in the name of which we can say ‘enough is enough’?
In one passage Keynes comes close to anticipating what was to become a dominant concern of contemporary ecologists or greens:
The system of economic calculation, he declared in a speech in Dublin on 17 April 1933, made ‘the whole conduct of life… into a sort of parody of an accountant’s nightmare’.
We destroy the beauty of the countryside because the unappropriated splendours of nature have no economic value. We are capable of shutting off the sun and the stars because they do not pay a dividend.
We have until recently conceived it a moral duty to ruin the tillers of the soil and destroy the age-long human traditions attendant on husbandry if we could get a loaf of bread thereby a tenth of a penny cheaper. There was nothing which it was not our duty to sacrifice to this Moloch and Mammon in one; for we faithfully believed that the worship of these monsters would overcome the evil of poverty and lead the next generation safely and comfortably, on the back of compound interest, into economic peace.
Today we suffer disillusion, not because we are poorer…but because other values seem to have been sacrificed…unnecessarily. For our economic system is not, in fact, enabling us to exploit to the utmost the possibilities for economic wealth afforded by the progress of our technique… leading us to feel we might as well have used up the margin in more satisfying ways.
Keynes’s speculations on the theme of ‘love of money’ are the nexus that binds together his ethical theory and his economic theory. But the coherence is only partial. His economic theory attacks the hoarding aspect of ‘love of money’, but not the priority given to money-making.   The problem for him is that Moore’s ethics requires him to treat capitalism purely instrumentally - as a mechanism for getting from scarcity to abundance as quickly as possible. This leads him   to understate the possibilities of improving the ethical and moral conditions of capitalism itself, no doubt for fear that it would slow down the progress towards his ethical utopia. So one has put up with what is ‘foul’ to get quickly to what is  ‘fair’. But a life dedicated to a ‘foul’ set of values cannot be an entry ticket to a life with a ‘fair’ set. Nor does Keynes really suppose that it should. But all he can suggest as a bridge between the two is that we make preparations for the good life even while tainted with economic striving. Even here consistency eludes him. To point the way to civilization was, or should have been, the role of a rentier bourgeoisie like the Bloomsbury group. Yet Keynes advocated  the ‘euthanasia of the rentier’. He also ignored the possibility that abjuring  economic calculation now would delay rather than speed up the time when we could dismiss  it permanently. He wrestled with these tensions but failed to resolve them.  On balance, he was prepared to put up with the abuses of capitalism in order to ‘solve’ the economic problem as quickly as possible.
Justice was not an end in Moore’s philosophy, and Keynes does not treat it as one. It is a means to the good life. Nor did he try to derive a theory of justice from a hypothetical social contract, as for example did John Rawls. Rather he treated justice instrumentally, as contributing to a ‘contented’ society, and thus as an indirect means to the good. In this respect, he comes closest to the idea of justice as ‘fairness’. By fairness he usually meant the social arrangements generally accepted as fair in the society he best knew, Britain. His fragmentary observations on this theme encompassed the rights and duties of different classes in society, as well as the duties of the state. Two strands only need to be drawn out, both bearing on his economics. The first is his revival of the idea of the ‘just price’.
The notion of the ‘just price’ has long been banished to the attics of economics. Prices are to be set in the market, not by any consideration of what is just or fair. Yet the idea of justice in exchange is a very old one, and is far from dead in the popular mind – as shown in the outbreak of anger at the outsize salaries, bonuses, and pensions earned by top executives. The public attitude is not as crass as is sometimes made out. There is no hostility to large rewards as such – we do not hear outcries against the gigantic earnings of entertainers or footballers. Nor is there any resentment against money gained through luck: anyone might win the lottery or tote. Popular anger is largely directed against rewarding what is seen as doing harm: bankers who bankrupt their institutions, business executives whose ‘restructuring’ schemes involve sacking large numbers of workers. In a rough and ready way people expect to see a link between reward to others  and benefit to themselves. They are also concerned – much more in Keynes’s day than now – with relative pay, which fixed the position of the classes in the social hierarchy.
