Times letters: The tough act of following Cressida Dick


Sir, In discussing the possible “Finlandisation” of Ukraine, your leading article (“Kyiv’s Cause”, Feb 11) correctly states that it would unacceptable for great powers to enforce such a policy on Ukraine. In his brilliant book The Ambassadors, Sir Robert Cooper explains that Finland’s neutrality was not “enforced” by great powers but was decided by Finland itself, against the wishes of the Soviet Union, which wanted a military alliance. It was the ability of the two Finnish negotiators, Paasikivi and Mannerheim, plus the respect Finland had earned from Stalin by its brave resistance to the Soviet invasion of 1939, which secured more than “nominal” independence in 1948.

The moral of the tale is that it is up to Ukraine to determine the conditions of its coexistence with Russia. They are the two leading actors in this drama; all the rest are bit players.
Lord Skidelsky

House of Lords

Exchange of the week: Did the West create the monster?

To the Financial Times

Martin Wolf is right to say that Vladimir Putin has ignited an indefensible war against Ukraine. That it is worse than a crime is highlighted by your report on Kharkiv, described as “another Stalingrad”. You do not call Ukrainians your brothers then bomb them into submission. Whatever the war’s immediate results, Putin has ensured that Russia’s western borders become “ungovernable”. This is a dreadful legacy.

However, let’s not lose all sense of history. Russia’s desire to retain both Belarus and Ukraine as buffers between Russia and Nato is understandable: one has only to look at the map to understand why. I have never understood why the West – or Ukraine itself – has refused to give Russia the assurance that there would be no forward deployment of Nato forces on its borders. Had such promises been given, the dynamics of post- communist Russian politics would have been very different. As Yegor Gaidar, Russia’s first post communist PM, once said to me: “The best hope for Russian liberals is the distance of Nato from our borders.” Wolf’s piece ignores the argument that Putin’ “the monster” is partly a creation of Western diplomacy.

Robert Skidelsky, House of Lords, London

To the Financial Times

In “Just look at the map to see Moscow’s point of view” Robert Skidelsky asserts that had the West given assurances to Russia that there would be no forward deployment of Nato forces, then Putin would not have needed Ukraine and Belarus to be buffers between Russia and Nato’s “military alliance”. But Nato has never been a “war” alliance; it has always been a ” defence ” alliance, with its member nations acting “collectively” to defend against attacks on any one of its members. Therefore it is disingenuous of Skidelsky to accuse Martin Wolf of ignoring all sense of Russian history. 

Ali M. El-Agraa, emeritus professor of international economic integration, Fukuoka University, Japan

The Future of Work: Is Artificial Intelligence a New Road to Serfdom?

Lecture and Discussion with Lord Robert Skidelsky

Lord Robert Skidelsky has given a lecture at the Institut für die Wissenschaften vom Menschen (IWM) on Tuesday, 15 March 2022, 18:00 CET in Vienna.

In contemporary discussions about the future of artificial intelligence we often lose our heads. While economists offer bleak predictions of mass job losses and a deepening of already widespread precarity, Silicon Valley utopians insist that new technologies are bringing us ever closer together and will one day deliver us from work, disease and poverty. But when human life is reduced to a set of rational processes waiting to be optimized, we risk losing sight of the irreducible quality of human experience. The talk shed new light on the dream of machinery and the entailed  dichotomy of liberation versus control. With his characteristic attention to the subtleties of the human condition, Robert Skidelsky offered a challenging account of what it means to pursue the good life in the age of the machines.

Think Twice Before Sanctioning Russia Further

Despite massive Western economic sanctions against Russia, the chance that they will lead to President Vladimir Putin’s ouster, or even to a drastic change in Russian policy toward Ukraine, is much lower than most people suppose. It is far more likely that punishing will neither stop the war nor secure the peace.

LONDON – The West has imposed massive financial and economic sanctions on Russia in response to its invasion of Ukraine. But are the sanctions supposed to be a way to end the war? Are they a means of punishing Russia for its bad behavior? Or are they simply an expression of moral outrage?

This is the second time in less than a decade that Russia has been sanctioned for violating international law. Following Russia’s 2014 annexation of Crimea and incursion into eastern Ukraine, the United States imposed economic sanctions aimed at “effectively making it a pariah state.” Clearly, this did not have the desired effect of changing the Kremlin’s behavior. Now a new barrage of measures in response to the assault on Ukraine has ramped up sanctions to an unprecedented extent. 1

The current restrictions on Russia include a ban on trade in critical technologies, extensive asset freezes and travel bans, the denial of major Russian banks’ access to international capital markets, travel bans and asset freezes targeting individuals, and the exclusion of Russian aircraft from international airspace. With the sequestration of the Russian central bank’s foreign-exchange reserves and the promised eviction of Russia from the world financial and trading system, oil and gas will remain the country’s lifeline to the global economy.

All of this might seem a necessary moral response to Russia’s lawlessness. But when relatively light-touch sanctions give way to heavy economic bombardment, two key questions should be asked. First, at what point do sanctions become a pathway to war rather than an alternative to it? Second, what are such measures expected to achieve, and how effective are they likely to be? So far, these questions have scarcely been asked, much less answered. 

Governments should consider the first question carefully before imposing sanctions on a great power, particularly one with nuclear weapons. If that power perceives a threat to its means of survival, there is a strong chance that it will fight to overcome the restrictions. 

For example, when the US imposed an embargo on oil and gas exports to Japan in August 1941, following Japan’s seizure of oilfields in Indochina, the Japanese responded by attacking Pearl Harbor. And after OPEC subjected the US to an oil embargo in 1973 in retaliation for American military assistance to Israel during the Yom Kippur War, President Richard Nixon’s administration threatened to invade and occupy OPEC member states’ oil fields. The embargo ended.

The sanctions imposed so far on Russia do not yet threaten the survival of the Russian state. But President Vladimir Putin may regard a Western attempt to cut off the remainder of Russia’s international trade, especially in energy, as an existential threat. 

As for the second question, the objective of economic sanctions is reasonably clear: to prevent or stop war by imposing unacceptable costs on the aggressor state. But while there is no doubt that the Western sanctions on Russia have greatly raised the costs to ordinary Russians of Putin’s war, no one expects that this will end the conflict. 

The West instead hopes that the costs of the sanctions to Russia’s elite will achieve this result. Rather than lose their wealth, the argument goes, the elites may overthrow Putin or force him to end the war. This is the only rationale for the current sanctions that makes sense. 

But the likelihood of Putin’s ouster, or even of a drastic change in Russian policy, is much lower than most people suppose. Essentially, it depends on Russia’s defeat in Ukraine, a prolongation of the conflict without any resolution, or a growing perception among Russia’s military that Putin has failed them. Far more likely is a ceasefire and at least the appearance of a Russian victory. In that case, economic sanctions will have done nothing either to stop the war or secure the peace.

A 2007 UK House of Lords report concluded that, “economic sanctions used in isolation from other policy instruments are extremely unlikely to force a target to make major policy changes.” Even sanctions’ rare success in forcing South Africa to abandon apartheid depended on two special circumstances, neither of which applies to Russia today: worldwide enforcement and South Africa’s inability to retaliate. Turkey, India, and China are the most notable of the states that have not sanctioned Russia, and potential Russian counter-sanctions include cutting off the oil and gas supplies on which most of Europe depends. 

But that is not all. Among the “other policy instruments” mentioned in the House of Lords report, the foremost is the “threatened or actual use of force.” In other words, the inefficacy of economic sanctions on their own to change state behavior implies a high risk that they become part of an escalator to war. That is why Western countries have so far not acceded to Ukraine’s request to impose a no-fly zone. 

Economic sanctions against Russia are supposed to be an alternative to war, but they can reasonably be expected to change the Kremlin’s behavior only by becoming tactical components of the conflict. The sad truth is that Western countries cannot help Ukraine except by threatening to go to war with Russia. But to admit this is to call into question the whole logic of their sanctions policy. 

More generally, economic sanctions have become a greatly overused tool of preventive diplomacy. By cutting off parts of the world from international commerce, they promote the formation of antagonistic blocs, and destroywhatever promise globalization still holds. 

