THE DIVIDING QUESTION OF KEYNES. Giorgio La Malfa was a university professor and a leading light of the Italian Republican Party from 1972 to 2011. In his political career he was a Member of the Chamber of Deputies, Minister of Budget and Economic Planning, and Italian Minister for European Affairs. Mondadori recently published a new translation by Giorgio La Malfa of Keynes’ General Theory of Employment, Interest and Money of 1936 and of a number of other Keynes’ writings of the same period. La Malfa has also contributed  an Introductory essay, a Chronology of Keynes’ life and coauthored (with Giovanni Farese) the footnotes to the General Theory and the other writings. In fact this is the first annotated edition of the General Theory, the last and most important book by the English economist which created a profound shift in economic thought, giving macroeconomics a central place in economic theory and contributing much of its terminology – the ‘Keynesian Revolution’.

Why did you choose to do this work on Keynes?

There is an old Italian translation, published in 1947, and it is high time for a new translation, taking into account the greater knowledge that we have and a better understanding of the quite difficult English of Mr Keynes. One year before The General Theory came out in 1936, John Maynard Keynes wrote to George Bernard Shaw and said, “I am writing a book which I am sure will revolutionise the way we think about economic problems, not immediately, but in about 10 years. You may not believe what I am saying,” he continued, “but I am sure of what I am saying.” In fact it did, and 1946, the immediate post war period, marks the predominance of a long period of Keynesian academic teaching. The thirty years after the Second World War was a Keynesian domination, like a new paradigm that had been introduced. Then in the mid-70s there was the monetary counter-revolution associated with then names of Milton Friedman and Friedrich Hayek.

But he was not universally accepted?

Keynes and Hayek, an Austrian economist and a great liberal thinker, are considered arch enemies. Hayek was invited to come to London by Liberal groups who were worried by the predominance of Keynes’ form of liberalism, and Hayek taught at the London School of Economics, the opposing camp to Cambridge where Keynes was. The relation of full enmity is true at the very beginning, when Hayek and Keynes wrote terrible reviews of each other’s books, but they became better acquainted when the LSE was moved from London to Cambridge in 1942. The two men became friends, and they formed a very good understanding. Nevertheless, in 1944 Hayek produced his most famous book ‘The Road to Serfdom’, the main thesis being that the public expenditure of government leads to totalitarian regimes.  The target of The Road to Serfdom was Keynes, although there is no mention of Keynes in the book.

Why was Keynes such an important economist?

The fundamental issue and question about economics is: Is the economic system stable?  If you start with full employment, does the system tend to revert to full employment without any state interference, or do we have to do something in terms of economic policy in order to bring it back to full employment? And on this question economists are sharply divided. And this question cannot be answered scientifically, because there is no way of testing.

“Is the economic system stable?  Or do we have to do something in terms of economic policy in order to bring it back to full employment?”

John Maynard Keynes addressing the Bretton Woods Conference, July 1944 (on his right are Leslie Melville of Australia and Warren Kelchner of the US State Department; on his immediate right is Henry Morgenthau, the US Secretary of the Treasury; on his far left is Pierre Mendes-France of France): International Monetary Fund.

Isn’t this the main point of difference between Republicans and Democrats in America?

Keynes was a great supporter of the Democrat President Roosevelt. In 1933 Keynes published an open letter in the New York Times addressed to Roosevelt, saying: “Mr President you are the best hope of those who want change in democracy. Unless you succeed on the ground there will only be a conflict between reaction and revolution; and yours is the only way the democratic and liberal system can survive.”

What is the difference between Keynes’ theories and the socialism of the Labour party in England?