What did Keynes mean by a ‘just’ economic system? He accepted the classic view of justice that reward should be proportioned to merit or contribution, with its Aristotelian corollary that ‘nothing is more unjust than to treat unequals equally’. He was not, therefore, an egalitarian. Justice is a matter of equity, not equality, and just prices are those which correctly reward talents and efforts. It was ‘most unjust and most unwise’, he wrote, ‘to put on an appearance of being against anyone who is more successful, more skilful, and more industrious, more thrifty than the average...’, and elsewhere ‘I do not want to level down individuals, I want to give encouragement to all exceptional effort, ability, courage, character’.[xii] None of these positions distinguished Keynes from the classical liberals of his day. Nevertheless, while he thought there was ‘social and psychological justification for significant inequalities of incomes and wealth’, he did not think the game needed to be played for ‘such high stakes as at present’.[xiii] As one would expect, he preferred inheritance taxes to income taxes. He started to pay more attention to income redistribution after the Great Depression, not for socialistic reasons but as increasing the propensity to consume.[xiv]
In today’s weightless economy it has become much harder to establish a connection between effort and reward. Taleb distinguishes between work subject to gravity (making things) and those activities (derivatives trading) which just add zeroes to balance sheets without extra effort. He calls the first non-scalable, and the second scalable.[xv] Our economies are increasingly dominated by the latter, which, by separating efforts from rewards, are far more random in their results. Similarly, Keynes’s idea of the just price depends on being able to measure effort in terms of things produced rather than money produced. One cannot have a just society in Keynes’s sense if the main purpose of economic activity is the manufacture of money.
Keynes held two distinctive positions which have almost vanished from economics today. The first was to keep the rate of interest continually low, which would end ‘the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital’. The ground for this is set out as follows:
Interest today rewards no genuine sacrifice, any more than does the rent of land. The owner of capital can thus obtain interest because capital is scarce, just as the owner of land can obtain rent because land is scarce. But whilst there may be intrinsic reasons for the scarcity of land, there are no intrinsic reasons for the scarcity of capital. [xvi]
As capital became steadily abundant the rate of interest would fall naturally, but Keynes also relied on policy to keep it low. Keynes regarded the rate of interest set by the market as the foremost ‘unjust price’ in the economic system, and he did not hesitate to use the medieval term ‘usury’ to condemn it. The essence of his view was that the premium commanded by liquidity as such, due to a combination of an objectively uncertain future and the psychological disposition to hoard (or avarice), allowed the lender to charge a reward for parting with money greater than its opportunity cost.   It was ‘usury’, he wrote to a correspondent, to ‘extract from the borrower some amount additional to the true sacrifice of the lender which the weakness of the borrower’s bargaining position or his extremity of need… make[s] feasible… I find it interesting to put it this way because it really amounts to exactly the same thing as my theory of liquidity preference’.[xvii] Thus slumps were the wages of sin, after all, but not the sin of extravagance, as the classical economists taught, but the sin of usury. His policy of keeping money permanently cheap is simply a modern way of applying the medieval anti-usury laws.
Secondly, Keynes identifies justice with price stability; injustice with fluctuations in the price level. Good behaviour, it will be recalled, should not only have reference to what is good, but also to the probable consequences of action. But people cannot be expected to take proper account of consequences of their economic acts if the standard of value is constantly fluctuating. ‘Unemployment, the precarious life of the worker, the disappointment of expectation, the sudden loss of savings, the excessive windfalls of individuals, the speculator, the profiteer -all these proceed, in large measure from the instability of the standard of value’. He was appalled at the ‘wastes of risk’. [xviii]
Changes in the price level had distributional effects which soured class relations. Keynes regarded as unjust the ‘arbitrary’ shifts of wealth and incomes caused by avoidable business fluctuations –shifts unrelated to effort and beyond the control of ordinary prudence. The insight that what groups of workers really cared about was the loss of relative position informed his discussion of wage behaviour in the General Theory. Justice was a matter of contractual predictability. For Keynes then, a stable general price level was a necessary condition for the justice of relative prices.
This goes against contemporary economic thinking. The New Classical economists argue that the unemployment problem only arises if workers suffer from ‘money illusion’. With rational expectations there would be instantaneous re-contracting, and no involuntary unemployment. New Keynesians have explained why re-contracting is not feasible –‘menu costs’ are too high. So unemployment is possible while wages and prices slowly adapt to shocks. Keynes took a different view: completely flexible wages and prices are not desirable, even if feasible, because ‘binding nominal contractual commitments are a sensible method for dealing with true uncertainty regarding future outcomes.’[xix] Keynes would say that if full employment were continually maintained by policy there would be greater wage and price flexibility than there is now because there would be less uncertainty.
