Friday, July 2, 2010

Keynes's Foreword to the German Edition of the General Theory

Lurking in the cracks between what one school of thought considers worth talking about and what its critics feel is worth engaging with are a few niche nuggets that critics latch on to with particular ferocity and impunity. Facing few, if any, counter-arguments from an unintrigued opponent, the critical interpretations of these nuggets become ferrell and fertile, spreading very quickly, practically unbeknownst to anyone else. Such is the fate of the foreword to the German edition of The General Theory of Employment, Interest, and Money. For many, it is proof-positive that Keynes is a thinly veiled fascist. For virtually anyone else, it isn't even on the radar screen. Many that may come across the reference and the critics' interpretation of it are likely to be dismissive. It's so patently absurd that a champion of British liberalism would embrace Nazism in the way that it is asserted that these interpretations of the foreword are dismissed as ravings, rather than analysis. What Keynesian is going to waste their time delving into the issue to prove the obvious point that Keynes was not a Nazi?

That's unfortunate, because while it may be particularly bad analysis, these are analyses nonetheless - not ravings. Meeting them is the surest way of curing them. I am going to review the foreword in its entirety here.

In September, 1936, a few months after the initial release of the General Theory, Keynes penned a foreword for the new German translation of the book. The foreword made clear (as was made clear in the introduction to the book itself), that his audience was primarily economists. He began with a history of thought, reviewing the underemphasis of Marshall's (his teacher and mentor at Cambridge) macroeconomic thought:

"Alfred Marshall, on whose Principles of Economics the education of all contemporary English economists has been based, took particular pains to call special attention to the relationship of his thought to that of Ricardo. His work consisted for the most part in stuffing the law of limited use [Grenznutzen] and the law of substitution into the Ricardo tradition, and his theory of production and of consumption as a whole—contrary to his theory of producing and distributing a given production—has never been laid open. I am not certain whether he himself ever perceived the need for such a theory, but his immediate successors and disciples surely have abandoned it and evidently never perceived its absence. I was educated in this atmosphere. I have taught these doctrines myself and it was only in the course of the last decade that I became aware of their inadequacy. In my own thought and development, this book, therefore, presents a reaction, a transition and a disengagement from the classical English (or orthodox) tradition. How I have stressed this and the points in which I deviate from the recognized doctrine has been regarded by certain circles in England as extremely controversial. But how could someone educated in English economic orthodoxy, who was even once a priest of that faith, avoid some controversial emphasis, if he becomes a protestant for the first time?"

Here, Keynes sets himself up against the classics, as he does in the General Theory itself. He's careful to show his debt to the classics, though, again as he does in several places in the main work. But what do Germans get out of this? He goes on,

"I can, however, imagine that all this may concern the German readers somewhat differently. The orthodox tradition which reigned in the England of the 19th century never had such a strong influence on German thought. In Germany there have always been important schools of economics which strongly questioned the adequacy of classical theory for the analysis of contemporary events. The Manchester School as well as Marxism, have, after all, stemmed from Ricardo—a conclusion that need cause surprise only when superficially considered. But in Germany there has always been a majority of opinion which adhered neither to one school nor the other."

Keynes is still engaging German economists and now goes on to precisely what German economic thought consists of:

However, it can hardly be contended that this school of thought ever established a theoretical counter-structure, nor did it ever attempt to do this. It has been skeptical and realistic, satisfied with historical and empirical methods and results which reject a formal analysis. The most important unorthodox discussion on the theoretical level has been that of Wicksell. His books (until recently not available in English) were available in the German language; one of his most important was in fact written in German. His successors, however, were mainly Swedes and Austrians; the latter linked his ideas in with a substantially Austrian theory, and thus in reality actually brought them back to the classical tradition. Germany thus has—in contrast to her custom in most fields of science—contented herself for a whole century without a dominant and generally recognized formal theory of economics."

The "skeptical and realistic" approach, "satisfied with historical and empirical methods and results which reject a formal analysis" is, of course, the German Historical School, best known through the work of Gustav Schmoller. Max Weber is also often counted among the ranks of later German historicists, but Weber never had the zeal or intransigence of Schmoller. The community most responsible for diminishing the historicists was, of course, the Austrian School under Carl Menger and his disciples during the Methodenstreit episode in the 1880s, which is very well documented in von Mises's short piece The Historical Setting of Austrian Economics. Keynes is highlighting here that German economics and British economics are quite different. The long-dominant historicists banished classicism from Germany for quite a while, and the neoclassicism that at least partially displaced this school was Swedish and Austrian in origin. A Marshallian wave - the tradition that was so resistant to reformation by one of its own prize pupils in 1936 - never really swept over Germany in the first place. That is the setting for this foreword. Keynes goes on, with quite a bit of optimism,

"I may, therefore, perhaps expect to meet with less resistance on the part of German readers than from English, when I submit to them a theory of employment and production as a whole which deviates in important particulars from the orthodox tradition. But could I hope to overcome the economic agnosticism of Germany? Could I convince German economists that methods of formal analysis constitute an important contribution to the interpretation of contemporary events and to the shaping of contemporary policy? It is, after all, a feature of German character to find satisfaction in a theory. How hungry and thirsty German economists must feel having lived all these years without one! It is certainly worthwhile for me to make the effort. And if I can contribute a single morsel to a full meal prepared by German economists, particularly adjusted to German conditions, I will be satisfied. For I must confess that much in the following book has been mainly set forth and illustrated in relation to conditions in the Anglo-Saxon countries."

