Keynes: The Return of the Master

Keynes: The Return of the Master

Language: English

Pages: 256

ISBN: 158648897X

Format: PDF / Kindle (mobi) / ePub

In the debris of the financial crash of 2008, the principles of John Maynard Keynes—that economic storms are a normal part of the market system, that governments need to step in and use fiscal ammunition to prevent these storms from becoming depressions, and that societies that value the pursuit of money should reprioritize—are more pertinent and applicable than ever. In Keynes: The Return of the Master, Robert Skidelsky brilliantly synthesizes Keynes career and life, and offers nervous capitalists a positive answer to the question we now face: When unbridled capitalism falters, is there an alternative?

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homeowners defaulted on their mortgages, the investments had turned illiquid, and bank borrowings from the wholesale - or inter-bank - money markets were due for repayment or refinancing. Banks were finding it increasingly hard to raise fresh money from other banks. The credit freeze spread from the wholesale to the retail market: from the banks to their customers. The scene was set for a classic downward slide from banking failure to commodity and stock-market failure and to decline in the real

to insure themselves against currency risk. Keynes’s personal losses coincided with the collapse of the British post-war boom and with the onset of depression, followed by stagnation, which lasted for the rest of the 1920s. Keynes learned from this experience too. Most economists at the time believed that economies reacted to shocks like alert individuals, rapid losses being followed by quick recoveries, with agents switching into new lines of business just as Keynes had switched currencies and

promote the general interest at the same time! Our philosophical difficulties are resolved . . . The political philosopher could retire in favour of the businessman - for the latter could always attain the philosopher’s summum bonum by just pursuing his own private profit.’ The synthesis between private and public interest was powerfully reinforced by Darwin’s theory of natural selection. ‘The principle of the survival of the fittest could be regarded as a vast generalization of the Ricardian

state subsidies to producer groups, both public and private, fed the typical corruptions of behaviour identified by the new right: rent-seeking, moral hazard, free-riding. Palpable evidence of government failure obliterated earlier memories of market failure. The new generation of economists abandoned Keynes and, with the help of sophisticated mathematics, reinvented the classical economics of the optimally self-correcting market. Battered by the crises of the 1970s, governments caved in to the

promoted by Britain’s Financial Service Authority chairman Adair Turner, believes that financial stability can be achieved without changing the structure of the banking system. A new portfolio of regulations would increase banks’ capital requirements, limit the debt they could take on, substitute ‘dynamic’ for ‘static’ accounting rules, provide regular ‘stress’ tests, and establish a Consumer Financial Protection Agency to protect naïve borrowers against predatory lenders. The philosophy behind

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