Recently, I have been reading the magnificent biography of John Maynard Keynes written, in three volumes, by Robert J. A. Skidelsky. In both Volume 1 and Volume 2 of the trilogy, Skidelsky spends some time discussing how Keynes viewed the purpose of government and related his concept back to an essay that Keynes had written on Edmund Burke. This, of course, is very interesting in itself because Keynes is seen as one of the founding fathers of the ‘Liberal’ approach to how government can be used to maneuver the macro-economy and Burke is one of the reigning gods in the ‘Conservative’ pantheon of revelation. What I would like to start off discussing, however, is not the relationship between Keynes and Burke, but the purpose for government that Keynes supports intellectually.
Skidelsky reduces ideas of Keynes to this general statement: “The purpose of government is to secure the contentment of the people as constrained by the principle of equity.” (John Maynard Keynes, Volume 2, The Economist as Savior, 1920-1837 published by Viking Adult in 1994, page 62.) Skidelsky goes on to explain that by ‘contentment’ Keynes meant ‘physical calm’ and ‘material comfort.’ He also defines that ‘equity’ can be defined as “the absence in law or policy of ‘artificial’ discrimination in regards to individuals or to classes.” (page 62)
In other words, the purpose of government is to provide an environment in which individuals can achieve ‘good states of mind’ where one is allowed to achieve whatever ‘good state’ that he or she seeks. This is consistent with the philosophical atmosphere that Keynes was a part of coming from the work of G. E. Moore at Cambridge University (who wrote Principia Ethica (1903; revised edition, Cambridge University Press, 1993) and the Bloomsbury set of intellectuals (Virginia Woolf, Duncan Grant, E. M. Forster, Lytton Strachey and others) located in London. What Keynes was proposing was that everyone should be sufficiently well off and free of economic worries so that they could live the life they wanted, regardless of what others thought of that life.
Keynes, of course, is well known for his efforts to see that societies, especially ones like Great Britain, could attain the ‘physical calm’ and ‘material comfort’ needed for the achievement of such a goal. He was specifically interested in the ‘equity’ issue because his friends in Bloomsbury represented a leading avant garde community that exhibited advanced modern attitudes towards such things as feminism, pacifism, and sexuality. The Bloomsbury group, itself, was relatively well off as far as wealth was concerned and was also assisted over time by the financial support of Keynes; so that the first component of the ‘purpose of government’ was not a concern of theirs. However, Keynes recognized that the condition of ‘material comfort’ and ‘physical calm’ was necessary for the group to pursue its desired lifestyle. Thus, if others were to attain ‘good states of mind’ it was necessary for them to also experience ‘material comfort’ and ‘physical calm’. Hence, government needed to do something to achieve this end.
There was another matter that was important to Keynes in the 1920s and 1930s that fit into his definition of the ‘purpose of government.’ He was very concerned that if many in the country did not experience ‘physical calm’ and ‘material comfort’ they would revolt against the existing democratic governments that supported economic systems that were basically capitalistic in nature. Of course, there was the immediate experience of the Russian Revolution. This worry, however, permeated the Paris Peace talks that followed the Great War and carried over into the 1920s and beyond as real concern was expressed that the ‘masses’ might rise up if they were in a depressed state economically. Thus, a strong, vibrant economy was necessary, it was felt, in order that people could be free to follow the own path to achieving ‘good states of mind.’ The concern here related to the potential breakdown of the capitalistic system.
It is important to address this concept of ‘the purpose of government’ from the Hamiltonian point of view that we have been discussing in previous weeks. One cannot argue from the Hamiltonian standpoint that the goals set out by Keynes are undesirable. We cannot argue that ‘physical calm’ and ‘material comfort’ are good things and are good things for everyone in a society. Also, one cannot argue that there should not be discrimination about the choice of lifestyles, let alone discrimination based on race or any other physical distinction between people.
What one can disagree with this stated purpose from the Hamiltonian point of view is the ability of government to directly achieve specific outcomes. The problem, as I see it, is that this purpose is concerned with outcomes and not processes, a distinction that has been discussed in previous weeks. Outcomes are all fine and good, we argued in the last post, but it is next to impossible for a government to obtain the information necessary to create programs that will achieve the outcomes desired; it is next to impossible to create an incentive system that will accomplish such goal; and it is next to impossible to implement and then execute such programs and policies in a timely manner. In other words, attempting to achieve specific outcomes is a very, very hard thing to do.
It is difficult enough for people to achieve the results that they set out to reach and if they focus only on current specific outcomes they can easily despair. If it is that hard for an individual to achieve what they set out to do, just think how much harder it is for a government to achieve specific outcomes. Furthermore, setting up programs and policies to gain specific ends can become counterproductive in that the programs and policies create other outcomes that are not helpful. And, once programs and policies have been created they are almost never eliminated so that they eventually come to serve other purposes. This is why it is argued that individuals, as well as organizations and governments, should focus on setting up processes that can succeed over time and that provide the tools needed to succeed.
Life is uncertain and an individual or an organization is not going to succeed in every instance. That is why the focus on specific outcomes is not that productive. In baseball, a good hitter will get a hit in 1 out of every 3 times at bat. Or, that batter does not get a hit 2 times out of every three at bats. If we focus on the times the hitter does not get a hit, things look pretty bad. Yet if this person has developed a process, a technique that allows him, on average, to get a hit 1 out of 3 at bats, that person is going to be one of the better hitters in baseball. One is not locked into outcomes when one focuses on processes.
Governmental policies and programs that initiate processes can be leveraged by individuals and organizations to achieve desirable outcomes far beyond the scope and scale of what the government can achieve by itself. In terms of education, the government can support the creation and maintenance of an educational system that results in tremendous positive externalities throughout the society. In this way, the government is helping its citizens attain the tools that are of great benefit to individuals as well as to the society. In terms of capital markets, the government can provide the rules by which capital markets can work and the policing of these markets to oversee ‘fair play’ within the operation of the markets. In terms of a banking system, again the government can provide the rules by which the banking system operates; regulate the system to minimize the amount of abuse taking place; and then support a check clearing system and central banking facilities to support the efficient functioning of the banks.
In all these cases, the government is focusing more on enhancing the infrastructure of the society rather than on achieving specific outcomes. Yes, outcomes are going to vary over time, but even the existing infrastructure should be aimed at smoothing the variation in the outcomes and not offsetting them. Nothing is being said here about the size of government. In a modern, well-functioning capitalistic society, it is my feeling that a fairly sizeable government will be necessary. What is crucial, however, is not the size that the government achieves, but the role the government plays in letting the society determine itself. To me, Keynes was idealistic and not realistic about what a government could do.