Samuel Johnson famously observed that, “There are few ways in which a man can be more innocently employed than in getting money.” His French contemporary, Montesquieu, spoke of the douceur of commerce. True, a lot of trade is criminal, and much of it benefits corrupt and oppressive governments. But forcing countries back to pre-modern economic conditions is not a formula for improvement.

Ukraine: Refugees – House of Lords Questions

Lord Skidelsky:

My Lords, in addition to the help that the Government are giving to Ukrainians to come to this country, will they consider offering humanitarian visas to those brave Russians—members of the clergy, members of civil society, academics, journalists and ordinary citizens—who face long prison sentences for exercising their democratic right to oppose this war?

Baroness Williams of Trafford:

I am very glad that the noble Lord asked that question because, at this point, we all need to stop and remember all of those Russian people who are so against, or do not even know, what is happening in Ukraine. I do not have many details of that, but it is certainly heartbreaking when you see Russian soldiers fighting in Ukraine who appear not to know what they are doing and why they are doing it.

Letter: Just look at the map to see Moscow’s point of view

Martin Wolf is right to say that Vladimir Putin has ignited an indefensible war against Ukraine (Opinion, March 2). That it is worse than a crime is a folly highlighted by your report about Kharkiv, described as “another Stalingrad” (March 3). You do not call Ukrainians your brothers, then bomb them into submission. Whatever the war’s immediate results, Putin has ensured that Russia’s western borders become “ungovernable”. Belarus will be next on the list for “brotherly” persuasion, once Alexander Lukashenko has gone. This is a dreadful legacy.

However, in our condemnation of Russia’s current actions, let’s not lose all sense of history. Russia’s desire to retain both Belarus and Ukraine as buffers between Russia and Nato’s military alliance is understandable and reasonable: one has only to look at the map to understand why. I have never been able to understand why the west — or Ukraine itself — has refused to give Russia the assurance that there would be no forward deployment of Nato forces on its borders. Had such promises been given at any time since the fall of communism, the dynamics of post-communist Russian politics would have been very different. As Yegor Gaidar, Russia’s first post-communist prime minister, once said to me: “The best hope for Russian liberals is the distance of Nato from our borders.” Wolf’s piece completely ignores the argument that Putin “the monster” is partly a creation of appalling western diplomacy.

Wolf also shows an unjustified faith in economic sanctions to secure regime change. What he does show is that the kind of sanctions being imposed on Russia today will be highly damaging to the world economy, not that it will change Russia’s behaviour.

I agree with Mikhail Fridman, one of the sanctioned Russian billionaires, who said this week sanctions “will not have any impact for political decisions in Russia” (Report, March 2) because he, Fridman, has no influence over Putin.

Letters in response to this letter:

Worth heeding Keynes and the German parallels / From William Dixon, London SE18, UK

Why Nato assurances on troops is missing the point / From Ali M El-Agraa, Emeritus Professor of International Economic Integration, Fukuoka University, Japan

A Kyiv refugee’s plea for solidarity in face of attack / From Alex Levak, Refugee from Kyiv, Ukraine

Letter: Just look at the map to see Moscow’s point of view

Martin Wolf is right to say that Vladimir Putin has ignited an indefensible war against Ukraine (Opinion, March 2). That it is worse than a crime is a folly highlighted by your report about Kharkiv, described as “another Stalingrad” (March 3). You do not call Ukrainians your brothers, then bomb them into submission. Whatever the war’s immediate results, Putin has ensured that Russia’s western borders become “ungovernable”. Belarus will be next on the list for “brotherly” persuasion, once Alexander Lukashenko has gone. This is a dreadful legacy.

However, in our condemnation of Russia’s current actions, let’s not lose all sense of history. Russia’s desire to retain both Belarus and Ukraine as buffers between Russia and Nato’s military alliance is understandable and reasonable: one has only to look at the map to understand why. I have never been able to understand why the west — or Ukraine itself — has refused to give Russia the assurance that there would be no forward deployment of Nato forces on its borders. Had such promises been given at any time since the fall of communism, the dynamics of post-communist Russian politics would have been very different. As Yegor Gaidar, Russia’s first post-communist prime minister, once said to me: “The best hope for Russian liberals is the distance of Nato from our borders.” Wolf’s piece completely ignores the argument that Putin “the monster” is partly a creation of appalling western diplomacy.

Wolf also shows an unjustified faith in economic sanctions to secure regime change. What he does show is that the kind of sanctions being imposed on Russia today will be highly damaging to the world economy, not that it will change Russia’s behaviour.

I agree with Mikhail Fridman, one of the sanctioned Russian billionaires, who said this week sanctions “will not have any impact for political decisions in Russia” (Report, March 2) because he, Fridman, has no influence over Putin.

Robert Skidelsky House of Lords, London SW1, UK

Economic Recovery in the Age of COVID-19

The COVID-19 pandemic is an invitation to what the economist Joseph Schumpeter called creative destruction: a chance to liquidate obsolete investments and to create something new, better, and, in the jargon, more ‘resilient’ and ‘sustainable’. Schumpeter understood that humankind does not progress in a balanced way, rather it lurches from one extreme to another, each extreme producing its own reaction.

In political economy, the subject of this contribution, the excesses of the Keynesian social democracy in the 1970s brought about the extreme reaction of neo-liberalism. The hubris of neo-liberalism – its failure to guard against the ever present possibility of collapse, its inattention to social justice, its reckless embrace of globalisation, its Faustian pact with consumerism – has in turn bred a reaction, but to what is as yet unclear. Populist forces of Right and Left, made up of fragments of old and new discontents, compete for the succession. The balance remains elusive.

We have both a short-term and long-term crisis on our hands. In the short term we run the risk of what some analysts are calling the Third Great World Depression. In the long run the risk is of the exhaustion of Nature’s tolerance for our profligate habits. The prize is to enfold our pandemic recovery measures into a long-term strategy for a sustainable way of life – I will not say growth, for growth as we understand it may not be sustainable.

The short-term threat to jobs and livelihoods is clear enough. Much of Europe is on a life-support system. The world economy will have shrunk by about 5% in 2020, and hopes of a V-shaped recovery have been put on hold. This means that unemployment is set to go on rising through 2021. In the UK, we expect an unemployment rate of close to 10%. Everyone is waiting for the end of the coronavirus pandemic so that we can get back to ‘normal’. But the virus is no longer the main problem: it is the scarring of the economy produced by a prolonged and continuous period of non-work which will damage the recovery.

And what about the further future? Suppose by a heroic effort we succeed in reopening economies much as they were before. Can anyone say they were in a healthy or sustainable situation before the pandemic struck? Debt-driven growth models which produced consumption and asset booms followed by financial busts: that was the pre-pandemic normal.

I am often asked, what would British economist John Maynard Keynes have said? I will try to give my answer, though I hasten to add that Keynes, from beyond the grave, has not authorised me to do so. Nor is Keynes the last word on the matters I will deal with.

Then and now

My book Keynes: The Return of the Master (Skidelsky, 2009) was published in the autumn of 2009. It was published the year after the global banking collapse of 2008 and the massive rescue operations undertaken by governments all round the world – not just the bailout of a bankrupt banking system, but also large monetary and fiscal stimulus. This activism was in contrast to the ‘do nothing’ stance of governments following the Wall Street crash of 1929. I believe that it prevented another Great Depression: the fall in output following the 2008 collapse was limited to four quarters, whereas output went on falling for thirteen quarters after the collapse of 1929.

Long before recovery was secure, however, our own stimulus was terminated. Alarmed by the deficits they had incurred, governments started to slash public spending. The ‘return of the master’ proved brief. “I guess everyone is a Keynesian in a foxhole” said Robert Lucas, high priest of Chicago economics. Keynes was for emergencies only.

And we have the same reaction today. Compelled to close down a large fraction of their economies to stop the spread of the coronavirus contagion, governments have spent money freely to keep up the incomes of millions of people prevented from working. But they continue to hope that as the economy reopens, a V-shaped recovery will relieve them of their fiscal burden. The talk is of ‘fiscal sustainability’, the need for consolidation and debt reduction even as the economy is set to shrink.

Many would see this as a reasonable position. Most economists view the market system as fundamentally healthy. It will get sick from time to time and therefore need medication, but it is basically self-healing, like the human body. So treatment should be limited in scope and duration. This is particularly the case given the unreliability of political medicine. Keynes rejected this analogy between the market system and the self-healing body and believed rather that a market system left unattended by the state could never be healthy.

