Martin Small, “Masters of Money (Episode 1: Keynes)” (2012)
This is the first episode of a three-part series by the BBC on significant economists / philosophers who thought and wrote on the role of money or capital in Western societies, with a view to applying these people’s insights and work in solving economic and financial crises as exemplified by the Great Depression of the 1930s and the Global Financial Crisis of 2008 whose effects are still reverberating in many countries across the world. Episode 1 deals with the British economist John Maynard Keynes and his ideas and contributions to the theory and practice of macroeconomics, and running economic policy. The episode links the economist’s background and historical context, in particular significant historical events such as the two World Wars and the Great Depression, to his thought and the development of his ideas.
The episode emphasises in particular some of his most significant ideas in running and controlling economies: that market economies are not self-correcting and can stay sunk indefinitely; that governments must understand how economies work and must stimulate under-performing economies by spending on public works; that economic actors such as employers in labour markets and investors in financial markets do not always behave rationally; and that a global institution is needed to oversee international trade and money flows. These ideas are demonstrated to be rooted in Keynes’s experiences as an economist and investor and in other work he did for the British government, in the mistakes he made and the successes he had, and in his efforts to create and obtain acceptance for a radical system of managing international currencies which would include an international currency, a world central bank and an international clearing-house to regulate trade and balance of trade and balance of payment surpluses and deficits.
In about 50 minutes, the episode explains the basic ideas and concepts for which Keynes is famous, and how they might be used to solve the problems and issues underlying the Global Financial Crisis of 2008, how it came about and the continuing stresses that arose from it and which continue to plague countries like Greece, the United States and the United Kingdom among others today. The episode also touches on the issue of financial bubbles in markets such as the stock-market, the property market and other areas of investment (such as college student loans in the US) and the phenomenon of herd psychology which Keynes also addressed.
As an introduction to Keynes’s work, the episode fulfills its remit well, pointing out the economist’s innovations that are now taken for granted by high school economics students as well as university students and those academics and economists still keen on Keynesian economics. Where Keynes’s ideas are still applicable and the pitfalls in his economics and the assumptions that underlie them are also indicated. While Keynes was no doubt familiar with corruption, greed and the slippery thinking that distorted his ideas and economic tools among the politicians, economists, industrialists and academics of his day, he could have had no idea that his entire economic philosophy might end up being abused by a future generation of ruling elites for their own benefit; hence, the present-day predicament in which governments can no longer apply Keynesian solutions to stimulating under-performing economies as those economies are already heavily in debt as a result of bailing out large banks for past abuses of the public trust by profligate lending and various sharp practices in a context of financial and economic deregulation. This shows up a short-fall in Keynes’s thinking: for all his innovation and breakthroughs in areas such as behavioural economics and finance, and the control of flows in money and goods and services in global markets, he failed to grasp the relationship between money and debt, and how debt drives the creation and movement of money in the financial and real economies. At the very least, the kinds of financial and economic institutions to mitigate the more extreme effects of global trade and the money flows associated with it that he envisaged (and which were adopted either in adulterated form or in ways that benefited the US government and corporations) when he attended the United Nations Monetary and Financial Conference in Bretton Woods on behalf of the UK in 1946, could be applied at the microeconomic level too, weakening and softening the impact of debt and the power of banks over borrowers, and he should have realised that.
The episode might have delved more into Keynes’s early background and the upper middle class culture that informed it and his thinking. Ultimately Keynes was a creature of his upbringing and social class, and I believe this was a brake on the way he thought about economic practice and what governments should do to support their economies.
The next two episodes in the BBC series focus on Friedrich Hayek and Karl Marx as significant influences on 20th century economic practice.