James Crotty is emeritus professor of economics at the University of Massachusetts Amherst. Along with his colleague Sam Bowles, he is one of the few radical heterodox economists to gain tenure at a leading American university.

Crotty’s main contribution to economics has been to try and synthesise Marx and Keynes. This ended up with Crotty arguing in his 1985 article “The Centrality of Money, Credit, and Financial Intermediation in Marx’s Crisis Theory”, “that Marx’s vision of capitalist crises cannot be understood except in terms of the development of the credit and the financial system, and that his discussion of these ideas anticipated the ideas on financial fragility later developed by Minsky and other Post Keynesians.” (quoted in an interview with JW Mason) In other words, Marx was really a post-Keynesian Minskyite.

I won’t discuss the validity of that view here because Crotty has a new book out, entitled Keynes Against Capitalism: His Economic Case for Social Liberalism, in which he claims that, far from being a conservative Keynes was in fact a socialist, if not a revolutionary one like Marx. “Keynes did not set out to save capitalism from itself as many think, but instead reckoned it needed to be replaced by a liberal form of socialism.”

Crotty argues that Keynes’s Liberal Socialism began to take shape in his mind in the mid-1920s, evolved into a more concrete institutional form over the next decade or so, and was laid out in detail in his work on postwar economic planning at Britain’s Treasury during WWII.

In Crotty’s reconstruction, the analysis goes something like this: “Keynes writes in many places that he’s a socialist. He gives speeches to the Labour Party saying ‘I’m a socialist.’ What does he mean? He thinks we need to organize capital investment decisions, bring them all under a board of national investment. And we have to bring together all the sources of savings that are in our economy in one place. And, he goes through all of these incredible, important things you can do with this capital if you can control it. In 1942 or 43, he says if the state can control two-thirds to three-quarters of large-scale capital investment through this national board of investment, we’ll be fine. The only way you can do this is if you drive the interest rate down towards zero, and that’s what you should do. So you have to have strict capital controls, otherwise, people will take their money out.”

Crotty interprets Keynes’ s policy ideas as socialist. “His socialist plan, means, we’re going to have to manage our trade, we should have industrial policies, we should have wage policies, we should have geographical location policies. And all of this to achieve not just full employment, but the creation of arts, the building of cities, the building of housing, and so on. In his socialism, there’s still private markets, but they are small. He keeps saying if we don’t have socialism, we’re going to have chaos, we’re going to have revolution.”

But does this view of Keynes the ‘socialist’ really hold water? Crotty argues that it does because Keynes “decisively rejected the traditional theory of perfect competition, applauded the ongoing trend toward increased reliance on public corporations, and argued that the government should not only accept the current movement toward cartels, holding companies, trade associations, pools and other forms of monopoly power, but should proactively assist and accelerate this trend in order to regulate and control it. Keynes argued that an increasing part of the country’s largest and most important private companies were evolving toward a status that could make them as easy to regulate as public corporations.”

As Crotty puts it, Keynes’ central point was that the emerging importance of the system of public and semipublic corporations and associations combined with the evolution of collusive oligopolistic relations in the private sector already provided the foundation for a qualitative increase in state control of the economy. Crotty concludes “Keynes was unabashedly corporatist.” Indeed – I would add that his concept of corporatism was not dissimilar to that actually being implemented in fascist Germany and Italy at the time.

And who was to run this corporate capitalist/socialist state? According to Keynes’ biographer, Robert Skidelsky, it would be “an interconnected elite of business managers, bankers, civil servants, economists and scientists, all trained at Oxford and Cambridge and imbued with a public service ethic, would come to run these organs of state, whether private or public, and make them hum to the same tune.” (Skidelsky 1992, 227-28).

Keynes rejected laissez-faire and “doctrinaire State Socialism” because what is “needed now is neither free-market competition nor quantitative central planning but “regulated competition” (19, 643). Keynes goes on, “we must also be prepared to experiment with all kinds of new sorts of partnership between the state and private enterprise. The solution lies neither with nationalisation nor with unregulated private competition; it lies in a variety of experiments, of attempts to get the best of both worlds. The Government must recognise the trend of soundly run business toward trusts and combines. It must be prepared to recognise their existence as beneficent institutions in right conditions; and it must adopt an attitude towards them at the same time of encouragement and regulation.” (19, 645) In this way, we “will get the best both of large units and of the advantages that might be expected of nationalisation, whilst maintaining the advantages of private enterprise and decentralised control.”(19, 649).

Keynes’s ‘socialism’ was really the so-called mixed economy of capitalist combines and government control, all run by “an elite of business managers, bankers, civil servants, economists and scientists, all trained at Oxford and Cambridge.” This is what Crotty describes as ‘liberal socialism’. For me, it is neither liberal nor socialist; but elitist and capitalist.

What were the practical economic policies of Keynes’ socialism, according to Crotty. Keynes proposed a National Investment Board that would have funds of between 4-8% of GDP to invest to ensure that economies moved in productive directions. This proposal was part of the Liberal Party Manifesto in 1928 – and not accidentally is now part of the UK Labour Party’s in 2019 under Corbyn and McDonnell. This apparently, according to Crotty, is what Keynes meant by his famous phrase, the “socialisation of investment”.

