“Milton Friedman was the most important economist in policy circles since John Maynard Keynes.” That sentence brought me up short because it was both surprising and, on reflection, seemed true. It began a review essay, “Milton Friedman and the Road to Monetarism,” by central banker George Tavlas, which appeared in a recent number of the journal History of Political Economy.
Not long after I read it, I decided to write a series of EP weeklies I called “Ten Good Books about Milton Friedman.” I needed to read them anyway. I am glad that I started, glad (as are many readers, no doubt) that I finished.
I was especially grateful for a note from an old friend that arrived last week, after I compared both Friedman and Keynes to Dr Jekyll and Mr. Hyde, surely the most famous split personality in literature. My friend wrote:
Jekyll and Hyde, an excellent metaphor for Friedman. Now find one for Keynes, whom you assess effectively.
I knew my friend was right: Jekyll and Hyde didn’t suit Keynes. No candidate immediately came to mind. I resolved to think about it. While waiting for inspiration, I will offer a small sample of the book that best supported my mixed view of Keynes.
A History of Economic Theory: Classic Contributions 1720-1980 (JHU Press,1990), by Jürg Niehans, is an unusually sharp and clear account of the first two and a half centuries of modern economics. Niehans was a monetary theorist who left Johns Hopkins University in the great diaspora of its economics departments in the Sixties that sent Simon Kuznets to Harvard and Robert Fogel to Chicago.
Organized as a pantheon of the lives and works of fifty great economists, containing short assessments of the careers of dozens of others, its thirty-seven chapters of Niehans’s are divided into three eras: Classical, Marginalist, and that of Economic Models. The books is pitched at the level of intermediate undergraduates, but can be read with pleasure by anyone interested in how economic came to be the way it was, 55 years ago.
Niehans’s judgments were sharp. His book disdained by many of his fellow economists. Even the man who introduced me to Niehans warned that the author s sometimes went “over the top.”
He was right. Consider, for instance, Niehans on Keyes’s family tree: his father, though a well-regarded Cambridge economist, “never made it to a professorship;” his paternal grandfather “had prospered as a brush maker and florist;” among his mother’s family were “many clergymen.”
Maynard’s genealogical research later revealed that the Keyneses had earlier belonged to the aristocracy and that one was a Norman knight who had fought at Hastings. Maynard Keynes always managed to end up at the top.
Snide words, and hardly the worst of them, but revealing, nevertheless. Niehans’ summary of Keynes’ principal scientific works – A Tact on Monetary Reform, Treatise on Money and General Theory of General Theory of Employment, Interest – takes a similar narrative approach, but onr more to the point, to Keyes’s “arduous ascent to scientific fame.”
With tact Keynes had conquered the City. With Treatise Monet he set out to conquer Academia. The Treatise was a failure…As a contribution to monetary theory the Treatise is a failure. Keynes still had not made his mark on economic science. He realized before the book was even published and called it in the preface “a collection of material rather than a finished product. He thought now that he could do it “better and much shorter,” in his own words.
Do it over again he did, spurred on by the dissatisfaction with the Treatise, by the deepening world depression and by the critical comments of a seminar of young Cambridge economists call the circus The result was the General Theory of Employment , Interest and Money…
This time the exposition was almost entirely verbal, with no more fundamental equations. There was one graph, suggested by Roy Harrod. Keynes, the man of the persuasive word, had had now become decidedly anti-mathematical Nevertheless, the argument was more coherent than Treatise, and [John] Hicks soon succeeded in expressing in graphs and equations… This time Academia was indeed conquered. Keynes, at 53, had finally won his place in the pantheon of economics. At the same time, he had bequeathed to the profession an entirely distorted picture of the classical tradition.
Despite my shallow reading of those books as a journalist, Niehans’ take sounded right to me. Even the title of The General Theory sounded suspicious to me. Was the reminder of Einstein two decades entirely subconscious Was the habit of collecting Newton manuscripts entirely sincere? A successful investor, Keynes knew their value could only go up, but was that really the point?
Confirmation bias? Perhaps.
It was only in skimming those ten books about Friedman that I was reminded of how stark was the contrast between Keynes’ explanation of the Depression in The General Theory and that of Friedman and Schwartz’s A Monetary History of the United States. Not that their account is was entirely satisfying, either; but it seems closer than before.
As the Nobel Committee had put it in 2022,
Keynes (1936) argued that recessions were primarily due to drops in aggregate demand, moving economic output below the production capacity of the economy. According to this view, governments should counter recessions through an expansionary fiscal policy that boosts aggregate demand.”
Friedman and Schwartz, on the other hand, argued that the Depression arose from inept monetary policy mostly by the US by the Federal Reserve Board, In Bernanke’s telling:
Friedman and Schwartz showed “that central bankers outmoded doctrines and flawed understanding of the economy had played a crucial role in that catastrophic decade, demonstrating the power of ideas to shape events
The proofreader makes the important point: Friedman and Schwartz had a much longer period of hindsight in which to see things with greater clarity than Keynes. In the end, both economists were stars players on the same team across the years.
So, what about that metaphor for Keynes that my friend sought?
It’s a question worth thinking about, at least until next week.
Before Keynes was an economist, he was a mathematician. his PhD thesis from Oxford was on Bayesian statistics. He was ahead of much of the profession. He is simply a genius though he had a row to how to become an economist. In my view one of the true geniuses not only in economics but in social science in the 20th century.