Saturday, April 30, 2011

Was Keynes a Central Planner?

Barkley Rosser weighs in with a post that's getting a lot of attention.

Mark Thoma picks it up here. Arnold Kling cautiously agrees here (but says later Keynesians were more inclined to central planning). I find Kling's post a little incredible, but it depends on what time frame he has in mind. In the full 75 years since the General Theory most self-identified Keynesians have been more skeptical - not less skeptical - of government intervention than Keynes himself. Keynes anticipated this, of course. He said we need to try this out and let experience determine how far this is practicable. However, if Kling is thinking of the immediate post-war period he may have more of a point. A few prominent Keynesians, like Lawrence Klein and Abba Lerner, were quite enthusiastic about central planning. Still, they didn't get this from Keynes and while they themselves were fairly prominent I'm not sure they're representative.

My thoughts on Keynes as a central planner are here. I think Rosser gives a little too much ground, even. If you look at the broad sweep of what Keynes has written on the subject he's perfectly clear: central planning doesn't work, socialism doesn't work, state ownership is highly inappropriate, the best example of "socialization of investment" is private joint stock companies, the government has no advantage in allocating resources, etc. Some point to the German foreword, like the creator of the video himself, John Papola. I think Papola is very confused - this is my review of the German foreword.


  1. You can't have the state controlling "aggregate investment" without it making lots and lots decisions, and those decisions, as experience has taught us, will be made by some centralized body. Keynes was at best hopelessly naive in his opinions in other words; for all intents and purposes he was a central planner whether he wanted to be or not.

  2. A lot of people seem to talk like "making decisions" is the same as "central planning".

    "Central planning" has a quite specific meaning associated with allocative decision making. Of course the state "makes decisions". So? Of what relevance is this point? What's disconcerting to me is that glossing over the allocative character of "central planning" as traditionally conceived (the decisions that we classical liberals and neoliberals generally think is best accomplished with the price mechanism) really obscures what was so misguided about past central planning regimes.

  3. It is broader than that actually; it takes in any commands by the state regarding the nature of a particular economic activity. In the U.S. right now lots and lots of central planning is undertaken at every level of government; we in large part centrally plan the production of education for example - which is why it sucks so much. We used to have a centrally planned system of mail, package, etc., delivery in the U.S.; that crappy system is currently on its last legs due in part to an oversight by the USPS - they never expected package delivery to be the business that it has become, otherwise they would have extended their government backed monopoly around such.

    "What's disconcerting to me is that glossing over the allocative character of "central planning" as traditionally conceived (the decisions that we classical liberals and neoliberals generally think is best accomplished with the price mechanism) really obscures what was so misguided about past central planning regimes."

    Actually, it doesn't. The centrally planned aspects of so-called mixed economies are not something that has yet to be recognized.

  4. I think it's more a question of a mild distinction between what is central planning and what is a tendency towards central planning.

    A mere public program does not qualify as central planning. At all.

    The government still has to compete with private businesses in hiring people from the labour market, still has to compete with other power consumers when purchasing power supply, still has to purchase goods and raw materials from a private producer.

    Much of what the government does here is heavily constrained by what the realities of capitalism allow.

    But, say, if the government wanted more power and fuel for its public program, but couldn't do it at the current power supply available and at the current prices, wouldn't they have the incentive for a much more major intervention to do so?

    Would it not mean them having to possibly purchase or take control of several power plants for themselves, in order to provide themselves with power?

    Would it not mean them having to pass priority laws about how much electrical power should be reserved for government purposes?

    Indeed, would they not start making decisions about the production and distribution of power in order to get the power they want?

    I say this, because I hear that one of the issues in municipal budget debates across the world is whether or not to privatize local power distributors. The objection made to it is that private producers will provide too little power at too high a price, thus worsening the budget situations for those municipalities.

    How can we not see the political incentive for the government to slowly move towards controlling all industry and economy in order to make its programs work?

  5. Central planning is more than just "Five Year Plans" in other words.

  6. "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."

    -- Keynes

    Get rid of laissez-faire (with all that entails - speech rights, the whole lot) and my theory is more easily enforced on what is presumably a more legible society.

  7. He isn't talking about "enforcing" a theory. He is talking about observing certain phenomenon in action.

    Totalitarian economies make it much easier to observe the trends he wishes to see.

  8. Prateek Sanjay,

    Why, pray reveal, would I want to engage in a type of economics which is easier to undertake and "observe" in a totalitarian society? You know, I bet, let's say, "fighting crime" by installing tracking devices on the bodies of every citizen is easier to do and observe in a totalitarian state too; that doesn't win such kudos to a real classical liberal.