But just in case you think that Keynes wanted only his elite to run this corporate capitalist state, he also patronisingly advocated that “To make the worker feel that “he is treated as a partner and not as a mere tool,” (238), (he) proposed that every firm be legally required to form a “Works Council” to facilitate “permanent, regular, and established methods of consultation [between management and labor] in every factory and workshop of substantial size” (472). Shades of the ‘social market economy’ with its workers councils of modern Germany!

That’s Crotty’s evidence that Keynes was against capitalism and for socialism. For me, it merely shows that Keynes reckoned that capitalism was no longer a system of ‘perfect competition’ (it never was of course) but had evolved into ‘monopoly capitalism’. And this was a good (‘beneficent’) thing, requiring only the nudging and direction of a ‘wise educated elite (of men)’, dutifully supported by the workers, in order to deliver prosperity for all.

And there is plenty of evidence in Keynes’ writings that he really stood for ‘managed capitalism’, and not socialism by any reasonable definition. As he wrote: “For the most part, I think that Capitalism, wisely managed, can probably be made more efficient for attaining economic ends than any alternative system yet in sight, but that in itself it is in many ways extremely objectionable. Our problem is to work out a social organisation which shall be as efficient as possible without offending our notions of a satisfactory way of life.”

The profit motive must remain: “The loss of profit may be due to all sorts of causes, but short of going over to communism there is no possibility of curing unemployment except by restoring to employers a proper margin of profit.” As Keynes argued that “Economic prosperity is…dependent on a political and social atmosphere which is congenial to the average businessman.” As American economic historian, Bruce Bartlett explains: “He offered for the economy a hierarchical ideal. The creative center of the system was the skilled entrepreneur and the goal of policy was to cultivate his skills and ensure his inducement to invest.”

In his later years, Keynes praised the very laissez-faire ‘liberal’ capitalism that he appeared to condemn in the 1920s. In 1944, he wrote to Friedrich Hayek, the leading ‘neo-liberal’ of his time and ideological mentor of Thatcherism, in praise of his book, The Road to Serfdom, which argues that economic planning inevitably leads to totalitarianism. Keynes wrote: “morally and philosophically I find myself in agreement with virtually the whole of it; and not only in agreement with it, but in a deeply moved agreement.”!

And did he stick to his view of ‘socialised investment’ as Crotty claims? This is what Keynes said in his last years: “If our central controls succeed in establishing an aggregate volume of output corresponding to full employment as nearly as is practicable, the classical theory comes into its own again from this point onwards.” So once full employment is achieved, we can dispense with planning and ‘socialised investment’ and return to free markets and mainstream neoclassical economics and policy: “the result of filling in the gaps in the classical theory is not to dispose of the ‘Manchester System’ (‘free’ markets – MR), but to indicate the nature of the environment which the free play of economic forces requires if it is to realise the full potentialities of production.”

Keynes was a strong opponent of national economic planning, which was much in vogue after the Second World War. “The advantage to efficiency of the decentralization of decisions and of individual responsibility is even greater, perhaps, than the nineteenth century supposed; and the reaction against the appeal to self-interest may have gone too far,” he wrote.

Contrary to Crotty, Bartlett reckons that “Keynes was almost in every respect a conservative, both in philosophy and temperament, although he identifies himself as a liberal throughout his life. His conservatism was largely a function of his class. When asked why he was not a member of the Labour Party, he replied; “to begin with it is a class party and that class in not my class.. and the class war will find me on the side of educated bourgeoisie.” Conservative icon Edmund Burke was one of his political heroes. Keynes expressed contempt for the British Labour Party, calling its members “sectarians of an outworn creed mumbling moss-grown demi-semi Fabian Marxism.” He also termed the British Labour Party an “immense destructive force” that responded to “anti-communist rubbish with anti-capitalist rubbish.”

Keynes’ ‘socialism’ was openly designed as an alternative to the dangerous and erroneous ideas of what he thought was Marxism. State socialism, he said, “is, in fact, little better than a dusty survival of a plan to meet the problems of fifty years ago, based on a misunderstanding of what someone said a hundred years ago.” Keynes told George Bernard Shaw that the whole point of The General Theory was to knock away the ‘Ricardian’ foundations of Marxism and by that he meant the labour theory of value and its implication that capitalism was a system of the exploitation of labour for profit. He had little respect for Karl Marx, calling him “a poor thinker,” and Das Kapital “an obsolete economic textbook which I know to be not only scientifically erroneous but without interest or application for the modern world.”

John Kenneth Galbraith, the great heterodox economist of the Roosevelt and post-war years, and whose politics were well to the left of Keynes, reckoned, “The broad thrust of his efforts, like that of Roosevelt, was conservative; it was to ensure that the system would survive”. Keynes’s friend and biographer Harrod tells us that underneath his veneer of trendy liberalism, “Keynes was always deeply conservative. He was not a Socialist. His regard for the middle-class, for artists, scientists and brain workers of all kinds made him dislike the class-conscious elements of Socialism. He had no egalitarian sentiment; if he wanted to improve the lot of the poor…that was not for the sake of equality, but in order to make their lives happier and better.” (without their involvement, we might add.)

It has always been difficult to be sure where Keynes stood on many issues as he changed and adapted his views continually. Hayek criticised him for this and Keynes replied that “If the facts change, I change my views, don’t you?” Even so, it seems that Professor Crotty may be on his own in thinking Keynes was an anti-capitalist socialist.