ECONOMIC THINKING OF LORD KEYNES

Summary

This Forum of Free Enterprise booklet, issued in Bombay on 11 July 1968, reprints an article by University of Maryland economist Dudley Dillard that originally appeared in Review, the journal of the Institute of Public Affairs in Australia. Dillard, author of an earlier popular exposition of The General Theory of Employment, Interest and Money (1940), sets out to answer a question Forum readers had been asking with mounting urgency as Indian debate over deficit financing intensified: was Lord Keynes a socialist or a defender of capitalism? Forum president Murarji J. Vaidya frames the reprint as a service to students of public affairs in India who needed a clear, jargon-free account of Keynes’ actual position rather than the caricatures circulating on either side.

The body of the essay is a compact primer on the Keynesian system. Dillard places Keynes in the classical line that runs from Adam Smith and Ricardo through Mill and Marshall, then traces the General Theory’s break with the older orthodoxy represented by Professor Pigou of Cambridge, who had argued that an all-round cut in wages would cure unemployment. Against this Dillard expounds Keynes’ theory of effective demand, the consumption-investment relationship and the multiplier, and the policy implications that follow: loan-financed public investment in depression, low and permanent long-term interest rates as a stimulus to private investment, and a sharp warning that fiscal weapons remain untested as a defence against renewed slumps. A short section on wartime inflation policy describes Keynes’ plan for forced saving through deferred pay as an anti-inflationary counterpart to his depression programme, and his rejection of general wage-cutting as a cure for unemployment.

Dillard closes by directly addressing the booklet’s subtitle. Keynes, he argues, was ‘quite hostile’ to Marx and to Marxism — dismissing Capital as ‘an obsolete textbook’ — and his theory of employment cut against the classical-socialist case that greater equality would simultaneously raise welfare and accelerate accumulation. Yet Keynes was equally hostile to laissez-faire and to the rentier interest, and located the special faults of capitalism in its monetary, financial and speculative institutions. The conclusion is that Keynes is best characterised as a critic of financial capitalism and a defender of industrial capitalism, willing to dismantle laissez-faire in order to preserve private enterprise and economic individualism. For a Forum of Free Enterprise audience in 1968, the implicit lesson is that endorsing Keynesian remedies for the trade cycle does not commit one to socialism.

Key points

• Reprint of a Dudley Dillard article originally published in Review (Institute of Public Affairs, Australia), issued by the Forum of Free Enterprise in Bombay on 11 July 1968 with permission from the IPA.

• Forum president Murarji J. Vaidya frames the booklet as a corrective for Indian readers debating ‘controlled’ deficit financing and its inflationary effects.

• Dillard situates Keynes alongside Adam Smith, Ricardo, John Stuart Mill, Karl Marx and Alfred Marshall as a classical-rank figure and compares his disruption of economics to Einstein’s of physics.

• The exposition centres on Keynes’ break with Professor Pigou of Cambridge over wage-cutting and on the theory of effective demand, the consumption-investment relationship and the multiplier.

• Policy chapters cover loan-financed public investment in depression, Keynes’ campaign for permanently low long-term interest rates, his wartime programme of forced saving against inflation, and his rejection of all-round wage cuts.

• Dillard records Keynes’ open hostility to Marxism — calling Capital ‘an obsolete textbook’ — and his impatience with classical economists who refused to recognise capitalism’s faults.

• The closing pages characterise Keynes as a critic of financial capitalism and a defender of industrial capitalism, aiming to end laissez-faire so as to preserve private enterprise and economic individualism.

• The pamphlet closes with the Forum’s standard disclaimer that the views are not necessarily its own, an A. D. Shroff epigraph on free enterprise, and a membership solicitation.