Keynes for beginners

Keynes’s revolutionary insight was that capitalist market economies do not have an automatic tendency towards full employment. This assertion shocked the economists of Keynes’s day, whose models taught them that persisting unemployment was impossible if wages were flexible. Keynes’s Cambridge colleague Arthur Pigou expressed the typical belief of 1933: “With perfectly free competition…there will always be a strong tendency for wage-rates to be so related to demand that everyone is employed” (Pigou, 1933). Based on this argument, unemployed workers must be choosing not to work. Seeing the millions unemployed all around him during the Great Depression, Keynes thought: There is something wrong with your model! These people are not choosing not to work. They cannot find work at any wage.

Keynesian economics starts with this blinding shaft of common sense. People are unemployed when there is no demand for their services. Yet this insight never fully converted the economics profession, who went on cooking up all kinds of fancy reasons to demonstrate that what looked like unwanted unemployment was really a ‘choice for leisure’. Today I would wager that most economists believe, deep down, that most unemployed people could find work if they really wanted to, or if state benefits did not provide them with an alternative income.

But why do economies not quickly bounce back from collapses? Surely, if an employer does not want to employ me at £500 a week, I can always lower my wage requirement till it becomes profitable for him to employ me. By insisting on unrealistic wages, workers are ‘pricing themselves out of employment’. But Keynes gave two reasons why even flexible wages will not maintain or restore full employment.

Wages and demand

Keynes’s first argument was that every producer is also a consumer: my wages are your income, because my wages buy your goods. If my wages go down, your income goes down, too. The general principle is that cuts in production costs (whether by cutting wages or by laying off workers) deepen a slump by simultaneously cutting total demand or spending power. A fall of income in one part of the economy reduces production in another part, and so on, in a downward spiral as unemployment spreads rapidly throughout the economy. Eventually spending power is stabilised at a much lower level as people stop saving. But nothing has happened to stimulate consumption, and therefore to promote a recovery. The weird idea that the way to revive an economy is by getting everyone to stop spending comes only to a well-trained neo-classical economist.

Confidence and money

Keynes’s second argument against the V-shaped recovery model had to do with the behaviour of money. It is characteristic of a slump that instead of investing their money, businesses ‘hoard’ it, or ‘add to their cash reserves’. The greater this ‘liquidity preference’ is, the higher the rate of interest that owners of money will charge to lend it out. But to stimulate production, borrowers need lower rates, not higher rates. So when confidence is low, the higher rates demanded by the banks for loans mean even less investment, less consumption and less employment.

In this way, flexibility of wages and stickiness of interest rates combine to deepen the slump. Contrary to Robert Lucas, without government ‘stimulus’ the economy will remain stuck in the foxhole.

But the mainstream economist has a comeback: depressions or deep recessions are very rare events, like Nassim Taleb’s ‘black swans’ (2008). So it is absurd to organise economic life as if the next slump is just around the corner. Market economies have built-in stability so powerful that slumps will be very rare. This is exactly what Keynes denied: black swans can fly out of a clear blue sky at any time. We have just seen a large flock of them in 2020.

The reason, Keynes said, was that the theory of the ‘self-equilibrating’ market economy depends on the idea that everyone, and particularly investors, can accurately predict the future. If they can accurately calculate what assets they buy today will be worth in ten years time, they would never buy things at the wrong prices. As Keynes (1937) wrote: “The calculus of probability…was supposed to be capable of reducing uncertainty to the same calculable status as certainty itself”. But this was a myth. “Actually…we have as a rule, only the vaguest idea of any but the most direct consequences of our acts” (Keynes, 1936). This was the second huge shaft of commonsense to pierce the mathematical precision of forecasting models.

And a huge consequence followed. Because the future is uncertain, private investment – which depends on the expectation of future yield – will be unsteady. Prosperity will depend on peoples’ ‘animal spirits’. When they are feeling confident, they hire more workers; when they are pessimistic, they hire fewer.

Stabilisation policy

Two conclusions follow from this account of market behaviour: 1) Collapses are always possible because the future is uncertain; and 2) When they happen, there are no ‘automatic’ market mechanisms to ensure a quick bounce back.

That is why governments are indispensable ‘balancers’ of market economies. They add and subtract spending power as and when needed.

This explains why there is no virtue in trying to balance the budget as such. Being Keynesian means having a theory of the economy that justifies the use of the state budget to balance economic activity at an optimal level of output and employment. This can mean either a budget surplus or a budget deficit or a balanced budget, depending on what is happening in the economy. It is the accounts of the economy that it needs to balance. Without this balancing act the economy will have a spontaneous tendency not to full employment but to underemployment.

To maintain economic life on a balanced, even keel, governments need to do two things.

First, they need to steady the rate of investment. They can do this through public investment programmes. Keynes (1936) wrote: “I expect to see the state, which is in a position to [take] long views…taking an ever greater responsibility for directly organising investment”. This happened in the 25 years after World War II, but since the 1980s, the state’s share in total investment has fallen drastically, increasing economic instability. Notice that a large state investment share is not just a policy for the foxhole but a permanent part of economic management.

Secondly, governments should pursue counter-cyclical policy to limit the effect of remaining fluctuations. This means injecting extra spending into the economy when private spending falls and curtailing it when it rises. It can be done on the tax side, or spending side, or both. The ‘multiplier’, based on what is called ‘the marginal propensity to consume’, tells governments what the multiplied effect of any spending they add to or subtract from the economy will be.

The answer to the failures of both old-fashioned Keynesianism and newfangled monetarism is not to abandon the balancing role of the state, but to make it as automatic as possible. The state should commit to two things: a rolling programme of public investment and a public sector job guarantee.

The first would reduce fluctuations in investment to much narrower limits; the second would provide a buffer stock of jobs, which would automatically expand in a downturn and deplete in an upturn.

Public investment does not require public ownership. Much of it could be done by quasi-state institutions like public investment banks or funds or state-holding companies. These would operate under a broad central government mandate or ‘mission’ to use Mariana Mazzucato’s word, that reflects national purpose, but which insulates commercial decisions from political meddling.

The ‘counter-cyclical’ public sector job programme would be centrally financed, but with projects chosen and administered locally. The result of both policies pursued together would be to abolish unwanted unemployment for the first time since the Industrial Revolution.

These two balancing functions, public investment and counter-cyclical policy, are needed to ensure the full employment and stability of capitalist market economies. And the fuller the use of a country’s human resources, the more prosperous the country will be, the greater the social contentment and the less the danger of political extremism. This – in a nutshell – is the message of Keynes for our day.

Three objections

Now let us consider three neoclassical objections to Keynesian theory and policy.

First, as we have seen, economists believe the market economy to be much more naturally stable than Keynes supposed. Hence they view Keynesian demand management as inherently destabilising. History does not support them. The most stable period in modern times, with the fullest employment and fastest growth rate, has been the period from 1950 to1975, when Keynesian theory and policy was in control.

Second, anti-Keynesian economists teach that public investment ‘crowds out’ private investment. This is true if a government adds to public spending when all the economy’s resources are already fully employed. It is a cousin of the idea that public borrowing merely adds to the burdens of future generations. But whenever there is spare capacity, public investment can ‘crowd in’ private investment by increasing total demand for goods and services. Most governments drastically cut public investment after the 1970s. Growth was halved and unemployment rose. Some public investment is bound to be ‘wasted’, but this has to be compared with the waste of unemployment.

Third, monetarist economists – descendants of Milton Friedman – claim that Keynesian counter-cyclical policy is inherently inflationary. Vote-catching will lead Keynesian politicians to print too much money, resulting in creeping and eventually accelerating inflation.

Behind the monetarist argument is the belief that there is only one shock against which policy has to guard: government, which is governments ‘monkeying around’ with money. Instability in the price level can delude people into trading at false prices, disturbing the natural equilibrium of market transactions. If the key to economic stability is a low and constant rate of inflation, then control of the money supply (or equivalently) of interest rates needs to be taken out of the hands of politicians and vested in independent central banks.

History gives only qualified support to the monetarist thesis. Inflation was subdued throughout the 25 years of the Keynesian era and only started to rise at the end of the 1960s, for reasons much more connected with the Vietnam War than with Keynesian economics. As for the inherent stability of an economy with stable money: a decade of low inflation did not prevent the financial collapse of 2008-09.

