My Amazon Review of Zachary Carter's "The Price of Peace: Money, Democracy and the Life of John Maynard Keynes"

The Economist as Savior

Zachary Carter has given us a well-written and very hagiographic biography the great economist John Maynard Keynes. Carter gives much credit to Robert Skidelsky’s three volume biography of Keynes and the first two-thirds of  this book makes it far easier for the lay reader to get an understanding of Keynes the economist and Keynes the man. The last third of the book is devoted to how macroeconomics evolved after Keynes.  And it is the last third that I have much to quarrel with it.

Keynes was a very interesting guy. A leader in the avant-garde Bloomsbury group, gay until his late 30s and then he falls in love with the Russian ballerina Lydia Lopokava with whom he happily marries. But what Carter and the lay reader is really interested in is, Keynes the economist.

Keynes becomes a leading public intellectual when he wrote the “Economic Consequences of the Peace” in 1920 criticizing the Post World War I Versailles Treaty, a book that I have read many times over. He then writes very seriously about monetary theory in the 1920s which culminates in his magnum opus, modestly titled “The General Theory of Employment, Interest and Money”. That too is a book that I have read many times. With that book Keynes invents macroeconomics.

But Carter is not only interested in macroeconomics he is interested in Keynes’ social theories concerning the good life and the equitable distribution of income. Carter is less interested in economic stabilization then in promoting Keynes’ view of what a good society should be. It he where he goes astray. He spends precious few pages on the role of John Hicks in distilling the General Theory down the IS-LM curves of undergraduate economic textbooks. It is the IS-LM structure that establishes Keynesian economics, first in Britain and the in the U.S.  Without Hicks what we know of Keynesian economics would be limited.

Carter discusses how Keynesian economics became embedded in the Eisenhower and especially the Kennedy-Johnson administrations. It was there, aided and abetted by the Philips Curve, the economists over-promised and under-delivered laying the basis for the monetarist counter revolution. Along the way Carter writes a paean to John Kenneth Galbraith who, in my opinion after reading his “Affluent Society” and “The New Industrial State,” was a pompous moralist.

What upset me most about the book is Carter’s chapter entitled “The Aristocracy Strikes Back,” which was about the start of the monetarist counter-revolution led by Milton Friedman. In a fashion I played a very small part in that as I moved from the world IS-LM to the world of the M’s and rational expectations. Where I take umbrage is the word aristocracy. As a kid from Queens going to Baruch College, I was far being anywhere near being from the manner born.

Carter also makes short rift of the collapse of much of the Keynesian dogma in the stagflation of 1970s. Simply put, Keynesian economics stopped working. Nevertheless with the Great Financial Crisis of 2007-2009 and the current COVID crisis Keynes has been rightfully resurrected. Just to note in 2009 I was strong advocate of aggressive fiscal stimulus including a large public investment program that Keynes would have advocated. However I did attach a proviso that would have limited environmental review and prevailing wages. You see the America of 2020 is not the America of 1935. There is no such thing as shovel ready projects.

A few of my technical criticisms would include the fact that Carter gets the date of assassination of Franz Ferdinand in 1914 wrong. He has it on July 28, not June 28. This is not trivial because with his dating the stock market response to the assassination was instantaneous, when fact it wasn’t. He gives the cartoon version of Herbert Hoover, when, in fact, Hoover acted but did far less than what was needed. His cause of the 1937 recession was fiscal, when it was the result of the Treasury gold sterilization program, which was monetary. Further he leaves out the work of the late UCLA economist Axel Leijonhufvud who wrote on the economics of Keynes in a different manner than here.

Nevertheless, because he writes so well I can recommend Carter’s books. He is lucid in explaining macroeconomics in everyday terms; just take some of his ideology with more than a few grains of salt.

For the complete Amazon URL see: https://www.amazon.com/review/R2H7XL6UC6FH53/ref=pe_1098610_137716200_cm_rv_eml_rv0_rv