    Daniel Kuehn,

    "In his review of Keynes's General Theory, Schumpeter reproaches the author for calling his theory "general" when it actually applies to a special situation. Worse, under the guise of a "purely theoretical discussion," Keynes's logic moves from the policy he favors to a theory that will support it, a sequence abhorrent to Schumpeter. Throughout The General Theory, Keynes "pleads for a definite policy, and on every page the ghost of that policy looks over the shoulder of the analyst, frames his assumptions, guides his pen." Overall, says Schumpeter, "the capitalist process is essentially a process of change of the type which is being assumed away in this book." In Keynesian and other macroeconomic models, individual entrepreneurs, companies, and industries vanish from the scene. In complete contrast to Schumpeter's approach in Business Cycles, no mention of a single business firm occurs over the 403-page length of The General Theory.13"

  9. Prateek -

    re: "I think it's more a question of a mild distinction between what is central planning and what is a tendency towards central planning."

    Perhaps. But people are quite explicit about why they think education should be publicly provided in the U.S. and the literature on the enthusiasm for this goes back a long way. A tendency towards central planning is a matter of concern. But if someone sees a tendency toward central planning in the specific reasons for the push for public education, they are seeing something that has escaped me.

  10. Daniel,

    A government monopoly on education that pushes to the side almost all alternatives is more than a "tendency" - and one shouldn't be surprised that this has led to greater and greater centralization in D.C. of what is taught in say Beaverton, Oregon - which is sort of a crazy notion, but where the process leads because government bureaucracies cannot permit diversity or a lack of standardization. Thus it isn't surprising that the public schools in the U.S. continue to largely work based on Ford's model of assembly line production, a model most conducive to how government functions (a model which the Soviets tried to mimic I should add).

  11. Evan,

    I'll probably be going to see Bart Ehrman give a talk today about his new book.

  12. "But if someone sees a tendency toward central planning in the specific reasons for the push for public education, they are seeing something that has escaped me."

    Prussian Education System, template for U.S. system:

    "If you want to influence [the student] at all, you must do more than merely talk to him; you must fashion him, and fashion him in such a way that he simply cannot will otherwise than what you wish him to will."

    Even cost-saving baby-steps away from the current union vote-buying, citizen-molding system are in the statists' cross-hairs:

    Or just read 1984.

    Options exist, but the "free-market" U.S. guv does much to squelch them.

  13. You guys are so damned predictable.

    The case for public education was developed long before the Prussian model became popular here. What was borrowed from the Prussian model was the structure, the public character, the universal access, the professionalization of the teaching staff, and the testing regimen.

    To put it simply, Horace Mann wasn't going around quoting Fichte. He was building an institution to fulfill the vision of Jefferson and many, many others.

    If you all want to be convincing at all don't all repeat the same fallacies over and over and over again. The group think is suffocating. "Prussian education model", "socialization of investment", "Harding cut spending", "Bismarckian welfare", "Samuelson's post-war forecast", "toll roads in the early republic", "Freeman Dyson doesn't buy climate change", "German foreword to the General Theory". Sometimes it feels like a party of one-liners.

  14. Daniel,

    You mean this Horace Mann?

    "Mann saw public education as a vehicle for achieving what he felt was the greater good for the largest population: the school should build support for Republican and Protestant values. In order to accomplish this, it would be necessary to create a State Board of Education to replace local school boards. Texts would be picked from a state approved list rather than by local choice. Teachers would be trained at state normal schools rather than attending colleges and academies (the "grammar schools" of Jefferson's plan)(71). One of Mann's chief opponents, Orestes Brownson, did not fear "social disorder and moral decay" but like Jefferson, saw the public education system as a means to prevent tyranny. He disputed the idea that Mann was "advocating education for religious and republican virtue" and argued that he really wanted to institute "a system of schooling for social control" (73)."

  15. Daniel,

    What is so damn predictable is that Horace Mann turns out to be a paternalist with all manner of axes to grind so as to improve the population in the way that Mann saw fit.

  16. Jefferson on what happens when you aren't literate:

    ". . . in the constitution of Spain as proposed by the late Cortes. . . that any person born after that day should ever acquire the rights of citizenship until he could read and write. It is impossible sufficiently to estimate the wisdom of this provision. Of all those which have been thought of for securing fidelity in the administration of the government, constant ralliance to the principles of the constitution, and progressive amendments with the progressive advances of the human mind, or changes in human affairs, it is the most effectual. Enlighten the people generally, and tyranny and oppression of body and mind will vanish like evil spirits at the dawn of day. . . . the diffusion of knowledge among the people is to be the instrument by which it is to be effected."