Nor did quantitative easing – flooding the economy with central bank ‘base money’ or M0 in 2009-12 – bring about a robust recovery after the collapse. The aim of quantitative easing was to lower the cost of borrowing by forcing up the price of bonds. Its fallacy lay in the belief that the ‘money supply’ (which includes ‘broad money’ or bank credit) is directly under the control of the central bank. How much bank credit an expansion of base money brings about depends on Keynes’s ‘animal spirits’. A very high rate of interest can sometimes kill off a boom; but even a negative rate of interest might not produce recovery if expectations of profit from increased investment are zero.

Neoclassical economists are not the only critics of Keynesianism. Marxists would claim that such an updated Keynesian programme is just pie in the sky. A capitalist economy needs a ‘reserve army of the unemployed’ to keep up profits by keeping down wages. Only a fully socialised economy, they say, can abolish unemployment and maintain wage growth. The answer is that between 1950 and 1975, Keynesian-managed capitalist economies averaged unemployment rates of 2% to 3%, half of what they have been since; they had doubled the growth rates we have since had, with rising rather than stagnating wages; and at a cost in inflation only slightly higher than we have experienced under monetarist management.

No system of political economy is perfect. But it should be judged not by comparison with some ideal system, but with the realistic alternatives. Keynes set out to save democracy from the two challengers of his day – fascism and communism. He said that if we continued with laissez-faire in the face of massive unemployment, political freedom would not survive. “But it may be possible by a right analysis of the problem to cure the disease whilst preserving efficiency and freedom” (Keynes, 1936).

I would echo him today. I doubt if western populations will for much longer tolerate a political economy that delivers persisting underemployment, frequent crashes, stagnant wages, and extreme inequalities of wealth and income.

In thinking about our post-COVID-19 world, Keynes is an excellent start, but he did not solve all economic problems. Although he assumed that the desire to consume more would eventually be satiated by abundance, he had no inkling of long-run ecological constraints on growth. Keynes understood that inequality was both an economic and ethical problem, but his theoretical work was directed to overcoming unemployment, the big problem of the day, and he did not link it to the unequal distribution of wealth, which we are much more likely to do today.

European context

Let me conclude by putting what I have just said into a European context. This is a serious question, because while the rules of the European Union prevent member states from pursuing Keynesian policies at the national level, there is no provision for European-wide Keynesianism.

The fundamental design flaw of the eurozone has often been pointed out; it created a monetary union without three crucial tools which are needed to stabilise economies: a budget big enough to act as a balancer, a fiscal transfer capacity to deal with asymmetric shocks and a lender of last resort for the banking system. These were not accidental omissions. The European Economic and Monetary Union was built on the belief that they were unnecessary. The creators of the Union accepted the Friedman monetary doctrine that rule-governed market economies are naturally stable, which was consistent with the long-standing anti-inflationary views of the German Bundesbank. But it was worse than that: the eurozone treaty forbade the use of stabilising tools at the national level. What this meant is that the Union as a whole was badly equipped to deal with the kinds of shocks to which market capitalism is prone.

The conventional, or German, view of the financial crisis of 2008-09 was that it resulted from excessive public debts and fiscal profligacy of the Mediterranean countries. Had these countries balanced their budgets as the rules prescribed, the financial shock could have been avoided. The alternative, and I think correct, view, is that the Union provided no non-deflationary mechanism for adjusting current account imbalances between its members. Keynes’s remark of 1941 applies very accurately to the EU: “The process of adjustment is compulsory for the debtor, and voluntary for the creditor: the debtor must borrow; the creditor is under no such compulsion.” His Clearing Union set out to remedy this design flaw in the global system by providing for creditor adjustment, but no such mechanism was established in Europe. As result, Germany in particular was left free to pile up current account surpluses without limit. The system was maintained by an unstable system of creditor loans which dried up the moment debtors got into trouble.

With the fiscal policy of all member states constrained by balanced buget rules and public debt ceilings, monetary policy – the weaker stabilisation instrument – was the only macro policy available. Mario Draghi, European Central Bank (ECB) president, found a way of bending the rules of the ECB sufficiently to rescue the EU from collapse in 2015. But he recognised the limitations of a purely monetary stimulus. In an interview with Financial Times, Draghi (2019) said:

I [have] talked about fiscal policy as a necessary complement to monetary policy since 2014. Now the need is more urgent than before. Monetary policy will continue to do its job but the negative side effects as you more forward are more and more visible. Monetary pumping worked, but more feebly that fiscal pumping would have.

Draghi proposed a budget for the eurozone large enough to be a stabilising tool: this has not been acted on.

The COVID-19 crisis has brought one promising institutional innovation. In July of this year, the European Commission proposed a €750 billion European Recovery Fund, dubbed Next Generatioan EU. This would authorise the Commission to borrow in the capital markets on the EU’s behalf and disburse the loans raised as grants and loans, split half-and-half to its members.

However, it has two obvious limitations. The European Council called the fund ‘an exceptional response to temporary but extreme circumstances’. In other words, it is not intended to become a permanent part of the EU’s institutional structure, so it is limited in size, scope and duration.

And secondly, it still has to be agreed by all 27 member states. As a result of continuous wrangling, no budgetary allocations have yet been made. What seemed like an imaginative leap forward looks like a quagmire. As one analyst has remarked “a sword of Damocles therefore hangs over the whole plan”.

Many member states are still betting on that V-shaped recovery. Germany and France are planning to cut their deficits next year (Germany from 6.35% to 4.25%) with the ‘peak of the stimulus’ seemingly past. The calls for consolidation are like those leading to self-induced double dip of 2011.


With the world on the brink of yet another steep recession, and with ecological disaster looming, we can no longer afford the luxury of an economic policy which concentrates on the fight against inflation, leaves unemployment to emergency measures, distribution of wealth and income to the market, and ignores ecological challenges.

Overcoming the scourage of unemployment, connecting its treatment to issues of just distribution nationally and globally, and linking both to a Green New Deal: this tripartite task is the biggest politico-economic challenge facing us.

* This article is based on Robert Skidelsky’s keynote speech at the Intereconomics/CEPS online conference “COVID-19: From Lockdown to Recovery”, 27 October 2020.


Draghi, M. (2019, 30 September), Mario Draghi declares victory in battle over the euro, Interview, Financial Times.

Keynes, J. M. (1936), The General Theory of Employment, Interest and Money, Macmillian.

Keynes, J. M. (1937), The General Theory of Employment, The Quarterly Journal of Economics, 51, 212-223.

Pigou, A. C. (1933), The Theory of Unemployment, Macmillian, 252.

Skidelsky, R. (2009), The Return of the Master, Allen Lane.

Taleb, N. N. (2007), The black swan: The impact of the highly improbable, Random House.

Keynes: die erneute Rückkehr des Meisters

In der aktuellen Corona-Krise wiederholen sich die Muster früherer Krisen. Vor dem Hintergrund sinkender Produktion und steigender Arbeitslosigkeit versuchen Notenbanken und Staaten weltweit ihre Ökonomien vor einem größeren Absturz zu bewahren. Die Rezeptur für diese Stabilisierungspolitik basiert auf der Lehre des britischen Ökonomen John Maynard Keynes, die dieser vor dem Hintergrund der Großen Depression im Jahr 1936 in seiner „Allgemeinen Theorie der Beschäftigung, des Zinses und des Geldes“ beschrieb. Doch nicht nur in der Krise, auch darüber hinaus empfehlen sich die wirtschaftspolitischen Ansätze von Keynes für das 21. Jahrhundert.

Mein Buch „Keynes: Die Rückkehr des Meisters“ erschien im Herbst 2009, ein Jahr nach dem globalen Bankenkollaps von 2008 und den massiven Rettungsaktionen, die von Regierungen auf der ganzen Welt unternommen wurden. Damit gingen der Bailout eines bankrotten Bankensystems sowie umfangreiche geld- und fiskalpolitische Konjunkturprogramme einher. Anders als nach dem Wall-Street-Crash 1929 blieben die Regierungen in der Krise 2008/2009 nicht passiv. Ich gehe davon aus, dass durch diese Eingriffe eine weitere Große Depression verhindert werden konnte: Während die Wirtschaftsleistung nach dem Zusammenbruch 1929 über 13 Quartale in der Rezession blieb, beschränkte sich der Produktionsrückgang nach dem Zusammenbruch von 2008 auf vier Quartale.

