Friday, April 29, 2011

Did Keynes Support Having a "Central Plan"?

That he did is charged by "Hayek" in the freshly released "Keynes versus Hayek: Round 2" at , put out by Russ Roberts and John Papola, with backing from the Mercatus Center at George Mason. Like its predecssor, it definitely sides with Hayek, but is also highly hilarious, with pretty much anybody able to enjoy Papola playing Bernanke handing out wads of cash to bankers, and some other goofy stuff, such as libertarian anarchist Ed Stringham eagerly interviewing "Keynes" after he is declared the winner in a boxing match after being knocked down by "Hayek."

However, I do find it disturbing that increasingly Austrians and some others have taken to charging Keynes with having supported "central planning," as indeed done in this video. Is this correct? I think that the answer is largely "no," with it certainly being that answer if one means by that command central planning of the Soviet type that Hayek criticized in his Road to Serfdom (which Keynes praised, btw, when it first came out).

I think the strongest evidence for Keynes supporting central planning comes from two sources, which I shall quote. The first comes from his 1920s essay, "The End of Laissez-Faire," which has been identified as the inspiration for the movement for indicative (non-command) planning that was seen after WW II in such countries as France, Japan, India, South Korea, and some other places, although not UK or US.

After noting that uncertainty can lead to inequality of wealth and the unemployment of labor, he states: "I believe that the cure for these things is partly to be sought in the deliberate control of the currency and of credit by a central institution, ans partly in the collection and dissemination on a great scale of data relating to the business situation, including the full publicity, by law if necessary, of all business facts which it is useful to know. These measures would involve Society in exercising directive intelligence through some appropriate organ of action over many of the inner intricacies of private business, yet it would leave private initiative and enterprise unhindered." (p. 318 from Essays in Persuasion)

One can argue that Keynes is offering a hopeless contradiction when calling for this "directive intelligence," probably the closest he came anywhere to command, with his simultaneous limit on that regarding leaving "private initiative and enterprise unhindered," this latter certainly not fitting with the full-blowin command socialist model at all.

Regarding the information gathering, well, of course that is now generally done in most higher income economies, and many have argued that this was the essence of the indicative planning operations carried out in many countries, when they worked at their best, as some claim was the case in France in the 1950s, when businesspeople needed some sort of external push to revive their animal spirits, to use Keynesian language, and that seeing projections of demands by others helped provide this.

The other passage that some have pointed to as possibly suggesting a central planner tendency by Keynes comes from the final chapter of the General Theory, p. 378:

"Furthermore, it seems unlikely that the influence of of banking policy on the rate of interest will be sufficient by itself to determine an optimum rate of investmenet. I conceive, therefore, that a somewhat comprehensive socialisation of investment will prove the only means of securing an approximation to full employment; though this need not exclude all manner of compromises and of devices by which publich authority will co-operate with private intiative. But beyond this no obvious case is made out for a system of State Socialism which would embrace most of the economic life of the community."

One can argue again here that Keynes is setting himself up for some sort of impossible contradiction, and Hayek may well have argued that such control of investment would lead to his road to serfdom slippery slope. However, it is clear from later passages that what Keynes had in mind was ultimately the control of the aggregate of investment rather than of its specific forms or details.

These almost certainly provide the strongest evidence for Keynes supposedly supporting there being a "central plan." But it looks at most, putting the two together, like one that involves lots of provision of information and data along with some sort of control of aggregate investment, while leaving most of the decisions up to "private initiative." This hardly constitutes a "central plan," and certainly not one of the sort that the actually existing Hayek criticized. The fictional one in the video should have spoken more carefully.


Musgrave said...

It’s amazing the mistakes made by “great” economists. Re Keynes reference to the “optimum rate of investment” above, what on Earth made him think that he or other economists or governments know what the “optimum” amount of investment is? I mean does a bureaucrat have a better idea how much a garage or chemical plant should invest than those running the garage or chemical plant? The very idea is hilarious.

TheTrucker said...

