“On Thursday 11 April he had lunch at the Bank after the regular meeting of the court. He sat next to Henry Clay; they discussed the American loan. Keynes said that he relied on Adam Smith’s ‘invisible hand’ to get Britain out of the mess it was in, and went on: ‘I find myself more and more relying for a solution of our problems on the invisible hand which I tried to eject from economic thinking twenty years ago.’ ‘An interesting confession for our arch-planner,’ Henry Clay noted. The now-retired Montagu Norman, the recipient of Clay’s letter, wrote back: ‘About Keynes ... I think he relied on intellect, which perhaps means that he ignored the “invisible hand”, and I guess he was led astray by Harry White. But surely it is easy to arrange a loan if you ignore its repayment, and is there any hope of that, unless there is to be such an inflation across the Atlantic as will affect their claims and provide an easy way out?” (Skidelsky 2000: 470).The following observations can be made:
(1) Was Keynes being a gracious and diplomatic lunch guest in making what was in fact a mere throw-away remark here?As I have said in (5) above, it strikes me that this whole business is rather like Darwin’s mythical deathbed conversion, made light of here by Richard Dawkins in the video below.
(2) The context of this statement of Keynes is “the American loan.” That much is clear. The post war problems of the UK in its American loan and balance of payments difficulties were presumably also in Keynes’s mind.
(3) The idea that this statement shows Keynes clearly repudiating the ideas of the General Theory is absurd.
(4) I suspect that Keynes’s thinking in these days was influenced by the policy of the new Labour government and its more wide-ranging policies of economic intervention: on April 18, 1946, Keynes, in a private conversation, attacked the Labour government’s decision to “nationalise the road-hauliers, which he regarded as an unnecessary act of regimentation” (Skidelsky 2000: 471). Keynes was a lifelong liberal and had never supported the Labour party. It is not surprising that in his last days he was out of temper with the nationalisation program and other interventions of the Labour party. These programs were different from what he advocated in the General Theory, and went far beyond his own views.
(5) Let us say for the sake of argument that Keynes did repudiate the General Theory in his last days, does this provide good grounds in itself for dismissing the fundamental ideas of the General Theory or modern Keynesian economics? It would not. The ideas of the General Theory stand or fall on their own merits, as do the theories of modern Post Keynesian economics. The attempt to dismiss Keynesian economics by appealing to this anecdote is as wrong-headed and foolish as Christian fundamentalists who try and discredit Darwinian evolution by invoking the fiction that Darwin repudiated his Origin of Species on his deathbed. We know, of course, that this story is a complete lie invented by a Christian apologist called Elizabeth Hope. But suppose it were true: that Darwin recanted the Origin of Species. Would such a thing provide good grounds for rejecting the modern theory of Darwinian evolution? Not in the least. Certainly not if Darwin provided no arguments refuting his original evidence. The theory presented in Origin of Species stands by itself and its truth depends on the cogency of the evidence and arguments. Modern science has reinforced the central ideas of the Origin of Species, and whatever the dying Darwin thought is irrelevant to the case that can be made for its truth. It is the same with the central ideas of the General Theory. In the end, it matters not one whit what Keynes though in his last days or on his deathbed. Theories in the natural sciences, social sciences and economics stand and fall on their merits, not on what the original inventor of them thought about them in his last days.
(6) But as noted in (3), I see no evidence whatsoever that this comment of Keynes even shows any rejection of the General Theory. Keynes’s program of monetary and fiscal policy interventions to maintain aggregate demand is essentially compatible with private production of commodities and a capitalist economy. A greater concern for Adam Smith’s “invisible hand” does not require that Keynes rejected aggregate demand management.
(7) There are some interesting issues here relevant to my previous post about Jean-Baptiste Say’s later rejection of Say’s law. We should not reject Say’s law merely because Say came to disbelieve it. The fact that Say repudiated the original theory does not by itself constitute good grounds for us doing so, unless actual arguments are offered and we can evaluate them. Say’s law is false because it is flawed, and Say himself clearly worked out why it was flawed in his correspondence with Ricardo, giving arguments. Those arguments have merit.
Skidelsky, R. J. A. 2000. John Maynard Keynes: Fighting for Britain 1937–1946 (vol. 3), Macmillan, London.