Mit dem Rücken zur Wand ist jeder ein Keynesianer

Bevor die Wirtschaft sich wirklich erholen konnte, wurden die Maßnahmen infolge der Krise 2008/2009 bereits wieder zurückgefahren. Die Angst vor einer möglichen Überschuldung ließ die Regierungen die öffentlichen Ausgaben kürzen und die „Rückkehr des Meisters“ erwies sich als kurzlebig. „I guess everyone is a Keynesian in a foxhole“, sagte Robert Lucas, der Hohepriester der Chicagoer Wirtschaft. Keynes war offenbar nur für Notfälle gedacht.

Heute ist das Muster ähnlich. Die Regierungen waren gezwungen, einen großen Teil ihrer Volkswirtschaften zu schließen, um die Ausbreitung der Coronavirus-Pandemie zu stoppen, und haben großzügig finanzielle Mittel bereitgestellt, um die Einkommen der Unternehmen und Millionen von arbeitenden Menschen zu sichern. Aber sie hofften, dass der Staatshaushalt bei der Wiedereröffnung der Wirtschaft entlastet wird, wenn der Aufschwung v-förmig verläuft. Damit die Staatsverschuldung nicht außer Kontrolle gerät, wird nun bereits wieder über Steuererhöhungen gesprochen.

Dies scheint vernünftig. Viele Unternehmer und Ökonomen halten das Marktsystem für grundsätzlich gesund. Es wird zwar von Zeit zu Zeit krank und braucht daher Medikamente, aber im Grunde ist es selbstheilend, wie der menschliche Körper. Deshalb sollte die Behandlung in Umfang und Dauer begrenzt sein. Dies gilt insbesondere angesichts der Risiken der politischen Medizin. Der britische Ökonom John Maynard Keynes (1883-1946) lehnte diese Analogie zwischen dem Marktsystem und dem selbstheilenden Körper ab und glaubte stattdessen, dass ein vom Staat unbeaufsichtigt gelassenes Marktsystem niemals gesund sein könne.

Keynes für Anfänger

Die meisten, die vom Keynesianismus gehört haben, glauben, dass diese ökonomische Schule darauf abzielt, Haushaltsdefizite zuzulassen. Das ist falsch. Keynesianismus ist eine Wirtschaftstheorie, die ein ausgeglichenes Produktions- und Beschäftigungsniveau mithilfe des Staatshaushalts ermöglicht. Das kann entweder mit einem Haushaltsüberschuss, einem Haushaltsdefizit oder einem ausgeglichenen Haushalt einhergehen, je nachdem, wie die wirtschaftliche Lage sich gerade darstellt. Es ist nicht von sich aus erstrebenswert, den Staatshaushalt auszugleichen. Vielmehr sollten konjunkturelle Auf- und Abschwünge ausgeglichen werden. Aber warum ist diese Balance so wichtig?

Keynes‘ revolutionäre Einsicht war, dass kapitalistische Marktwirtschaften nicht automatisch zur Vollbeschäftigung tendieren. Ihr Normalzustand tendiert zur Unterbeschäftigung, die sich bei einer ernsthaften Depression verschlimmert. Diese Behauptung schockierte die Ökonomen zur damaligen Zeit, deren Modelle lehrten, dass anhaltende Arbeitslosigkeit bei flexiblen Löhnen unmöglich sei. Keynes‘ Kollege aus Cambridge Arthur Pigou drückte diese Überzeugung so aus: „With perfectly free competition among workpeople and labour perfectly mobile … there will always be at work a strong tendency for wage-rates to be so related to demand that everybody is employed“ (Pigou, 1933). Ausgehend von diesem Argument, müssen sich arbeitslose Arbeitnehmer dafür entscheiden nicht zu arbeiten, indem sie auf Löhne bestehen, die die Arbeitgeber ihnen nicht zahlen können. Als Keynes während der Großen Depression die Millionen von Arbeitslosen um sich herum sah, bemerkte er, dass etwas mit den Modellen nicht stimmen kann! Die Leute wollen nicht arbeitslos sein. Sie finden unabhängig vom Lohn keine Arbeit.


Die keynesianische Ökonomik beginnt mit einem Paradigmenwechsel. Keynes geht davon aus, dass Menschen arbeitslos sind, weil es keine Nachfrage nach Arbeit gibt. Doch diese Überlegung hatte die Wirtschaftswissenschaftler nicht wirklich überzeugt. Sie führten alle möglichen ausgefallenen Gründe an, um darzulegen, dass das, was wie unerwünschte Arbeitslosigkeit aussah, tatsächlich eine „Entscheidung für Freizeit“ war. Noch heute würde ich davon ausgehen, dass die meisten Ökonomen tief im Inneren glauben, dass fast alle Arbeitslosen einen Arbeitsplatz finden könnten, wenn sie es wirklich wollten oder wenn ihnen staatliche Sozialleistungen kein alternatives Einkommen bieten würden.

Aber warum erholen sich Volkswirtschaften nicht schnell von Zusammenbrüchen? Was ist mit der Idee der v-förmigen Erholung? Sicherlich kann ich, wenn ein Arbeitgeber mich nicht mit 500 Pfund pro Woche einstellen will, meine Lohnforderung so lange senken, bis es sich für ihn lohnt, mich einzustellen. Der orthodoxe Wirtschaftswissenschaftler hat eine fertige Antwort parat: Indem Arbeitnehmer auf unrealistische Löhne bestehen, nehmen sie sich selbst die Beschäftigung. Gegen diese Annahme führte Keynes zwei Gründe an, warum selbst flexible Löhne die Vollbeschäftigung nicht aufrechterhalten oder herstellen können.

Kaufkrafttheorie der Löhne

Sein erstes Argument lautete, dass jeder Produzent auch ein Konsument sei: Mein Lohn ist dein Einkommen, denn mit meinem Lohn kaufe ich deine Waren. Wenn mein Lohn sinkt, sinkt dein Einkommen. Eine Senkung der Produktionskosten (sei es durch Lohnkürzungen oder durch Entlassungen von Arbeitnehmern) vertieft also einen Einbruch, in dem gleichzeitig die Kaufkraft und die Gesamtnachfrage verringert wird. Ein Einkommensrückgang in einem Teil der Wirtschaft reduziert die Produktion in einem anderen Teil usw. Es entsteht eine Abwärtsspirale, da sich die Arbeitslosigkeit in der gesamten Wirtschaft rasch ausbreitet. Schließlich wird die Kaufkraft erst auf einem deutlich niedrigeren Niveau stabilisiert, wenn die Menschen aufhören zu sparen. Aber nichts passiert, um den Konsum anzuregen und damit eine Erholung zu fördern. Nur ausgebildete Ökonomen kommen auf die verrückte Idee, dass der Weg in den Wirtschaftsaufschwung darin besteht, dass alle die Ausgaben kürzen.

Vertrauen und Geldhaltung

Keynes‘ zweites Argument gegen die Idee der v-förmigen Erholung hatte mit der Geldhaltung zu tun. Es ist charakteristisch für eine Krise, dass Unternehmen ihr Geld horten bzw. ihre Barreserven aufstocken, statt zu investieren. Je größer diese „Liquiditätspräferenz“, desto höher ist der Zinssatz, den die Kreditgeber verlangen. Um die Produktion anzukurbeln, brauchen Kreditnehmer aber niedrigere, nicht höhere Zinsen. Wenn also das Vertrauen gering ist, bedeuten die höheren Zinssätze, die z. B. von den Banken verlangt werden, noch weniger Investitionen, weniger Konsum und weniger Beschäftigung.

So führen flexible Löhne und unflexible Zinssätze zu einer Vertiefung des Einbruchs. Anders als bei Robert Lucas bleibt die Wirtschaft ohne staatliche „Stimulierung“ in der Rezession. Aber die Mainstream-Ökonomik erlebt ein Comeback: Depressionen oder tiefe Rezessionen sind sehr seltene Ereignisse, wie die „schwarzen Schwäne“ von Nassim Taleb (2008). Es wäre absurd, das Wirtschaftsleben so zu organisieren, als stünde der nächste Einbruch unmittelbar bevor. Marktwirtschaften würden eine innere Stabilität aufweisen, sodass Krisen sehr seltene Ereignisse wären. Das hat Keynes jedoch bestritten: Schwarze Schwäne können jederzeit aus dem Nichts auftauchen.