Keynes and Christianity
Keynes’s speculations on ethics may be seen as fragments of a religious tradition which was in course of dissolution. Writing to William Temple, Archbishop of Canterbury, on 3 December 1941, Keynes explained that most eighteenth-century writers on economics were churchmen. ‘Marshall always used to insist that it was through ethics that he arrived at political economy and I would claim myself in this, as in no other respect, to be a pupil of his’. Such a claim might seem paradoxical from someone who was an atheist, and who later said about himself and his Cambridge and Bloomsbury circle: ‘We repudiated entirely customary morals, conventions and traditional wisdom. We were, that is to say, in the strict sense of the term, immoralists’.[xx] Keynes’s penchant for iconoclastic utterance has been grist to the mill of anti-Keynesians. His most famous remark, ‘In the long run we are all dead’, was interpreted by Schumpeter as a ‘childless’ – he might have added godless – perspective.[xxi] Childless became homosexual in William Rees-Mogg’s suggestion that Keynes’s rejection of moral rules led him to reject the gold standard ‘which provided an automatic control of monetary inflation’.[xxii] This view of Keynes’s economics as product of the closet rather than the cloister is profoundly false. It rests on the superficial association of Bloomsbury with levity and immorality, and ignores the fact that Bloomsbury, while adopting modes of expression designed to shock their Victorian elders, subscribed to, and tried to live by exacting ethical principles. Keynes’s target was not morality, but conventional morality; as a young man he believed that individuals were sufficiently evolved to be safely released from the ‘outward restraints of convention and traditional standards’ to pursue their own ‘pure motives and reliable intuitions of the good’ (italics added). In short, their belief was that, given freedom, human behaviour would be both ethically and morally better, certainly less hypocritical, than conventional morality allowed. (The same belief underlay the permissive legislation of the 1960s).
As he grew older – and grew up – Keynes realized that he had been wrong. In 1938, looking back at his ‘early beliefs’, he admitted to having had a ‘disastrously mistaken’ view of human nature; he and his friends had ignored the ‘insane and irrational springs of wickedness in most men’, and the dependence of civilization on ‘rules and conventions skilfully put across and guilefully preserved’.[xxiii] On another aspect of those early beliefs, the rejection of the ‘Benthamite calculus’, he remained unrepentant. Benthamism was ‘the worm which has been gnawing at the insides of modern civilisation and is responsible for its present moral decay’.[xxiv]
By Benthamism he meant behaviour calculated solely  by reference to its probable effects. It was fundamental to Keynes’s outlook that he did not believe that we had sufficient knowledge of the future to play the ‘game of consequences’ to much effect. As a young man he argued the case for direct individual judgment of right and wrong against both Christianity and Benthamism. As he grow older he came to understand the value of conventional behaviour, not just as a protection against wickedness and madness but also as, in many situations, the only rational way of behaving in face of the unknown. In particular, he came to understand the dependence of morals on conventions. He did not foresee the extent to which economics would take over moral language, reducing older ideas of duty to a matter of providing the right incentives for efficient behaviour. With its model of the maximizing individual, economics was virtually bound to assume that people would cheat unless given incentives not to; when cheating did occur they would explain it in terms of ‘misaligned’ incentives. A great deal of financial innovation like stock options has been designed to ‘align’ the interests of managers and shareholders, as though, without such incentives, managers were bound to defraud their owners. Keynes would have argued against much of this language that it completely missed the point: we rarely know enough about the consequences of our actions even to have a probable assurance that ‘honesty pays’. If we rely on incentives alone to secure good behaviour we will get bad behaviour.
In 1934 Keynes told T. S. Eliot that ‘he would be inclined not to demolish Xty [Christianity] if it were proved that without it morality is impossible’. He told Virginia Woolf, ‘I begin to see that our generation –yours& mine – owed a great deal to our fathers’ religion… We destroyed Xty & yet had its benefits’.[xxv] This was not a re-conversion, but it was a recognition of ‘one of the great primal questions’: was morality possible in the long-run without religion?
Most of Keynes’s thinking on ethics and morals revolved round the problem of knowledge. That is why he attached so much importance to intuitive or a priori judgment, concerning both ends and means. He thought most problems of behaviour were problems of knowledge at one remove. If everyone knew the outcome of wars for certain, there would never be any wars. Those who knew they would lose would never fight. This seems to be refuted by martyrs and suicides. But perhaps they are convinced that they will win in the afterlife. With a long enough time horizon all defeats can be turned into victories. However, the more usual problem is one of beliefs based on the illusion of knowledge. The ‘Benthamite calculus’ seems to provide asecular answer, by promising knowledge of consequences, but this was simply  a convention. Religion was perhaps another. But Keynes came to see at least certain kinds of religious belief as superior to Benthamism, because they were unconditional. Immortality was a state of being, innocent of calculation, with no connection with the ‘before’ and ‘after’.