The Labour Party in England was based on the idea that unless you have Government property capitalism is going to be incompatible with full employment, social justice and so on. Keynes is strictly in the Liberal camp and strongly anti-communist, but after he visited Russia he said that we have to be careful, we cannot underestimate communism because we hate its philosophy, and we cannot overestimate communism because we hate social injustice. He tries to practice a middle way. We should call him a left wing liberal, while Hayek and Friedman were right wing liberals, convinced there is no role for the state. In 1944 Keynes wrote to Hayek, after reading The Road to Serfdom, saying that he was in full agreement with Hayek’s idea that socialism is very dangerous but that he, Hayek, must agree that the state has some functions, like justice and defence, and even he should admit this. Keynes’ idea is that those functions have to be enlarged, because otherwise the problems will not be solved, but that the planning of the Government intervention should be a task given to the people with the same attitude as Mr Hayek, i.e. people who are not fans of government intervention should be ready to do it if necessary.

Why were his theories so popular in the 1950s and ‘60s and then went out of fashion?

Up to the end of the ‘60s it was felt that the success of the thirty years from 1946 to 1975 was the result of Keynesian ideas for fiscal and monetary policies. The situation changed dramatically in the 1970s with inflation, and one might think that inflation was due to an excessive use of Keynesian policies. As inflation became the number one problem people like Mrs Thatcher, Ronald Reagan, Hayek and Friedman looked for other solutions. Keynes went out of the window up until the crisis of 2008, another watershed, when the conviction that markets function so well that there is no danger of a new crisis was proved false.

Are there some new theories now?

They all introduce enormous amounts of mathematics and econometrics, but the question of whether we need a cautious intervention or not cannot be solved. We have to decide for ourselves. In Keynes’ idea, public expenditure is a remedial intervention when nothing else works. If the system doesn’t work you need to do monetary policy, and usually, if you do it well, rates of interest come down enough to take care of that, because lower rates encourage investment. But if the ‘animal spirits’ of entrepreneurs are not favourable enough to investors, even under very favourable monetary policies, then government has to step in.

“The success of the thirty years from 1946 to 1975 was the result of Keynesian ideas for fiscal and monetary policies.”

Did Keynes always want to be an economist?

Keynes came from a Cambridge family, his father was a professor and the mother came from a family of preachers.  He was extremely brilliant, winning a wide range of prizes as a scholar at Eton, and when he went to university at King’s College, Cambridge, he was immediately invited to join the famous secret society The Apostles (whose full name is the Cambridge Conversazione Society), whose members included Lytton Strachey, Leonard Woolf and G.E. Moore, a most important philosopher who wrote a book on ethics and whose pupil Keynes became. Keynes graduated in mathematics in 1905, with a strong interest in philosophy and no knowledge of economics. Despite it then being suggested, he did not want to go on to study economics but went into the civil service and in London was part of the Bloomsbury Set. The great love of his life was the painter Duncan Grant, the companion of Vanessa Bell.

Was he also a man of power and influence?

Yes, he was a private investor, a journalist, and a collector of impressionist paintings. As an investor he was a gambler who would bet on stocks and commodities. He made enormous gains and also enormous losses. His books also made lots of money. He was able to do many things at the same time, which explains why good economists are the rarest of birds, because to be a good economist you have to be partly philosopher, partly mathematician, partly historian, partly literate, and you have to mix all these qualities. It is said jokingly that to be an economist you have to be second rate in all these things because if you were first rate you would be a historian, a philosopher or a mathematician! You have to be able to move from abstraction to concreteness.

Did Keynes want political power?

The Liberal Party offered him a safe seat to become a Member of Parliament twice and he said no, I want to be free from this. Later on, in 1942, he was made a Lord, Baron Keynes of Tilton.

They say that sometimes his speeches were more interesting than Churchill’s?