Der Grund dafür ist laut Keynes, dass die Theorie der „sich selbst ausgleichenden“ Marktwirtschaft von der Vorstellung abhängt, dass jeder, und insbesondere Investoren die Zukunft genau vorhersagen können. Wenn sie den Wert der Vermögenswerte, die sie heute kaufen, in zehn Jahren genau berechnen könnten, würden sie niemals Dinge zu falschen Preisen kaufen. Wie Keynes (1937) schrieb: „The calculus of probability … was supposed to be capable of reducing uncertainty to the same calculable status as that of certainty itself.“ Aber das ist ein Mythos. „Actually, however, we have, as a rule, only the vaguest idea of any but the most direct consequences of our acts“ (Keynes, 1936). Dies ist ein zweiter Paradigmenwechsel, der vielen Ökonomen die Augen öffnete. Dies hatte erhebliche Konsequenzen. Weil die Zukunft ungewiss ist, werden private Investitionen – die von der Erwartung künftiger Erträge abhängen – unstetig sein. Der Wohlstand hängt von den „animal spirits“ der Menschen ab. Wenn sie sich zuversichtlich fühlen, stellen sie mehr Arbeiter ein; wenn sie pessimistisch sind, stellen sie weniger ein.


Aus dieser Darstellung des Marktverhaltens ergeben sich zwei Schlussfolgerungen: Erstens, Zusammenbrüche sind immer möglich, weil die Zukunft ungewiss ist; und zweitens, wenn sie geschehen, gibt es keine „automatischen“ Marktmechanismen, die einen schnellen Aufschwung gewährleisten. Deshalb muss der Staat als „Ausgleichsmechanismus“ in der Marktwirtschaft wirken. Er steigert oder senkt die Nachfrage je nach Bedarf.

Diese zwei Dinge sollten Regierungen tun, und zwar nicht nur im Notfall, sondern dauerhaft:

  1. Sie sollten die Investitionen stabilisieren. Dies können sie durch öffentliche Investitionsprogramme erreichen. Keynes (1936) schrieb: „I expect to see the state, which is in a position to [take] long views … taking an ever greater responsibility for directly organising investment.“ Dies geschah in den 25 Jahren nach dem Zweiten Weltkrieg, doch seit den 1980er Jahren ist der Anteil des Staates an den Gesamtinvestitionen drastisch zurückgegangen, was die Instabilität der Investitionen erhöht.
  2. Die Regierungen sollten eine „antizyklische“ Politik verfolgen, um die Wirkung weiterer Schwankungen zu begrenzen. Das bedeutet, die Wirtschaft mit zusätzlichen Staatsausgaben anzukurbeln, wenn die privaten Ausgaben sinken, und sie zu drosseln, wenn diese steigen. Dies kann auf der Einnahmen- oder auf der Ausgabenseite oder auf beiden Seiten geschehen. Der „Multiplikator“, der auf der „marginalen Konsumneigung“ basiert, zeigt den Regierungen, welchen Gesamteffekt die zusätzliche oder reduzierte Nachfrage auf die Wirtschaft haben wird.

Diese beiden ausgleichenden Funktionen, öffentliche Investitionen und antizyklische Politik, sind notwendig, um Vollbeschäftigung und Stabilität in kapitalistischen Marktwirtschaften zu gewährleisten. Und je mehr Ressourcen kontinuierlich genutzt wurden, desto höher ist die Wachstumsrate und desto größer die soziale Zufriedenheit. Dies war – kurz zusammengefasst – die Botschaft von Keynes.


Lassen Sie uns nun die wesentlichen Einwände gegen die keynesianische Theorie und Politik betrachten. Der erste ist, wie wir gesehen haben, dass Mainstream-Ökonomen glauben, dass Marktwirtschaften eine natürliche Stabilität aufweisen, anders als es Keynes annahm. Aber es gibt auch Argumente gegen einzelne keynesianische Instrumente.

  1. Anti-keynesianische Ökonomen lehren, dass öffentliche Investitionen weniger effizient sind als private. Sie verdrängen (crowd out) sogar private Investitionen. Dies trifft zu, wenn alle Ressourcen der Wirtschaft voll ausgeschöpft werden. Wenn jedoch freie Kapazitäten vorhanden sind, können öffentliche Investitionen private Investitionen steigern (crowd in), indem sie die Gesamtnachfrage nach Gütern und Dienstleistungen erhöhen. Die meisten Regierungen haben die öffentlichen Investitionen nach den 1970er Jahren drastisch gekürzt. Das Wachstum wurde halbiert und die Arbeitslosigkeit stieg an. Tatsächlich wird ein Teil der öffentlichen Investitionen nicht effizient eingesetzt, aber das sollte mit der Ineffizienz von Arbeitslosigkeit abgewogen werden.
  2. Monetaristische Ökonomen – Nachfahren von Milton Friedman – behaupten, dass die keynesianische „antizyklische“ Politik zwangsläufig inflationär sein muss. Regierungen können den Konjunkturzyklus nicht steuern; und selbst wenn sie es könnten, würden sie im Bemühen Wählerstimmen zu gewinnen, so viel Geld drucken, dass es zu einer schleichenden und schließlich beschleunigten Inflation führen würde.

Diese monetaristische Kritik ist teilweise berechtigt. Aber auch hier müssen wir das keynesianische System mit der monetaristischen Alternative vergleichen. Monetaristen behaupten, dass die Märkte „antizyklisch stabil“ seien, wenn es keine „Schocks“ gäbe, da die Menschen rational in die Zukunft vorausschauen können. Der wichtigste „Schock“, gegen den Vorkehrungen getroffen werden müssen, sind unerwartete Änderungen des Preisniveaus. Diese können die Menschen dazu verleiten, zu falschen Preisen zu handeln. Der Schlüssel zur wirtschaftlichen Stabilität ist daher eine niedrige und konstante Inflationsrate. Dies macht es erforderlich, dass die Kontrolle der Geldmenge oder der Zinssätze aus der Verantwortung der Politiker genommen und unabhängigen Zentralbanken übertragen wird. Dieses System wurde in den 2000er Jahren in den meisten Ländern getestet. Es hat 2008 bis 2009 einen wirtschaftlichen Zusammenbruch nicht verhindert.

Selbst die Politik der quantitativen Lockerung – die Überschwemmung der Wirtschaft mit Zentralbankgeld oder M0 in den Jahren 2009 bis 2012 – führte nach dem Zusammenbruch nicht zu einer v-förmigen Erholung. Der Trugschluss der Monetaristen besteht darin, dass die Geldmenge (zu der die erweiterte Geldmenge oder Bankkredite gehören) nicht direkt unter der Kontrolle der Zentralbank steht. Wie viel Bankkredit eine Ausweitung der Geldbasis bewirkt, hängt von Keynes‘ „animal spirits“ ab. Ein sehr hoher Zinssatz kann einen Boom beenden, aber selbst ein negativer Realzinssatz führt möglicherweise nicht zu einer Erholung, wenn die „animal spirits“ sich verdunkeln.


Die Antwort auf das Scheitern sowohl des altmodischen Keynesianismus als auch des neumodischen Monetarismus besteht nicht darin, die ausgleichende Rolle des Staates aufzugeben, sondern sie so automatisch wie möglich zu gestalten. Der Staat sollte sich zu zwei Dingen verpflichten: zu einem öffentlichen Investitionsprogramm und zu einer Arbeitsplatzgarantie im öffentlichen Sektor.

Das erste würde die Investitionsschwankungen enger begrenzen; die zweite würde einen Puffer an Arbeitsplätzen schaffen, der sich in einem Abschwung automatisch ausweiten und in einem Aufschwung reduzieren würde. Öffentliche Investitionen bedeuten nicht zwingend öffentliches Eigentum. Ein Teil davon könnte durch quasi-staatliche Institutionen wie öffentliche Investitionsbanken oder Unternehmen mit staatlicher Beteiligung getragen werden. Diese würden unter einem weit gefassten zentralstaatlichen Mandat stehen und damit nationale Ziele widerspiegeln, aber unternehmerische von politischen Entscheidungen trennen. Die öffentliche Arbeitsplatzgarantie würde zentral finanziert, aber mit Projekten, die lokal ausgewählt und verwaltet werden. Das Ergebnis beider Politiken gemeinsam wäre, dass zum ersten Mal seit der industriellen Revolution unerwünschte Arbeitslosigkeit abgeschafft würde.

