Capitalist Revolutionary | Keynes Hayek

Roger E Backhouse & Bradley W Bateman | Nicholas Wapshott

Capitalist Revolutionary: John Maynard Keynes
Roger E Backhouse & Bradley W Bateman
Harvard University Press, 208pp, £20

Keynes Hayek: the Clash That Defined Modern Economics
Nicholas Wapshott
W W Norton, 382pp, £18.99

The ideal of good capitalism is now in vogue. Ed Miliband, Will Hutton, Vince Cable and Robert Skidelsky are all for it - some explicitly and others implicitly. On one level, this is hardly surprising: given a choice between good and bad capitalism, who but a pantomime villain would opt for the latter? But there is more to the vogue than that. Since the implosion of the Soviet empire 20-odd years ago, bad capitalism has ruled the roost almost everywhere. The long, slow march from the buccaneering, exploitative capitalism of the 19th century to the tamed capitalism of the mid-20th has gone into reverse. Inequality has soared, welfare entitlements have been cut back, social capital has been run down and private interests have ridden roughshod over the public good. To cap it all, a decade of manic speculation and debt-fuelled consumption recently culminated in the second most destructive financial and economic crisis in capitalist history.

Though the evils of bad capitalism are manifest, it is not so clear how to switch to good capitalism. In the immediate aftermath of the crisis, the answer seemed obvious: regulation. Unfortunately, that is less an answer than another way of phrasing the question. Regulation is never morally neutral. Regulators need to have remits of some kind and the remits are bound to reflect values. To regulate at all, they have to have some notion of how a capitalist economy ought to function; and economics is not a value-free "science", as too many modern economists, in thrall to physics envy, like to think.

From Adam Smith to John Maynard Keynes, the great economists of the past saw economics as a historical, philosophical and, above all, moral discipline: not for nothing was it, in its early days at Cambridge, part of the moral sciences tripos. It was not until the second half of the last century that mathematics drove out ethics, history and philosophy, with dis­astrous results: one of them was the proliferation of sophisticated forms of financial engineering that were supposed to have banished risk and that led to the crash of 2008. The first step to good capitalism, therefore, is to re-moralise economics.

In their tantalisingly brief but thought-provoking study of Keynes, Roger E Backhouse and Bradley W Bateman have started to do just that. Keynes, they show, was much more than an astonishingly innovative economic theorist and accomplished man of affairs. He was also a moral philosopher. Unless economic progress has a moral objective, he wrote, "we must not sacrifice, even for a day, moral to material advantage". He abhorred the utilitarian world view that lay at the heart of classical economic theory. The fundamental utilitarian dogma - that markets are driven by rational, individual utility maximisers - seemed to him morally repulsive as well as factually incorrect. He thought that capitalism was the least bad economic system available but he also thought it was morally defective. The moral problem of the age, he wrote, was:

. . . concerned with the love of money, with the habitual appeal to the money motive in nine-tenths of the activities of life, with the universal striving after individual economic security as the prime object of endeavour, with the social approbation of money as the measure of constructive success, and with the social appeal to the hoarding instinct as the foundations of the necessary provision for the family and for the future.

Unfortunately, Keynes's alternative to utilitarianism was also defective. As an undergraduate at Cambridge and later as a member of the Bloomsbury group, he had learned his ethics from the Cambridge philosopher G E Moore. Backhouse and Bateman show that Keynes's economic vision was saturated with Moore-ite assumptions. Moore was no utilitarian; the individual utility maximiser played no part in his system. Yet he, too, was an individualist - more so, in some ways, than the utilitarians had been. For him, morality was private, not public; only "states of mind" were valuable in themselves and the most valuable were "the pleasures of human intercourse and the enjoyment of beautiful objects".

In place of the individual utility maximiser was the individual host to states of mind and participant in human intercourse. In some of his writings, Keynes looked forward to a day when uplifting states of mind would supersede vulgar money-grubbing but he never escaped from the ethical narcissism of his youth and early manhood. He offered good capitalism in the distant future, when society was rich enough to afford it. In the meantime, the most that could be hoped for was state intervention to mitigate the worst excesses of bad capitalism. As the collapse of the Keynesian system in the 1970s and early 1980s made brutally clear, it was not enough.

It still isn't. One of the most dangerous failings of the left is its persistent unwillingness to see that bad capitalism has been legitimised by a passionately held moral vision: that, as Nicholas Wapshott shows in his path-breaking account of the long intellectual duel between Friedrich Hayek and Keynes, Hayekian neoliberals do not believe that bad capitalism is bad. On the contrary, they believe it is good, or at least as good as it gets. For Hayek, the managed economy that Keynes and his followers begat was the first step on the road to serfdom. For him and his neoliberal disciples, the unhindered pursuit of individual self-interest in free, competitive markets is morally right, as well as economically efficient.

Despite the current crisis, this vision is still enormously seductive. It bathes immense disparities of reward in the odour of sanctity. It tells the ultra-rich that they are morally entitled to their riches and assures the aspirant middle and working classes that if they obey its precepts, they, too, will be rich, or at least richer. Above all, it runs with the grain of a society in awe of the holy trinity of choice, freedom and the individual, in virtually every sphere of life, from the most intimate to the most public.

Good capitalism will not replace bad capitalism until that trinity is toppled from its perch. What is needed is a new public philosophy, hammered out in a national conversation transcending old divisions of party and creed. The conversation has already started. Will Hutton's Them and Us and Martha Nussbaum's Not for Profit are notable contributions to it. So are Rowan Williams's recent interventions in public debate and so is the Occupy movement . We can't know how it will end. Yet the objective is clear: to weave together the insights of Burkean conservatives, social liberals such as John Stuart Mill, ethical socialists such as R H Tawney, faith communities and, not least, the burgeoning green movement. The great challenge of our times is to make that conversation bite.

David Marquand's latest book is "The End of the West: the Once and Future Europe" (Princeton University Press, £16.95)