The Books Interview: Peter Clarke

In what respects, if any, did the crash of autumn 2008 vindicate the work of J M Keynes? In one way that you can regard as simply negative: that you cannot expect the market to get it right. There is therefore some final role for government, because the alternative is simply for the state to retreat and to say that it will all come right in the long run. And we all know what Keynes's answer to that was: "In the long run, we're all dead."

That is a lesson for policymakers. What about the lessons for economists?
Once we get into economic theory, there are two fundamental ideas. One of them is recognisably part of Keynes's message - that "efficient" or "rational" markets cannot work, because there is too much, not just irrationality, but uncertainty pervading the market. There's a second, even more fundamental idea, which is that the market is incapable of achieving collective goals because our pursuit of our own individual interests may thwart exactly the outcome we desire to achieve.

Would you say that is as much a psychological as an economic insight?
There is a psychological element there. We can all get trapped in a cycle - either a vicious cycle spiralling downwards or, alternatively, a buoyant, benign cycle that spirals upwards and in which we feed off each other's psychology.

You characterise uncertainty as the “ghost in the Keynesian machine". What do you mean by that?
When Keynes wrote the General Theory in 1936, he was primarily concerned with the mechanics of how things work. You can call that "hydraulic Keynesianism". But, if you step back a little, you see that so much of it is premised on the pervasiveness of uncertainty. In terms of his own biography, I think the roots of this are in his early tussles with the problem of probability. For almost 60 years economists dismissed this as not their field, as technical stuff. It turned out, in the end, to be much more significant.

On the other hand, Keynes did think that there was more to economics than the mathematics.
That's right. Although Keynes's first degree was in mathematics, he always said the fundamental insights wouldn't come from the maths. He says we can know things, but before we're in a position to write them down we're dealing with "fuzzy monsters". In this respect, Keynes is a product of the Cambridge tradition where economics was hacked out of the moral sciences. The sense of other disciplines framing economics was very important to him.

Was Keynes a socialist?
He wasn't a socialist, but he wasn't afraid of socialism. He believed in the market, but as the servant of a reformed capitalism, which could then deliver the goods.

Peter Clarke's "Keynes: the 20th Century's Most Influential Economist" is published by Bloomsbury (£16.99)

Next Article