Marxisten würden behaupten, dass ein solches aktualisiertes keynesianisches Programm nur ein Wunschtraum ist. Eine kapitalistische Wirtschaft braucht eine „Reservearmee der Arbeitslosen“, um die Profite zu erhöhen und die Löhne zu senken. Nur eine vollständig sozialisierte Wirtschaft, so sagen sie, kann die Arbeitslosigkeit abschaffen und das Lohnwachstum aufrechterhalten. Tatsächlich wiesen die keynesianisch geführten kapitalistischen Volkswirtschaften von 1950 bis 1975 eine durchschnittliche Arbeitslosenquote von 2 % bis 3 % auf, halb so hoch wie seither, mit steigenden statt stagnierenden Löhnen, und die Inflation war nur geringfügig höher als während monetaristischer Führung.

Kein System der politischen Ökonomie ist vollkommen. Aber es sollte nicht im Vergleich mit einem idealen System beurteilt werden, sondern mit den realen Alternativen. Keynes machte sich daran, die Demokratie vor den beiden Herausforderern seiner Zeit – Faschismus und Kommunismus – zu retten. Er sagte, wenn wir angesichts der Massenarbeitslosigkeit mit der Laissez-faire-Politik fortfahren würden, würde die politische Freiheit nicht überleben. Wird das Problem aber richtig analysiert, könnte es möglich sein, die Krankheit zu heilen und gleichzeitig Effizienz und Freiheit zu bewahren.

Diese Überlegungen sind auch heute aktuell. Ich bezweifle, dass die westliche Bevölkerung über längere Zeit eine politische Ökonomie tolerieren wird, die dauerhafte Arbeitslosigkeit, häufige ökonomische Abstürze, stagnierende Löhne und extreme Ungleichheiten bei Vermögen und Einkommen mit sich bringt. Der Keynesianismus löst nicht alle wirtschaftlichen Probleme. Keynes (1936) schrieb, die beiden großen Fehler der kapitalistischen Gesellschaften seien das Versagen, Vollbeschäftigung zu schaffen, und seine arbiträre und ungleiche Verteilung von Einkommen und Vermögen. Er machte sich daran, den ersten Fehler zu überwinden, was das große Problem der damaligen Zeit war. Diese beiden Therapien mit dem Green New Deal zu verbinden, bleibt die größte wirtschaftliche Herausforderung unserer Zeit.


Keynes, J. M. (1936), The General Theory of Employment, Interest and Money, Macmillian.

Keynes, J. M. (1937), The General Theory of Employment, The Quarterly Journal of Economics, 51, 212-223.

Pigou, A. C. (1933), The Theory of Unemployment, Macmillian.

Taleb, N. (2008), Der schwarze Schwan: Die Macht höchst unwahrscheinlicher Ereignisse, Hanser.

Joseph Schumpeter

The theorist of “creative destruction,” one of the greatest economists of the 20th century, was no stranger to violent disruption in his personal life, as a new biography reveals

Joseph Alois Schumpeter (1883-1950) was one of the greatest economists of the 20th century—commonly bracketed with such giants as Keynes, Hayek and Friedman. He is best known for his theory of “creative destruction”—the view that the capitalist system progresses by constantly revolutionising its economic structure. New firms, new products, new technologies continually replace old ones. Since innovation comes in fits and starts, the capitalist economy is naturally, and healthily, subject to cycles of boom and bust. The agent of this revolutionary process is the heroic entrepreneur: the individual owner in the 19th century, big business in the 20th. Innovation needs its reward, hence a dynamic economy is one which allows the innovator huge profits. Temporary monopoly is nature’s way of allowing innovators to gain from their inventions. Short-run inequity is the price of long-run progress.

Along with Schumpeter’s positive contribution went a persisting critique of conventional economics, whose concern with static problems of allocation in perfectly competitive markets rules out change and the role of the entrepreneur. But Schumpeter’s speculations ranged far beyond this, into the question of the durability of a civilisation which lives by continually destroying what it has created—a line of thought which went back to Marx in his Communist Manifesto. It may well be that Schumpeter has more to tell us about the nature of capitalism than the new breed of market idealists spawned by globalisation or by such 20th-century apostles of stabilisation as Keynes.

At least, that is the argument of Thomas K McCraw in Prophet of Innovation, his new biography of the great Austrian economist. It is a fine book, well paced and readable. There are plenty of good photographs, of Schumpeter himself and of the important people and places in his life. The theme of creative destruction appears against the background of Schumpeter’s own family uprooting, the dissolution of the Austro-Hungarian empire, the turmoil of the interwar years, and the restless, and tragic, circumstances of his adult personal life. McCraw puts it like this: “Over the years he reinvented himself many times…Thinking not of where he started but of how he might move forward, he was well suited to grasp the mindset of the entrepreneur… [In Vienna] he learned that one’s identity in a rapidly changing world might come more from innovation than inheritance; that exchanging security for opportunity could bring great rewards; and that for someone with his gifts almost anything was possible.”

A thinker’s background cannot tell us everything about his thought, but it can tell us a great deal, and McCraw exploits his opportunities with great skill, while also giving the reader a lucid, non-technical account of Schumpeter’s ideas. His main insight concerns the effect on Schumpeter’s thinking of the impact of capitalist business on the still largely feudal order of central and eastern Europe. It was the speed of the transformation, and extent of the ensuing dislocation, which led him to reject the static equilibrium models of British economics, derived from a society where economic change was evolutionary and institutions very stable. Unlike his exact contemporary Keynes, Schumpeter always saw economics from the standpoint of the innovative businessman, not of the treasury or central bank.

One of McCraw’s failings is that he does not give a sufficiently concrete account of Schumpeter’s first 30 years. He bursts on the intellectual scene already a celebrity. The steps by which he reached his eminence are largely missing. Unlike Keynes, who never strayed far from Cambridge, Schumpeter was uprooted from his ancestral home. His family origins were solid Catholic German bourgeoisie, long settled in a couple of small towns in Moravia, now part of the Czech Republic. But when he was four, his father, who owned a textile business, died in a hunting accident. His mother Johanna, determined to secure a larger stage for herself and her son, moved to the provincial capital Graz, remarried a general, and, with her elderly aristocratic husband, shifted to Vienna where the 11-year-old Schumpeter was enrolled in a top gymnasium, Theresianum, proceeding from there to the University of Vienna, where he graduated in Roman and canonical law in 1906.

This double transplantation cost Schumpeter his roots, but fed his ambition. Johanna was one of those mothers who invested all her energies in the creation of a star. Schumpeter shared his mother’s ambition for him to succeed socially as well as intellectually. Outside the study, Schumpeter was an almost invented character. He started mixing with Austria’s aristocracy—as a young man he even fought a duel. He became a compelling conversationalist. He impressed old professors and dazzled young students, but he had no close male friends of his own age. The hour in the morning Keynes devoted to his investments, Schumpeter was reputed to spend on his toilette. “The new graduate,” McCraw writes, “dressed like a dandy, spent money freely, and carried on frequent liaisons with willing women.” He used to say that his three ambitions were to become the greatest economist, the greatest horseman and the greatest lover in the world, and only the decline of the cavalry had thwarted the fulfilment of all three.

McCraw could have made more of the mystery of Schumpeter’s appearance. It had more of the Levant than of Europe. Many people assumed he was Jewish, but there is no evidence of this, nor, as McCraw rightly emphasises, of any expressions of antisemitism. But Schumpeter made his strange looks a compelling feature of his personality. “He held his head high and tilted slightly backward, acccentuating his prominent chin and making his 5’8′ 145-pound frame look a little bigger than it was.”

