For me, the problems of the twentieth century were common to the economic theories people have referred to which I will (for convenience) I will refer to as Socialism, Keynsianism and Laissez-Faire. They are all far too centralist. Yes, even laissez-faire has allowed the domination of huge organisations – be they banks, supermarkets or manufaturers.

I think we need diversity and localism in the economy. The analogy is that of subsistence farmers who plant several different crops to minimise the risk from one of them failing. We should look at banks and other companies in the same light. Imagine a few hundred banks each deploying a few different investment strategies. If one of these strategies fails, there is not likely to be much overall hit to all the other banks.

Sadly what we’ve had in the last few years our economy has ended up being more like a handful banks deploying almost identical strategies. We need to find new ways to manipulate the markets to stop these things happening again.

His crucial message was the role that expectations play in the economy. Who today can deny that in lowering interest rates, the Bank of England is “pushing on a string” (as Keynes put it) if people do not want to borrow money because their expectations for the future are so dire? Keynes also said that governments should run surpluses when times are good to act as a stabiliser. If we had actually done that in the UK, how much better equipped would we be now to face the downturn?

What, precisely, in your wisdom, would you do instead? Go for the laissez-faire favourite, the balanced budget approach that exacerbates the economic cycle? The one sure thing is that there will always be economic cycles and the government is a major economic player. Standing aside and leaving unemployment to rocket is simply not an option (unless you are a Cameronite).

Careful and timely investment in necessary infrastructure projects that aid the future productivity of the economy is absolutely the thing to do now. That is what Keynes would have recommended and that is what is right for Britain now, 70 years on.

There is no disputing that the activity of free individuals creates the economy. All comes from the bottom, the genius of the many entrepreneurs and workers who actually produce, grow and market goods. If allowed the freedom to act, save, invest, and keep the fruit of their efforts, they will by their sheer numbers and initiative create prosperous societies. There is no grand theory involved.

Any examination of history will reveal that prosperity emerged from the few locales where such economic freedom allowed the citizenry to apply their talents to create growing economies. It goes back to Phoenicia, almost 4,000 years ago, where entrepreneurs ruled the seas and marketplaces of the known world. They did very well with no Federal Reserve or stimulus bills. So did the United States during its first 300 years of history.

Economic theory merely attempts to summarize what such free people do when they are engaged in free enterprise. Economic theory started with Adam Smith as an attempt by acaademic elites to understand what was happening, Then they moved on to try and “manipulate” and “control” that activity of free people. And ironically, any such control or manipulation stifles the diversity and energy of their peoples’ enterprise. Thus, economic theory, harmless if confined to the ivory towers of academia, cannot when applied in the real world do much more than impede the activity of the essential ordinary people conducting their businesses. All the grand macro-economic theories are over-rated, uncertain, unproven, and have probably done more harm than good.

The elites who seek to administer from the top by imposing such theories are opportunists that plague mature nations. All the great success stories, whether Holland, America, Hong Kong, Venice, ancient Greece and Rome, and now Singapore and Dubai– they all prospered most in their early years before new elites took over and expanded central bureaucracies that gradually stifled success and led to the decline of the once great nations.

Every massive governmental program ia always justified by its advocates as an emergency need to help some group or other. In fact, every such call for massive governmental action only serves those who administer it. The demagogues rely on the charitable instincts of the voters to give them extraordinary power to direct and control the redistribution of wealth. Then, by distributing it to their own constituents, they control the votes to remain in power.

The reason to put individuals and local communities back in control is no vague or complex theory–it just recognizes that that is where the creative cobnstructive action comes from. Common sense dictates that you let the people be, and severely restrict governmental encroachment over their lives and businesses.

We have no time for leisure (other than that enforced by cyclical unemployment) because we are all wage-slaves to perpetually rising national and personal debt – an inevitable function of gifting money creation to private banks.

Not only does government aquiesce in this obscenity, borrowing its own currency at interest to make public services unaffordable, it taxes productive work instead of unearned speculative wealth.

You couldn’t make it up!

The really frustrating thing is that 100 years ago there were Liberals (like Keynes) who knew what to do about this institutionalised plunder and ineptitude. Write off economic history and its solutions at your peril.

Kev,
I am not sure that we are ready to ditch all of Keynes quite yet. First of all, Keynes was no socialist and I am not quite sure why you bring up the topic (Keynes wrote one of his essays on ‘Why I am a Liberal’ in the same collection that contains ‘Economic Considerations for our Grandchildren’ that you allude to later). Keynes politics was not one of control- it was one of liberty. Essentially, all he argued was that fiscal policy could be used over and above monetary policy if we got into a deep recession and that there were psychological issues at heart. Eventually the market would correct but ‘in the end, we are all dead’. Poverty and unemployment constrain liberty. A countercyclical fiscal policy and ‘priming the pump’ when in depression will not bring the Bolshevik’s to power.
While he was an economist, he wasn’t an economic determinist. He knew that liberals believed in human ends and that growth was a way of meeting enough needs to be able to concentrate on the really meaningful things in life. He wasn’t predicting that we would but saying that ‘avarice and usury must be our Gods a little longer’ (IIRC) before we could even hope to.

I do note that several critics of the General Theory feel that it is muddled compared with other of Keynes’s works (which are apparently very clear and well written), leading them to think that he was not able to reconcile all the pieces.

More broadly, the current cheerleaders for bailouts do seem to be making ad hominem attacks upon their critics (eg DeLong calling them ‘Republican hacks’) or distorting history (Krugman’s insistence that Hoover was a supporter of laissez-faire, despite his profligate spending and FDR’s campaign against him including criticism of his high spending).
This does lead me to suspect that their judgement is more political than economic.