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Skidelsky, I suspect, is inclined to understate the influence of Schacht on Keynes or, it might be better to say, the similarity of their thinking. How one reads Keynes may depend on how seriously one takes his Dublin speech on national self-sufficiency. Is it just a passing thought or does it express an idea he was aiming for - freedom from the market, the profit motive and, especially, the pressure from international finance and international trade? If the latter is the case then his defeat at the hands of the Americans and White was more or less complete. By Vol iii of his biography, Skidelsky wants him to be an international free trader (as he is represented in the first biography by his friend and colleague, Roy Harrod) but, by the immediate position of Britain as a country with a huge balance of payments deficit, tempted into the Schachtian 'barter' system - clearing arrangements designed to prevent as far as possible balance of payments problems from impacting on the organisation of the domestic economy.

Skidelsky is now known as a champion of the relevance of Keynes to the modern economy and it was as a champion of Keynes that he initially embarked on the huge project of the biography. When he wrote his account of the travails of the Labour government in 1939-31, (19) he came to the conclusion that the men who had the solution to the problem were Keynes, Mosley and Bevin. The immediate result was his biography of Mosley, which nearly wrecked his academic career, not because it isn't a good and useful study but because it was undiplomatically enthusiastic about its subject. In the course of writing the Keynes biography, however, he seems to have come to the conclusion that the limitations of Keynes's leading ideas had been exposed by the events of the 1970s. The third volume ends with quite a severe critique of Keynes's thinking from a broadly free market perspective. He was raised (if that's the right word) by Margaret Thatcher to the House of Lords where he sat on the Tory benches, resigning the Tory whip, however, in protest against the party's support for the war on Serbia. It was with the Great Financial Crash in 2008, which exposed the wrongheadedness of the Friedmanite approach (the belief that booms and busts could be moderated by tweaking interest rates), that he turned again to Keynes, publishing the appropriately titled 'Return of the master' in 2009.

(19) Robert Skidelsky: Politicians and the slump - the Labour Government of 1929-1931', Penguin Books, first published in 1967.

He admits this in a talk he gave in 2011 when he says:

'The extent to which I had swallowed the non-Keynesian message comes out in an article I wrote for the FT in 2001. Basically I endorsed the view that monetary policy could do all the fine tuning needed to ‘stabilise expectations’, though I covered myself by wondering whether it would be enough to deal with a serious drop in business confidence. I called this ‘minimum Keynesianism’. (FT, 16 August 2001).

'This was the period of the ‘Great Moderation’. I now look back on it as reminiscent of the Roaring Twenties, which were supposed to go on forever. Then we had the collapse of 1929 followed by the collapse of the Credit Anstalt in 1931, Austria’s special contribution to the Great Depression. Then, as later, monetary policy was supposed to have cracked the problem of the business cycle. 'Keynes also believed this in the 1920s, but I, and others, had much less reason to do so after the Keynesian Revolution; yet we did.

'The collapse of the banks in 2007-8 showed that the financial system – the system which drives investment – was just as naturally unstable as it always had been. We should have been warned by the East Asian crisis of 1997-8, but like many others I assumed this was a phenomenon of ‘immature financial markets’ and ‘crony capitalism’ which could not happen in the West.

'But George Soros rightly pointed out in 2008 that ‘the salient feature of the current financial crisis is that it was not caused by some external shock….The crisis was generated by the system itself’.

'This is what Keynes had always claimed: the market system lacked a thermostat and its temperature was likely to oscillate wildly unless controlled by the government.' (20)

(20)  Robert Skidelsky: Keynes for the 21st century, a talk given to the Renner Institute in Vienna, May 18, 2011, accessible at

Keynes had of course been formed in the classical school and he was a realist, both in terms of knowing how to express himself persuasively to a nation soaked in liberal free trade ideology, and in knowing that getting practical results always involved compromise (and in seeking compromise one can have an advantage in starting out from an extreme position). In the case of the discussions with the US, Keynes wanted above all to secure American commitment to a plan by which countries that had fallen into balance of payments difficulties could be helped, and he wanted the Americans (against the still powerful isolationist instinct) to provide financial assistance to post-war Europe in general and to Britain in particular. Even if the plan eventually agreed at Bretton Woods fell far short of his own ideal scheme (which he himself described as 'utopian') he could still feel that he had secured these two aims. Hence, Skidelsky would argue, his abandonment of the Schachtian side of his thinking 'having persuaded himself that the American replacements - Bank and International Monetary Fund - were almost as good. To his left-wing disciples, this was a betrayal based on self-delusion; to disciples like Harrod and Meade, it showed that his heart was always on the internationalist side. To the historian it seems as if Keynes (and Britain) had little choice' (pp.207-8).