Schumpeter possessed a prodigious capacity for work, but one would like to know more about his work habits and what he worked on. There is nothing about his eight years at Theresianum except that he emerged fluent in six languages. At the University of Vienna “it did not take Schumpeter long to find that he had a special gift for economics,” but apart from a single reference to his attendance at Bohm-Bawerk’s seminar on Marx, we learn little about what he actually studied, or the quality of his degree. He had no “special gift” for mathematics—but how much maths could he do? Two years after his graduation—aged 25—he published a 600-page book on economic method, and three years later a slenderer volume, The Theory of Economic Development (1911), which “launched his rise to stardom” from a temporary teaching job in a provincial Austrian university. On a visit to England in 1907, which confirmed a lifelong Anglophilia, the great lover unexpectedly acquired a well-connected English wife, Gladys Seaver, 12 years older than himself, with whom he was not “madly” in love. “Perhaps,” McCraw speculates not unreasonably, “it was again an issue of identity, of trying to reinvent himself as a continental aristocrat and an English gentleman.”

The Theory of Economic Development is Schumpeter’s first statement of the crucial role that entrepreneurs play in breaking up old and creating new structures and stimulating new wants, and the role of bank credit in financing innovation—themes he was to pursue for the rest of his life. It also established what was to become the main line of his defence of capitalism—that its destructiveness was inseparable from its creativity. Schumpeter was not a complete non-interventionist like his fellow members of the Austrian school, Ludwig Mises and Friedrich Hayek, but he was to come out decisively against the systematic stabilisation policy recommended by Keynes for fear it would end progress prematurely.

A surprising omission in McCraw’s account is any discussion of Schumpeter’s little book, Imperialism and Social Classes (1919), which tried to explain the the collapse of the Austro-Hungarian empire after the first world war. Bourgeois societies, Schumpeter argued, are by nature peaceful, but German and Austro-Hungarian politics had been dominated by a military aristocracy: “a machine of warriors, created by the wars that required it, which now creates the wars it requires.” Like Keynes, Schumpeter had vainly advocated a negotiated peace to save the European civilisation he loved. In 1919, he briefly became minister of finance in the rump Austrian state, but his stabilisation plan was powerless against hyperinflation. Here again McCraw lets down the reader: he tells us that Schumpeter’s ministerial career lasted six months, but nothing about how it ended.

Two devastating blows in short succession brought a “belated onset of… maturity.” His attempt to make money as a banker foundered in 1924 with the collapse of a bogus glassmaking company whose loans he had guaranteed. An adverse legal judgment, while exonerating him from wrongdoing, left him debts which took years to pay off and a blemished reputation. He wrote: “The promises of wealth and the threats of destitution that [capitalism] holds out, it redeems with ruthless promptitude.” Meanwhile, Schumpeter had fallen desperately in love with Annie Reisinger, 20 years his junior, the beautiful daughter of the concierge of the apartment building in which he had grown up. Inventing a middle-class background for her, and ignoring the inconvenient fact that he was still married to Gladys Seaver, Schumpeter rushed her to the altar in November 1925. A few months later came the death of his adored mother and, in August 1926, of Annie herself in childbirth. Schumpeter never fully recovered from this shattering of his hopes for wealth and personal happiness. “Everything now hangs on my ability to work,” he wrote to a friend. “If so, the engine will keep running, even if my personal life is over.” His celebrity lectures would pay off his debts; his serious work would be monuments to his Hasen—his mother and Annie.

The rest of his life was devoted to teaching, thinking and writing. He moved from a chair in Bonn in 1925 to one at Harvard in 1932, where he remained till his death in 1950. On the way, he acquired two devoted helpmates, Mia Stöckel, who managed his personal business in Bonn, and Elizabeth Boody, whom he married in 1937. At Harvard, he became a campus celebrity, holding court each afternoon in a coffee shop by the Widener Library. He was devoted to his students, and generous with his attention. Although Schumpeter insisted that “scientific” work must be kept free from the policy taint, he could not avoid politics completely in the 1930s and 1940s. Elizabeth had a soft spot for Japan, and Joseph regarded Soviet Russia as a greater danger than Nazi Germany—views which brought the couple to the attention of the FBI in the war.

McCraw provides excellent accounts of the three big books Schumpeter wrote at Harvard—Business Cycles (1939), Capitalism, Socialism and Democracy (1942) and his superb History of Economic Analysis, published after his death in 1954. Capitalism, Socialism, and Democracy sums up most of what Schumpeter had been thinking for the previous 30 years. It was also one of the most influential books of the 20th century. It transferred the defence of capitalism from the ground of the superiority of markets over central planning to that of the superiority of capitalism over socialism as an engine of technological progress, but one inseparable from huge costs in terms of disruption and inequity, and because of that, inherently fragile. Capitalism’s fatal flaw is exactly what Marx discerned in the Communist Manifesto: it creates a vested interest in social unrest by undermining the traditional ruling class without being able to create a ruling class of its own. To his own question “Can capitalism survive?” Schumpeter answered “No, I do not think that it can.” As JK Galbraith remarked, “Men of property and high corporate position do not rally to such friends.”

Unlike Hayek, Schumpeter defends the theoretic viability of socialism, but argues that the conditions of its arrival (except possibly in Britain) will be such as to make it intolerably oppressive. McCraw rightly points out the irony in Schumpeter’s treatment of socialism—which led some reviewers to believe that he was advocating it—but somehow misses the tragic implications of the thesis: capitalist civilisation is doomed, but its alternative, socialism, is appalling. He also, it seems to me, underestimates the huge importance Schumpeter’s discussion of democracy has had on the development of modern political science, particularly in the two propositions that politicians are entrepreneurs in votes, and that the true function of democracy is to choose leaders, not policies. What Schumpeter was arguing was that elitist democracy, or oligarchy, could give societies the advantages of dictatorship plus liberty. He saw Britain as the epitome of such a system. But in general he doubted the ability of contemporary democracies to exercise the required self-restraint.

Schumpeter was one of the dazzling minds of the 20th century, but was he a great economist? Unlike Smith, Ricardo and Keynes, he created no new theory, founded no new school. At Harvard, he taught many brilliant graduate students, some of them future Nobel laureates, but they went to his seminars more to dispute than to learn. He could certainly “do” economics, and indeed his erudition in the history of the discipline was unparalleled, but he viewed it largely from outside—that is, sociologically and historically. His major contributions to our understanding of the capitalist system stand outside the main development of the discipline, which has been towards increasing mathematical precision in stating the conditions for market equilibrium. As McGraw rightly emphasises, entrepreneurship can’t be fitted into formal models; we can’t predict the future because we can’t predict the appearance of exceptional individuals. Or as Schumpeter himself wrote: “We do not know enough in order to form valid generalisations or even enough to be sure whether there are any generalisations to form.”

Given the magnitude of Schumpeter’s achievement outside economics, this reader is left with a question: does economics, as taught and practised in the economics departments of top universities and published in top journals, rather than as Schumpeter understood it, have anything of importance to tell us about the conditions of contemporary economic and political life? Or is it, like the glass-bead game in Herman Hesse’s novel Magister Ludi, a kind of intellectual chess played by an elite of secular priests?

Letter: Remember Kissinger’s advice to the Ukrainians

Nato governments have rightly said they are willing to address Russia’s security concerns, but then say in the same breath that Russia has no legitimate security concerns because Nato is a purely defensive alliance. Whether we like it or not, a Nato that now borders Russia and could in future border even more of Russia is seen by Russia as a security concern.

In 2014 Henry Kissinger wrote in the Washington Post that “internationally [Ukraine] should pursue a posture comparable to that of Finland. That nation leaves no doubt about its fierce independence, co-operates with the west in most fields, but carefully avoids institutional hostility to Russia.”

A permanent “Finlandisation” of Ukraine would be unrealistic. But it should be possible for Nato, in close association with Ukraine, to put forward detailed proposals to negotiate a new treaty with Russia that engenders no institutional hostility. This would cover: the verifiable withdrawal of nuclear-capable missiles; detailed military confidence-building measures limiting numbers and demarcating deployment; and international agreement on presently contested borders between Russia and Ukraine.

Lord Owen
UK Foreign Secretary 1977-79

Lord Skidelsky
Historian, Fellow of British Academy

Sir Anthony Brenton
British Ambassador to Russia 2004-08

Christopher Granville
Former British Diplomat

Nina Krushcheva
Professor of International Affairs, The New School, New York, US

Letter in response to this letter:

Sovereignty also means freedom to change policy / From Helge Vindenes, Former Norwegian Diplomat (1958-1999), Padstow, Cornwall, UK