Keynes’s ethical approach offers considerations which have acquired a fresh importance in the context of the present ‘crisis of capitalism’.
First, and most important, it keeps alive the importance of having an idea of the good life. Without it, economic activity is bound to be simply an envious striving for relative advantage, without any natural terminus.
Secondly, it brings out the relevance of philosophy for economics. Keynes was not an economic liberal, in today’s sense, but a philosophical liberal: he constantly pondered on the relationship between economic and non-economic aims and behaviour. One of the greatest defects of economics today is that is has become a branch of applied mathematics. This is reflected in the way students are taught. Keynes thought of economics as part of the human discourse. He had, as he put it, been ‘properly brought up’ to do so. This is connected with the question of the language of economics. He wanted to bring economic analysis closer to ‘ordinary’ or ‘common sense’ language which reflected the existence of a mass of non-quantifiable, vague, but nevertheless useful knowledge of how to think and how to behave.
Thirdly, Keynes forces us to consider the question of what economic activity is for. Broadly speaking, he believed in an ethical Pareto-optimum: material progress will increase the welfare of the universe up to the point when it starts to diminish the quantity of ethical goodness. When it does so is a matter of judgment. In advocating state sponsorship of the arts and the beautification of cities he provides an ethically-based argument for public action to influence the composition as well as the level of demand.
Fourthly, Keynes kept alive the idea of the ‘just price’.
Finally, he raised the question whether morals can survive in the long run without religion.
Having said this, it is easy to see that he might have been deluding himself. He envisaged a modern capitalist economy governed by a Platonic ideal, and gentlemanly codes of behaviour. But once the capitalist genie is let out of the bottle it cannot be pressed into the service of a pre-modern ethics of the good life and pre-modern codes of behaviour. The good life in the classical sense presupposes that human desire has some ultimate end, or telos, whereas modern economic theory and life presupposes that it is insatiable. As regards behaviour, he took for granted a class-based system of values which economic progress was undermining. These were contradictions which Keynes never fully faced.

[i] Mary Riddell et al., ‘Alistair Darling: We Made Mistakes on the Economy’, Daily Telegraph, 3 March 2009
[ii] G.E. Moore, Principa Ethica, (Cambridge, 1959 ed.) pp. 188-9
[iii] JMK, CW, x, p. 441
[iv] Quoted in Skidelsky, vol 2, p. 65
[v] Ibid., pp. 65-6
[vi] Unpublished paper, 23 December 1925 quoted in Skidelsky, vol 2, pp. 240-2
[vii] Justyn Walsh, Keynes and the Market (John Wiley & sons, 2008) p. 74
[viii] See the exchange in Skidelsky, vol 2, p. 239
[ix] JMK, CW, ix, pp. 321-32
[x] Ibid., pp. 322-6, p. 328
[xi] Richard Layard summarises the evidence in Happiness: Lessons from a New Science (Penguin New York, 2005)
[xii] See Skidelsky, vol.2, p. 223
[xiii] JMK, CW, vii, p. 374
[xiv] Ibid., p. 377
[xv] Nassim Taleb, The Black Swan: the impact of the highly improbable (Allen Lane, 2007) p. 27
[xvi] JMK, CW, vii, pp. pp. 375-6
[xvii] Quoted in Skidelsky, John Maynard Keynes 1883-1946: Economist, Philosopher, Statesman (Macmillan, 2003) p. 780
[xviii] JMK, CW, iv, p. xiv
[xix] Paul Davidson, John Maynard Keynes (Macmillan, 2007), p. 88
[xx] JMK, CW, x, p. 446
[xxi] Joseph A. Schumpeter, ‘John Maynard Keynes’ in Ten Great Economists: From Marx to Keynes (Allen and Unwin, 1952), p. 52
[xxii] William Rees Mogg, The Times, 10 November 1983
[xxiii] JMK, CW, x, pp. 446-7
[xxiv] Ibid., pp. 445-6.‘We used to regard the Christians as the enemy’, he recalled in 1938. ‘In truth it was the Benthamite calculus… which was destroying the quality of the popular Ideal’. JMK, CW, x, p. 446
[xxv] Quoted in Skidelsky, John Maynard Keynes, abridged vol., p. 515

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