What is hilarious is the insinuation that political economy and "the optimum rate of investment" is the same as individual decisions concerning particular investments. Even Adam Smith (the originator of the "invisible hand") recognized the role of the state and the economist -- ""Political economy, considered as a branch of the science of statesman or legislator, proposes two distinct objects: first, to provide a plentiful revenue or subsistence for the people, or more properly to enable them to provide such a revenue or subsistence for themselves; and secondly, to supply the state or commonwealth with a revenue sufficient for the public services. It proposes to enrich both the people and the sovereign."

The goals of the individual greedster are not necessarily going to advance the prosperity of the many even though Smith proclaimed it so. Power (the object of individual wealth) can be, and in most cases _IS_, gained via economic rents as opposed to the profits from real capital development.

Barkley Rosser said...

Musgrave, Clearly Keynes viewed that "optimum" as being the amount that is consistent with full employment. What is very clear from his writings is that he did not wish to get into stating what some individual business would or should do.

Methinks said...

Ah, yes. The homogeneous blob called "labour" should be put to work by saintly government apparatchiks doing some homogeneous blob called "work" not as a means to prosperity but as an end to itself. Heaven forbid we should allow resources to reorganized organically and a pox on anyone who calls Keynesian policies anything like central planning. Full employment certainly served the Soviet Union well.

You do not need a fully formed Gosplan to have central planning. Everything doesn't need to be centrally planned for central planning to exist. Keynes needn't have supported a policy of central planning down to the number of hideous, scratchy raspberry coloured women's coats to be produced year after year to favour central planning.

BTW, while Keynes praised "Road to Serfdom", he also disagreed with Hayek on the issue of central planning. Having read the book on his way to Bretton Woods, Keynes wrote Hayek a four-page letter. In it he said (among other contradictory things): "the line of argument you yourself take depends on the very doubtful assumption that planning is not more efficient. Quite likely, from the purely economic point of view, it is efficient."

Of course, he also said in the same letter: "even if the extreme planners can claim their technique to be more efficient, nevertheless technical achievement even in a less planned community is so considerable that we do not today require the superfluous sacrifice of liberty which they themselves would admit to have some value." Why only today?

Finally, Keynes admitted in his preface to the German text of GT that his policy proposals are better suited to the conditions of a totalitarian state.

Fred said...

Barley, if you want to get serious on this topic, you'll nees to engage Allan Meltzer's book on Keynes on this topic.

Lawrence H. White said...

Barkley, you are of course right that Keynes did not support “central planning” in the Soviet or in the Lange-Lerner sense of detailed allocation of resources. I try to make the distinction between Keynes and the proper socialists clear in my forthcoming book, The Clash of Economic Ideas, available in draft at the Mercatus website.

Keynes did, however, favor central control of the volume of investment, as you note. I think Hayek was right to regard that as a top-down plan for interference with the allocation of resources, and not merely aggregate demand management completely divorced from resource allocation.

Let's not overlook that in his letter to Hayek quoted above by Methinks, after asserting that planning is more efficient, Keynes wrote:

"I should therefore conclude your theme rather differently. I should say that what we want is not no planning, or even less planning, indeed I should say that we almost certainly want more. But the planning should take place in a community in which as many people as possible, both leaders and followers wholly share your own moral position. Moderate planning will be safe if those carrying it out are rightly orientated in their own minds and hearts to the moral issue."

I think it's not unfair to say that Keynes here favored some degree of central planning. A “moderate” degree, and done by the right people, of course, but we can perhaps forgive a very abbreviated rap lyric for omitting those distinctions. Having seen an early draft of the lyrics, I suggested that Hayek should respond to Keynes’ “what would you do” question by enunciating his own monetary policy norm (nominal income stabilization), but Russ Roberts told me that they couldn’t make room for all that.

Barkley Rosser said...


Note that Keynes never used the phrase "central planning." All of it was pretty vague. We have lots of planning by governments at all levels in even the most market capitalist economies. Do you really want city governments to shut down their city planning departments that worry about when and where to build schools and roads?