At Bretton Woods in 1944, when they established the new rules for the commercial and financial system, Keynes was considered by Professor Lionel Robbins to be a supernatural man. He thought such intelligence could not be human. In fact, Bertrand Russell said that whenever one met Keynes one could not avoid feeling a bit stupid. Keynes had gained fame in 1919 by arguing that non co-operation with Germany at Versailles would result in another war, which it did, and from the very first day of the Second World War and at Bretton Woods he started planning how to avoid a third war. He wanted to eliminate gold and all specific currencies, and create a new currency monitored by a new world bank, but the Americans decided the centre should be the dollar. It was obvious at that time that this would be a problem and the Bretton Woods system would collapse from the necessary balance of payments deficit of the United States, when people would worry if the dollar was a safe currency. Much of the success of the 30 Glorious Years of which we spoke earlier was due to the Bretton Woods system which was based on fixed exchange rates but there were also lots of controls on exchanges.

John Maynard Keynes

The great love of Keynes’ life was the painter Duncan Grant

Keynes married Lydia Lopokova, a dancer in Diaghilev’s Ballet Russe

Members of the Bloomsbury Set: (L to R)Lytton Strachey, Virginia Woolf and John Maynard Keynes.

KEYNES, Teoria generale dell’occupazione, dell’interesse e della moneta e altri scritti is published by Mondadori

John Maynard Keynes and Lydia looking out over Gordon Square, February 1940: The Hulton-Deutsch Collection

“Keynes was a genius, a man of immense intelligence, also arrogance.”

In his private life, Keynes was homosexual at the beginning and then he met and married Lydia Lopokova, a dancer in Diaghilev’s Ballets Russes, to many of whose people he was also very close. What happened?

The Bloomsbury Group did not like the dancer Lydia who Keynes fell in love with, and thought she should be kept as a lover and would be too expensive to marry, but it was a very happy marriage. She was a very intelligent and sensitive woman and moved on to be an actress.

Was he liked?

He could be very likeable to friends and intolerable to others. Once when he went to the States the English ambassador got into a rage because of his arrogance, but he could also be charming. After he had his heart attack in 1937 and was ill, in 1939 he went six times to the States to negotiate on money and the general arrangements. The very last night at Bretton Woods in 1944, when he had been ill and in bed, he wanted to participate at the final dinner. He came in very late, pale and limping, and everybody stopped, because a man of unusual stature had come in, and then they all got up and sang ‘For he’s a jolly good fellow’. He was a genius, a man of immense intelligence, also arrogance. Even the Bloomsbury people both liked and hated him. Virginia Woolf called him fat and ugly, however she loved his books and said his prose was much closer to Shakespeare than hers. His language in The General Theory is not easy to understand, but his books ‘Essays in Persuasion’ and ‘Essays in Biography’ are jewels, and he had a charming style.

Did Keynes have any relationship with the Nazis?

He was totally against the second war, which he saw as the inevitable consequence of the mistakes made at Versailles after the first war. In the preface to the German translation of The General Theory there is an unfortunate phrase in which he says this theory can be appreciated by a regime like yours, the Nazi regime. He was totally against it, but this was seen in some quarters as leaning towards totalitarian regimes. He also unpleasantly said: If I was in Germany I would probably be against those Jews, who are too intelligent. In fact he was a friend of Jews, and was part of the committee which helped Jewish scholars escape Germany after 1933.

What about with Oswald Mosley, who became head of the English fascists?

Mosley was a very intellectual member of the Labour Party until 1929-30, and then he became leader of the nationalists and the fascists, and he was a Keynesian. He wrote a letter to Keynes saying: Dear Maynard, I fully agree with your views, and Keynes wrote back to Mosley that why I write these things is to prevent people like you getting into power.

What would you like to say in conclusion?

People accused Keynes of changing his mind very often, and he would answer to that: I am not changing my mind, but adjusting to events in order to prepare something useful. He would probably understand the world better than we do! Asked for his assessment, Hayek said Keynes was by far the most intelligent of us but unfortunately his ideas were wrong. We should learn from this acknowledgement today, that people of such stature could dissent and also appreciate each other’s ideas, and discuss their ideas while keeping their own positions.


Please follow this link for an invitation to the book presentation in Rome on 23rd May, 2019.