Re: NYTimes on Skidelsky's Keynes

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

Paul, we had some discussions on the issue over at Gang8 with the British
members.  The following is my view.

After Dunkirk, The British had to make a choice: either lose the war to Germany,
or to the US.
Churchill chose the US, based on the time-honored theory of keeping distant allies
to oppose nearby
enemies.  Churchill was out and out pro-US, with his American mother, and had
close connection to the American rich and elite.  This policy was not unanimously
supported by all, the Duke of Windsor being a prominent example.  It turned out to
be the only sensible option, with Canada dominated by the US and Australia
threaten by Japan.  Moving MacArthur to Austrailia cemented Brtish American
interests in Asia. Since 1941, Britian has been pretending to remain a world power
in its role of an US agent, a waterboy in a power team.  It did get some benefits
from the Cold War which was in no small way enegineered by Churchill, exploiting
the insecurity and paranoid of Truman.

After WWII, GB was still saddled with many of the cost of empire, while losing all
the benefits. Colonial natives were converging on the British Isle for free
national service medicine and unemployment benefits. Even wealthy Third World
elites would send their children to Britian for fancy orthodentutre work and their
pragnant mistresses to give birth in London hositals, all for free, plus a British
passport for the new born, not to mention generous welfare payments. Aside from
being on the "winning" side (which really had been an occupied territory by US
forces since 1942), the other disadvantage was that GB actually had a wroking
democracy.  This prevent the communists from any real propsect of coming to
power.  Unlike Germany and Japan, on which much US aid was driven by American
anti-communism, GB had an anti-communist Labour government, the worst of all
possible combinations.  While the Americans hated and fear the communists, they
had leven less respect for the Labour Party.  The US was set to teach European
social democrats a lesson and the British empire was taken over by the US in the
name of communist containment.  Of course, Ox-bridge mentality was also a factor,
as many in GB were quick to recognize. Then there was brain drain to the US, and
the over-valued pound sterling.
For five decades after WWII, British ingenuity expressed itself in pop culture
rather than independent
national revival strategy.

Of course the Comonwealth immmigrants did not catch on until years later to a free
ride on the
welfare program originally designed to serve only UK taxpayers.  But the programs
put in place by
the Labour Government stayed operative even after Atlee, until Thatcher.  Not only
Third
World residents, but US residents did the same thing.  I remember Fulbright
exchange students selected
Britian mostly for its medical benefits for all residents regardless of
citizenship.  The returned American students taught their friends how to vacation
in the United Kingdom for free dental work and newborn deliveries. Socialism
cannnot work unless all who draw from the system also pay into the system.  The US
economy is now in deep trouble, partly because of its over-reliance on debt to
support unrealistic
expectations and partly because of the system's penchant to privatize profits and
socialize costs.  There
is eveidence that the same happened to the post war British economy, albeit at a
slower pace and on a
smaller scale, and with less innovation.  Post WWII Britian privatized profits
more than it socialized
costs.

I have posted my rebuttal to DeLong's criticism of Skidelsky:

DeLong attributed Skidelsky's alleged anti-American interpretation to the latter's
not being an economist (some kind of inside joke?):  "And because Skidelsky is not
an economist, he overstates the gap between
John Maynard Keynes and U.S. Treasury official Harry Dexter White in their joint
design of the  post-World War II international monetary system at Bretton Woods
and elsewhere. Skidelsky (p. 239) writes of the relationship between Keynes and
White as a 'battle between the two... one of the grand political duels of the
Second World War, though it was largely buried in financial minutiae...' But that
is a gross misrepresentation. When an economist like me (DeLong) looks at the
competing Keynes and White plans for post-WWII monetary reconstruction, I am
struck not by their differences but by their extraordinary similarities. The White
plan called for a Bank for Reconstruction (now the World Bank) to finance an
enormous amount of investment in the post-World War II decades. The White plan
called for an International Stabilization Fund to repair the flaws in the interwar
golds standard: to make explicit and to enforce the rules of behavior expected of
countries, to manage exchange rate changes, to assist in resolving balance of
payments  problems, to encourage tariff reduction and free trade, and to control
destabilizing movements of "hot money" like we saw in Mexico in 1995 and in East
Asia in 1997.
The Keynes plan called for the same. Oh there were differences, and the
differences were important. Keynes envisioned a much better-funded institution
than White did, capable of taking action on a much larger scale. (I should point
out that the  IMF today has only a fraction of the resources that White thought
necessary, and only a tiny fraction of resources that Keynes thought desirable.)
Keynes saw a balance of payments imbalance as a problem for both surplus and
deficit countries, both of which needed to be encouraged to change their policies.
White saw a balance of payments deficit as the problem of the country running the
deficit which needed to change its policies to correct the problem. (I think White
was mistaken: Keynes was more farsighted.)
Skidelsky widens the gap between the two to an immense gulf (p. 245):
"The White and Keynes plans were based on different  concepts... loans out of
subscribed capital... [or] overdrafts [created] out of nothing.... For the
British, the White Plan spelled financial orthodoxy,
the gold standard, and deflation; the the Americans,  the Keynes plan spelled
reckless experiment and inflation..." He sees the differences as the result of
American malevolence (p. xx):  "Harry Dexter White of the US Treasury wanted to
cripple Britain in order to clear the ground for a post-war American-Soviet
alliance..."  But Skidelsky is wrong. He quotes (p. 253) a  critic of both plans
who had a much clearer view of what was at stake. This critic at the time saw both
plans as near-identical twins: "both plans set up a super-national Brains Trust
which is to think for the world and plan for the world, and to tell the
governments of the world what to do.' They were both British plans... both
reflected trends in Keynesian thinking and British monetary policy..." Keynes
agreed that the differences were less important than the similarities. He focused
not on what was left undone but on what was accomplished, and what was
accomplished was "... a revolutionary change for the better compared with the
position in the
interwar period..." (p. 328).
What about American malevolence seeking to cripple Britain? It is only fair to
counterbalance Skidelsky's view of Harry Dexter White--a complex man, Russian
agent of influence, New Dealer, ruthless bureaucratic infighter, accomplished
technocrat, and co-architect of the post-World War II international monetary
system that played a key role in giving the world economy its fastest generation
of growth ever--with John Maynard Keynes's view (p. 323): "With Harry White, as
you may suppose, we have been spending a vast amount of time... over-bearing, a
bad colleague, always trying to bounce you, aesthetically oppressive...  not the
faintest conception of how to behave.... At the same time, I have a
very great respect and even liking for him. A very able and devoted public
servant, carrying an immense burden of responsibility and initiative, of high
integrity and of clear-sighted idealistic international purpose, genuinely
intending to do his best for the world. Moreover, his over-powering will combined
with the fact that he has constructive ideas mean that he does get things done,
which few here do. They way to reach him is to respect his purpose, arouse his
intellectual interest (it is a great softener to intercourse that it is easy to
arouse his genuine interest in the merits of any issue), and to tell him very
frankly and firmly without finesse when he has gone off the rails..."
Keynes's true adversary wasn't Harry Dexter White. His true adversaries were those
who feared any form of international financial management, or those who wanted
tight controls over all international economic
transactions. But Skidelsky does not see this." End.

