Keynes Describes His Conflict With Orthodox Economics

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This is a transcript of a BBC speech by Keynes 2 years before he published his landmark book which detailed some of his thinking in this speech. He refers to orthodox economists as those who hold the view that markets are self correcting and that are better off to let them self correct when there is an economic downturn than we would be if the state intervened in the market. He expresses respect for the orthodoxy that he was taught and he acknowledges the hold that it has on the thinking of economists and practitioners alike. He points out, however, that Marx's attack on capitalism is based upon his understanding of Ricardian theory which dominated the profession. There is a sense that defending the orthodox view is a justification for Marxism which had made a strong attack on the logic of capitalism and the consequences of extending that logic to the future. He was beginning to realize that the doctrine of laissez-faire and Marxism were intertwined and that both failed to explain economic reality.

Keynes's language is arcane and hard to follow for a modern reader but this short article explains much of the debate that we are seeing today as economists and politicians consider how to deal with the economic downturn. Orthodox economists have resorted to the use of Ricardian theory that Keynes was attacking to argue that fiscal policy would not work to end the recession. Keynes also attacks the dependence of orthodox theory on the concept of self adjusting interest rates. The idea is that interest rates will fall in a recession and encourage business to spend on new investment and it will also encourage consumers to spend with the use of cheap credit. Keynes did not believe that business would invest, even with low interest rates, if they were not confident in achieving an adequate return on its investment. He was also aware of the liquidity trap that we have today when interest rates are at the zero bound and business investment is still stagnant.

Kenes considers some of the things that might be done to get out of the depression. One of the things that he considered was the redistribution of income from those who tend to save a large portion of their income to those who would spend most of it and also receive a higher benefit from the spending due to decreasing marginal utility of consumption as income increases. He also talked about ways to encourage business investment and compared the two approaches. His hope was that ultimately there would be sufficient capital investment to produce all of the real necessities of life for everyone and the result could be greater leisure and the enjoyment of the better things in life did not require undue consumption.