    Sheldon Richman on separating school and state:

  17. Dan,

    You and I agree on this one, I think. Keynes was NOT a central planner in the sense that term came to mean historically, which is someone who wanted to replace the market with a comprehensive, central plan. There were central planners, Keynes was not one. He was a liberal in the broadest sense of the term.

    As far as the video goes, give Russ and John some poetic license. In Round 2, the line is about how Hayek's ideas are better than Keynes's "central plan." The context, of course, is stimulus-type spending and the idea that spending that comes from the top down is better than what might or might not come from the bottom up. I DO think Keynes was a "top down" kind of guy, esp. in contrast to Hayek. If you grant Russ and John the license to treat "top down" and "central plan" as "close enough for hip-hop" then it's no big deal.

    I think they're wrong if we're being technical on the history of ideas, but they're within the bounds of poetic license.

  18. Steven Horwitz,

    Whatever Keynes was, he was no liberal; Alain Minc described him as an "alchemy of contraries," and that is a far more apt description IMO. Anyway, it is hard to be a liberal and at the same time have such a poor opinion of the pursuit of individual prosperity.

  19. Gary,

    The author of The Economic Consequences of the Peace was most definitely a liberal, as was the man who largely praised The Road to Serfdom.

    That man was Keynes.

    When I say "liberal" I don't mean "classical liberal," I mean "broadly liberal" as opposed to socialist or communitarian.

  20. "But if someone sees a tendency toward central planning in the specific reasons for the push for (some kind of government usurpation), they are seeing something that has escaped me."

    Why not give us some examples where you believe that something was taken over by government because of a "tendency toward central planning" instead of "legitimate" reasons? It would lend perspective.

    Also, are you going to tell us what Keynes meant by the "advantages of State Socialism?" I can't think of any, can you? If I knew what the master thought, maybe his arguments for socialising investment and fiat money would make more sense to me.

    A theory about well-reasoned arguments for government control of education: they're B.S. People tend to put their energy into arguing for things they believe will directly increase their power or wealth. Example: most economists are going to be employed by the state, so there's no end to their arguing for embiggening of the state.

    Here's an honest argument for expansion of government control in education:

  21. His praise for "The Road To Serfdom" was really an insult.

    "What we need therefore, in my opinion, is not a change in our economic programmes, which would only lead in practice to disillusion with the results of your philosophy; but perhaps even the contrary, namely, an enlargement of them. Your greatest danger is the probable practical failure of the application of your philosophy in the United States." - "Lord" Keynes

    So what Keynes is stating here is that what Hayek notes should be entirely ignored and what we need to do is double down on Keynes' moronic, mercantilist, medieval ideas.


    I remembered something said about Hayek in "A Beautiful Mind" today; it is a quote by Lindbeck (at the time of the awards for both Hayek and Nash Lindbeck chaired the Academy's prize committee for the Sveriges Riksbank Prize in Economic Sciences - the so-called Nobel Prize in economics).

    Lindbeck had similar thoughts about Hayek as he had about Nash: "'He [Nash] had gotten no recognition and was living in real misery. We helped lift him into daylight. We resurrected him in a way. It was emotionally satisfying.' The only other time Lindbeck had felt similarly was when a Viennese libertarian and critic of Keynes, Friedrich von hayek, won. 'Hayek was so hated, so despised .... He'd been in a very deep depression, he told me. It was terribly satisfying to indicate his greatness.'" pg. 367

  22. You are right, Daniel, that the public schools are not an example of industrial central planning.

    But again, these schools require land, electrical power, building equipment,.etc. Naturally, these result in governments controlling distribution of power, controlling land allocation priorities, and controlling, in the case of India, prices and distribution of cement and other construction equipment.

    Do you find this example unconvincing? I won't be surprised if anyone finds it a little unconvincing, but I think there is a strong incentive for government to control industry.

    How can government stay on "budget" when prices and distribution of goods change and fluctuate so rapidly in the market? Wouldn't the government intervene in the market to control its finances?

    Do you know which countries DON'T face problems in public finance? Venezuela and Cuba, where government control of industry is widespread.

  23. Steve -
    I've noted poetic license in every post that I've commented on the video, and I've noted poetic license in most comments I present elsewhere on the video. So I think I do give them that, in spades.