DeLong's view can only be argued from a purely economics perspectives. But the
struggle between Keynes and White was political.  The subtle economics difference
between the two plan represented a huge gulf politically.  The Keynes plan fitted
the need of a financially drained British Empire while the White plan fitted the
needs of a financially well heeled US.  Neo-liberal economists, of whom DeLong is
a card carrying member and an active participant in the Clinton White House, never
understood the political implication of their economic logic, as eveidenced by
Larry Summers' infamous World Bank memo.  Which leads to DeLong's next criticism
of Skidelsky: "I've (DeLong) talked about the good and the bad. Now I  have to
talk about the ugly--even though the ugly takes up a very small number of pages in
the book, and appears to be an afterthought largely confined to the introduction.
Skidelsky appears to have fallen under the influence of a strange and sinister
sect of British imperial conservatives who believe that somehow the U.S. during
World War II provided aid to Britain on niggardly terms, terms
guaranteed to destroy Britain as a great power. Skidelsky writes (p. xx) of the
"...intensity and often bitterness of the struggle between Britain and America
for      post-war position which went on under the
facade of the Grand Alliance. When the European war started, Britain, not Germany,
was seen by most American leaders as America's chief rival..." The chief
accusation seems to be that America squeezed
Britain's financial resources dry before it would open the spigots of Lend-Lease
aid, and so destroyed Britain as a great power. Any economist would know that this
is total nonsense.  But even though it is nonsense, Skidelsky seems to believe it.
He writes of how (p. xv)  "Churchill fought to preserve Britain and its Empire
against Nazi Germany. Keynes fought to preserve Britain as a Great Power against
the United States. The war against Germany was won; but, in helping to win it,
Britain lost both Empire and greatness..." He writes of how (p. xxi) it was a
tragedy that Hitler's being "in charge of a great nation... threw Britain into the
arms of America as a suppliant, and therefore subordinate: a subordination masked
by the illusion of a 'special relationship'...". He even seems (I can barely
believe it) to feel some regret that the British government's "...underlying
belief that the New World had to be yoked... to the Old" led to "...the deference
Britain paid to America's wishes... and its failure to exploit crucial elements in
its bargaining position--like fighting a more limited war, or even making a
separate peace with Germany..." (p. 180)." End.

HCKL: Anyone who reads declassified documents on war time Allied summits will find
a lot of evidence to support Skidelsky's observations.  Until his untimely death,
FDR was on a collision course with Churchill on the war's objective vis-a-vis
British colonialism.  It was not until Truman replaced FDR that US policy accepted
British insistance on the preservation of the British Empire as a war aim.  This
policy change
greatly limited US option in developing a viable post war policy toward new
emerging nations of the Third World. that eventually led to the Vietnam War, by
equating Third War nationalism with communism.

DeLong: "But everyone knows that a Britain that made peace with Hitler in 1941
because American Lend-Lease aid was insufficiently generous would not be great.
Britain fought to defeat a tyranny, not to preserve an empire."

HCKL: This is embarrassing self deception. Even the US only declared war on
Germany after Pearl Harbor.  German tyranny had by then been going on for a number
of years.  Prominent Americans were actively against US involvement and many were
actively pro Germany until after Pearl
Harbor.  WWII was a conflict of geo-political interests among great powers.  The
struggle against tyranny image was an afterthought icing on the cake.  DeLong is
obviously suffering from the Quiet American
syndrome.

Henry C.K. Liu

pdavidso wrote:

> Some may be interested in Robert Skidelsky's response to Sylvia Nassar's
> review of his third volume.  Skidelsky wrote to me that it was curious that
> Nasar thought that Britain was ruined by socialism, which is exactly what
> Reagan said.
>
> Skidelsky also indicated that the point is not that
> Britain had a much smaller economy than the US after WWII (this was already
> true in 1900) but that the war wrecked its commercial and financial position.
> In fact, Robert did not think this wrecking could have been completely avoided
> no matter what avoided, but it was his judgment that the Americans drove a
> hard bargain. Skidelsky felt, however, that he had identified too much with
> Keynes's own patriotic feelings to make this part of his argument acceptable
> to an American audience.
>
> Any comments?
>
> Paul
>
> Paul Davidson
> Editor, Journal of Post Keynesian Economics
> University of Tennessee
> SMC 523
> Knoxville, Tennessee 37996-0550
> phone # (865)974-4221; fax #(561)737-8262;
> email pdavidson@xxxxxxx
> http://econ.bus.utk.edu/Davidson.html