Was Keynes a Corporatist? Keynes's Radical Views on Industrial Policy and Macro Policy in the 1920s

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Keynes's main purpose in writing The Economic Consequences of the Peace (1919) was to issue a dire warning that if the provisions of the Treaty of Versailles were implemented, the world would face the prospect of economic stagnation, financial crisis, social and political unrest, and, in some countries, possible revolution. But he also used the book to express his belief that Europe stood between two epochs of economic history. World War I accelerated the dissolution of the old order to be sure, and the Treaty threatened to make a peaceful and smooth transition to a new socioeconomic regime impossible, but Keynes believed that the old order was destined to crumble anyway.

Keynes argued that the conditions that made possible the high growth rate in Europe and North America between 1870 and World War I were inherently transitory. In the second sentence of the book, he states that "very few of us realize with conviction the intensely unusual, unstable, complicated, unreliable, temporary nature of the economic organization by which Western Europe has lived for the last half century" [Keynes 1971a, 2:1]. Toward the book's end, he drew the following conclusion:

England is in a state of transition, and her economic problems are serious. We may be on the eve of great changes in her social and industrial structure [1971a, 2:253].

The most serious problems for England have been brought to a head by the war, but are in their origins more fundamental. The forces of the nineteenth century have run their course and are exhausted. The economic motives and ideals of that generation no longer satisfy us: we must find a new way and must suffer again the malaise, and finally the pangs, of a new industrial birth [1971a, 2:254].

In the mid-1920s, when Keynes's vision of this new order solidified, he proposed radical new forms of state economic regulation at both the macro and micro levels. Unfortunately, his approach to beth macro- and microeconomic theory and policy has been widely misconceived. Recently, a small literature correctly reinterpreting Keynes's macro policy views has appeared [e.g., Kregel 1985; Brown-Collier and Collier 1995]. Grounded primarily in his 1940s wartime writings, this literature reminds the reader that Keynes opposed such standard "Keynesian" tools as permanent deficit spending and the use of tax and interest rates as counter-cyclical policy tools. Rather, he believed that we should rely on large-scale, long-term, public investment as the cornerstone of aggregate demand management. However, as I will show in the body of the paper, Keynes first announced his allegiance to the "socialization of investment" not toward the end of his life, but in the mid-1920s.

Little has been written, at least in recent decades, about Keynes's radical rethinking of microeconomic theory and policy in the 1920s.(1) The traditional view that Keynes was uninterested in micro theory and was content to accept then-current orthodoxy about it is profoundly mistaken.(2) The main purpose of this essay is to show just how badly mistaken this conventional wisdom is, at least as applied to the 1920s. In that decade, Keynes decisively rejected the traditional theory of perfect competition, applauded the ongoing trend toward increased reliance on public corporations, and argued that the government should not only accept the current movement toward cartels, holding companies, trade associations, pools, and other forms of monopoly power, but should proactively assist and accelerate this trend in order to regulate and control it. When Keynes heralded the death of laissez faire in the 1920s, it was not just macroeconomic policy he had in mind. He called with equal enthusiasm for the state to adopt powerful industrial policies to regulate enterprise and industry behavior. At least in this period, Keynes was unabashedly corporatist.

Visionary Essays: 1924-26

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