    This is an odd way to exercise it though, don't you think? And I'm not the only one to be a little surprised that they wrote it like that.

    Papola does not see it as poetic license, I should add. I've talked to him about this line on his blog - he does not agree with you and I. He takes it literally. I don't think he's alone in that.

  24. Kuehn,

    I'm still waiting for your answer; what are the advantages of State Socialism that Keynes mentioned? Could it be relevant to his ideas about the State Socialisation of investment? Can you tell us what you consider to be the advantages of State Socialism, or do you disagree with the master?

    Additionally, when you expunge a comment do you always leave a note or do you sometimes just disappear the comment as if it never happened?

  25. Oh - I assume the advantages are the potential for more egalitarianism and perhaps he had in mind a few full employment advantages. The point is, even despite the advantages he clearly, obviously, and unequivocally rejected it.

    I probably wouldn't talk quite so much about any advantages. I'm not sure I "disagree" with Keynes so much as that I have 70 years of perspective that Keynes simply didn't have. Keynes was an opponent and critic of socialism even before most of its excesses and failures. He threw them a few bones that I - with a greater historical record of the excesses and failures - might not have bothered with.

  26. Our “Keynes” in the video is an amalgam of the current and past views of prominent self-described Keynesians as well as Keynes himself. That is poetic license. We’re not saying “this is what John Maynard Keynes would say”, just as Hayek gets lines that are more Robert Higgs than F. A. Hayek. It’s a 10 minute rap. Come on guys!

    Still, there have been a number of very prominent Keynesians who demonstrated strong support for some amount of central planning. Jamie Galbraith called for more central planning in Harpers magazine in 2008. HIs dad, an important popularizer of Keynes, was a vocal support of extensive central planning, especially regarding India. India, btw, had private property as well as central planning, so I never imagined “central plan” to denote soviet or chinese communism. Samuelson’s famous textbook was still touting Soviet growth in 1985. I think we’ve got ample play here for the reference, immaterial of Keynes ambiguous call for the “socialization of investment”.

    This isn’t really about “poetic license”, though it is pretty exciting (and bizarre) for three words in a YouTube rap to be sparking so much debate. I stand by the reference to “your central plan”. The people who administer a large scale stimulus program are indeed central planners. Or, perhaps, they are “centralized” planners. The are certainly planners in the exact same sense that Jamie Galbraith used the term in 2008 in Harpers.

    Keynes was not a communist or a full blown socialist. We didn’t claim he is. But someone must determine where the trillions get spent, and they aren’t using the market process to do it. They’re using a central plan.

    All the best, Daniel. You’ve written a bunch of very interesting posts here. I am going to take some time to read and absorb the content. Do me a favor and link to the piece by Skidelsky on our website, since I personally edited that. I think you know that I’m not in this to take cheap shots or stand up strawmen. Maybe my interpretation of Keynes and Keynesianism isn’t jibing with yours. It is my understanding, though. Not a misrepresentation as the good Brad DeLong asserts.

  27. Keynes: "I criticise doctrinaire State Socialism, not because

    1)it seeks to engage men's altruistic impulses in the service of society, or because

    2)it departs from laissez-faire, or because

    3)it takes away from man's natural liberty to make a million, or because

    4)it has courage for bold experiments.


    You're not sure you "disagree" with Keynes' assessment of the "advantages" of State Socialism? Then, which of these numbers do you agree with Keynes about? Was he right about State Socialism's actual effects and are they good things to force on people? Is it good to take away from a man's natural liberty to become wealthy?

    Since Keynes' great hobbyhorse was full employment, why do you think it's the case that State Socialism might be better at producing it but he was against State Socialism?

    You believe personally that an ADVANTAGE of State Socialism would be enforced equality?

  28. mobsrule,

    What is ironic is this - Keynes was even wrong about what much of what he praised re: "State Socialism" - it doesn't actually seek to engage man's altruistic impulses, nor does it take away man's natural ability to make a million (indeed, it empowers a select few who are willing to fight dirty to do that and then some), nor does it encourage bold experiments - it encourages conformity to one centrally planned norm across the gamut of human activities (as is evidenced by the hatred of Jazz and any sort of non-comformist form of art by every state socialist society). He was right about #2 though.

  29. Gary Gunnels,

    There is no difference in our intuitions about these actual effects of socialism. I'm just trying to figure out what the hell Kuehn means when he says stuff like, "I'm not sure I "disagree" with Keynes so much as that I have 70 years of perspective that Keynes simply didn't have."

    Kuehn doesn't seem to know what "disagree" means. What a pinhead.


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