Recent rounds have been dominated by Mr. Friedman, the New York-born champion of free markets, but his opponent, an English university don with a penchant for the arts, has recently staged a dramatic comeback.
Few seem to be cheering anymore for unregulated capitalism. From the forthcoming Obama administration to the British government, “Keynesian” economics is now widely invoked as key to saving the world from a new great depression.
For admirers of Mr. Keynes, whose radical idea was that governments could avoid recessions by running deficits, the economist’s resurgence is a vindication after decades in the shadow of Friedman’s followers, including Ronald Reagan and Margaret Thatcher.
More than 60 years after Keynes’s death, his nephew smiles at the revival of his uncle’s ideas.
“He was never altogether out of fashion,” says Stephen Keynes, an octogenarian scion of one of Britain’s most famous families and, like his uncle, a direct descendant of Charles Darwin. “It’s just that certain people have associated his name with inflation, which was not what he advocated.”
This isn’t the first time an American president struggling to regain control of a spiraling economy has sought guidance from Keynes. In 1938, his ideas were embraced, albeit reluctantly, by Franklin D. Roosevelt, with the president announcing it was up to government to “create an economic upturn” by making “additions to the purchasing power of the nation.”
The notion was promoted by Keynes (pronounced “Cains”) in his 1936 magnum opus, “The General Theory of Employment, Interest, and Money,” which stated that government should borrow when the economy slows to keep people employed, because private sector investment won’t be enough. Another major legacy of Keynes was leading the British delegation to the Bretton Woods conference of 1944, where he played a key role in creating the World Bank and the International Monetary Fund.
In today’s Britain, as a debate rages over how to kick-start the faltering economy, few days pass without the economist’s name invoked in newspapers.
At Cambridge itself, a “Keynes Society” is now being established to promote new ideas from around the world on economics, the arts, science, and climate change. Nick Butler, chairman of the Cambridge Centre for Energy Studies, told fellow scholars that the society would not just pay tribute to Keynes, but “revive his sense of pragmatic creativity, which seems so lacking, and so necessary at the moment.”
Sales of books based on his theories have risen in recent months. An acclaimed three-volume biography of Keynes himself is regarded as recommended reading for a new generation of policymakers.
“John Maynard Keynes has been restored to life,” wrote its author, Robert Skidelsky, last month in the British center-left journal, The New Statesman. “Rusty Keynesian tools – larger budget deficits, tax cuts, accelerated spending programmes and other ‘economic stimuli’ – have been brought back into use the world over to cut off the slide into depression.”
But there has been no greater testament to the faith placed in Keynesianism than the course charted by Britain’s prime minister, Gordon Brown. Last week, Mr. Brown unveiled plans for public works spending meant to ease recessionary pain by creating up to 100,000 jobs. Drawing a direct comparison with the public works projects undertaken by FDR, Brown also wants to tackle climate change by investing in rail, electric cars, wind power, and wave power.
Despite his reemergence as a policy rock star, voices arguing against a Keynesian response to the financial crisis remain unsilenced.
“I am surprised at how many Keynesians were in the woodwork on both sides of the Atlantic,” says Chris Edwards, an economist at the Cato Institute, a US free-market think tank. Mr. Edwards, who talks of a resurgence of “kindergarten Keynesianism,” expresses amazement at the number of PhD economists who, he says, are now reversing previous pronouncements.
“I think Friedman’s biggest concern right now would be how central bankers are putting so much money into the system,” he adds, warning that younger Americans will be saddled with debt from boosting the economy. “Keynes was a brilliant guy, but his main policy thrust was to respond to the short-term crisis. Obama’s advisers are buying into the idea that the short term is the only thing that matters.”
Elsewhere, even admirers of Keynes question whether attempts to stave off a new recession are truly Keynesian. Vincent Cable, a member of parliament and the economics spokesperson for Britain’s third largest party, the Liberal Democrats, suggests the Keynesian tag is being misused to describe British government measures.
“What Obama is proposing to do is far more ambitious than what is being done in the UK, and Keynes would recognize that,” says Mr. Cable, who studied economics at Cambridge in the 1960s under the “disciples” of Keynes, including Richard Kahn, Joan Robinson, and Nicholas Kaldor.
Cable concedes, however, that Keynes’s work is far from bedtime reading: “His writing is pretty impenetrable.... Adam Smith and ‘The Wealth of Nations’ is a good read. Keynes is not easy.”
Keynes’s nephew, Stephen, says his uncle would approve of the economic policies being pursued by US President-elect Obama, describing them as “very clearly Keynesian.”
Stephen Keynes adds, “It does give me pleasure that the ridiculous Thatcher years now seem so absurd.... The whole world admires Obama’s steadfastness and self-confidence.”