Here, Keynes seems to be operating off the assumption that most German economists are still of some historicist persuasion at this point. I don't know enough about the history of German economic thought to evaluate this assumption. So far, the purpose and the audience of the foreword strikes me as being uncontestable. Keynes is discussing his theory as it relates to classical and neoclassical theory - of the Marshallian variety, particularly. He is opposing himself to British orthodoxy (not a particularly surprising move on his part), and he is telling German economists why that should be of interest to them. With this backdrop, Keynes moves on to the sentences that are most commonly highlighted by modern critics:

The theory of aggregated production, which is the point of the following book, nevertheless can be much easier adapted to the conditions of a totalitarian state [eines totalen Staates] than the theory of production and distribution of a given production put forth under conditions of free competition and a large degree of laissez-faire. This is one of the reasons that justifies the fact that I call my theory a general theory. Since it is based on fewer hypotheses than the orthodox theory, it can accommodate itself all the easier to a wider field of varying conditions. Although I have, after all, worked it out with a view to the conditions prevailing in the Anglo-Saxon countries where a large degree of laissez-faire still prevails, nevertheless it remains applicable to situations in which state management is more pronounced. For the theory of psychological laws which bring consumption and saving into relationship with each other, the influence of loan expenditures on prices, and real wages, the role played by the rate of interest—all these basic ideas also remain under such conditions necessary parts of our plan of thought.

Here Keynes is clearly talking about his "theory of aggregate production" - namely, the macroeconomic theorizing that he lead the foreword with, of which he said earlier that Marshall's students "surely have abandoned it and evidently never perceived its absence". This is the crux of the counter-argument, so this is where people should raise issues with my reading of the foreward if they have any. It was his theory of output, of aggregate output and aggregate demand, and not his brief review of a possible policy response - that "can be much easier adapted to the conditions of a totalitarian state". If there is any lingering doubt about this, he goes on to explain that his theory is dependent on fewer assumptions than British orthodoxy. Since totalitarian Germany departs so regularly from the assumptions made by British orthodoxy, such a theory is of little use to German economists. But a general theory may be of greater use. This, at least, is the argument. I see no reference in any part of this foreword to what has been understood as a Keynesian policy response. I see only references to Keynesian economic theory. And I see no defense of totalitarianism, what I see is Keynes selling a theory that he thinks is most appropriate for explaining the operation of a totalitarian economy. For a German historicist interested in case-specific idiosyncrasies, this could be very attractive.

The concluding paragraph of the foreword is equally instructive:

"I would like to take this opportunity to thank my translator, Mr. Waeger, for his excellent effort (I hope that his vocabulary at the end of this book will prove useful beyond its immediate purpose), as well as my publishers, Messrs. Duncker & Humblot, whose enterprising spirit ever since the days sixteen years ago when they published my Economic Consequences of the Peace has made it possible for me to maintain my contact with German readers."

Here he mentions the success of his Economic Consequences of the Peace, where Keynes wrote that "If we aim deliberately at the impoverishment of Central Europe, vengence, I dare predict, will not limp. Nothing can then delay for very long that final civil war between the force of Reaction and the despairing convulsions of Revolution, before the horrors of the late German war will fade into nothing, and which will destory, whoever is the victor, the civilization and the progress of our generation. Even though the result disappoint us, must we not base our actions on better expectations, and believe that the prosperity and happiness of one country promotes that of others, that the solidarity of man is not a fiction, and that nations can still afford to treat other nations as fellow-creatures?" It was this assessment in the Economic Consequences of the Peace that earned Keynes such a following in Germany - the idea that Germany must be supported to prevent the rise of either the powers of Reaction or Revolution in the country (and elsewhere in the book he raises the prospect of Revolution, rather than Reaction.

What sense would it make to embrace fascism in a foreward to a book which itself criticizes fascism, particularly in its concluding chapter? What sense would it make to embrace fascism in a foreward that cites the popularity of an earlier book written to stave off the rise of reactionaries in Central Europe? It makes no sense at all, before even reading the content of the foreward itself. And the content of the foreward is clearly methodological, referencing the history of German economic thought and citing reasons why Keynesian theory might be more useful to Germans than other British theories.

So believe what you will about the German foreward to the General Theory. I think its meaning is quite clear and quite benign, and any other interpretation not only fails to account for the text of the foreward itself - it also fails to account for the stark incongruity between the less charitable interpretations and Keynes's own character and values.


  1. Well, so long as we are talking about Germans here, I would note that in the 1950s and 1960s West German economists looked askance at "The General Theory" precisely because of its Nazi connection. That may have been a false impression, but it was a common one.

  2. "It's so patently absurd that a champion of British liberalism..."

    But Keynes wasn't a champion of British liberalism.

  3. Anyway, on your comments themselves:

    Why would I want to adopt a "General Theory" (never mind that this concept is complete bullocks) of economics that works well in a totalitarian society? Doesn't that seem problematic by itself?

    Never mind of course that Keynes here illustrates his complete and utter naivete here with regard to the actual day to day functioning of a totalitarian state vis a vis its economy - particularly one which was so wedded to a particularly ideology and constructed culture as the Nazi state was.

  4. Xenophon -

    1. Do you have a citation for Germans looking askance at the GT? I have no doubt that they did (in fact, that's always been my understanding), but I would be a little surprised if they were to base that on some imagined connection with that Nazis. My understanding was that Eucken, Erhard, and others had theoretical disputes with Keynes that were based more in monetary theory than political history.

    2. "Doesn't that seem problematic by itself?" - Why? Buchanan and Tullock work well to explain totalitarian public economics. Would you abandon them?

  5. I would think what would be problematic would be a theory that couldn't address a wide variety of circumstances.


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