You are referring to his over-the-top interpretation of the phrase "socialisation of investment? Sorry, but I shall not bother. It was over the top.


Well, "moderate planning" is certainly a weasel phrase. Who knows what it means? I am glad that you recognize that Keynes pretty clearly did not support the sort of planning that goes all the way to precisely telling every firm what they should do about everything.

jds09201 said...

Funny you don't mention this quote by Keynes:

"The theory of aggregate production, which is the point of the following book, nevertheless can be much easier adapted to the conditions of a totalitarian state than the theory of production and distribution of a given production put forth under conditions of free competition and a large degree of laissez-faire. This is one of the reasons that justifies the fact that I call my theory a general theory."

Love to hear your thoughts on that one.

TGGP said...

Reading Jane Jacobs, one might be led to conclude that we would be better off without city planners! Not that it was her position though.

Barkley Rosser said...


Nothing about central planning there in that quote. Germany did engage in central planning, but only after that quote was written. Keynes says his ideas apply to different systems and is therefore is general. So what? Keynes was not at all a supporter of Nazi Germany, and any attempt to use that quote to suggest he was does not pass the smell test.


Well, Houston does not have zoning, although I think they have planning for infrastructure. They use restrictive covenants instead. Sort of works, and I know people who think it is great, but Houston is not my cup of tea.

Cahal said...


Perhaps you'd be interested to read this quote from Mises:

"It cannot be denied that Fascism and similar movements aiming at the establishment of dictatorships are full of the best intentions and that their intervention has, for the moment, saved European civilization. The merit that Fascism has thereby won for itself will live on eternally in history. But though its policy has brought salvation for the moment, it is not of the kind which could promise continued success. Fascism was an emergency makeshift. To view it as something more would be a fatal error."

Of course, I'm not going to claim Mises was a fascist because that would be stupid, and it would be equally stupid to claim Keynes was a Totalitarian. Selective use of quotes do not a comprehensive argument make.

If we're done bickering, then I'd like to point out that being against planning is ridiculous, because we live in planned economies. City planning, interest rates, large hierarchical firms, selecting which tax goes where, how many immigrants are let in, the list goes on.

As soon as you add laws and government into the equation, things are planned. Perhaps not 'centrally', but indicatively. There is no way of escaping it.

Sorry Libertarians.

Roger Koppl said...

Cahal: Fair point on Fascism and totalitarianism. Keynes was no Nazi, just as Mises was no Fascist. (BTW: the Mises quote is from 1927, so he was only referring to Italian Fascism and over a decade prior to Italy's Race Manifesto of 1938.) On planning, however, I might disagree. Hayek said already in 1935 that it is not a question of planing vs. no planning. It is a question of who plans what. Hayek did oppose "planning," but "central planning."

Roger Koppl said...

did NOT oppose "planning" etc. Sorry

Methinks said...

Do you really want city governments to shut down their city planning departments that worry about when and where to build schools and roads?

Barkley, if you're asking me personally, the short answer is "yes". Particularly schools. I don't think government performs those tasks efficiently. That said, If I'm forced to submit to government plans, I'd rather the planning were done by my town rather than my state and by my state rather than by the clowns in Washington. It's easier to move to another town or state than it is to escape the Federal government.

Methinks said...


I also should mention that I probably use the term "central planning" more broadly than you. I define it as a few planning for the many, and I am naturally more wary of planning even by local governments.

All government planning necessitates some loss of individual liberty (and Keynes was not blind to that) and involves some politically motivated perversions. I see a lot of value in people considering very carefully giving up individual liberty for promises made by the government - particularly because government programs are virtually impossible to kill (although more possible at the local level). I also see a lot of value in people considering what government is actually capable of rather than swallowing political promises. I believe the video successfully pushes the viewer in that direction even if it doesn't fully explore the nuances of H&K the way a full blown academic discussion would. We must consider the limitation of the medium.

TheTrucker said...

Libertarians and Austrians have a religious fixation that prevents their minds from seeing the CENTRAL government as the _BEST_ insurer that money can buy. As the books of the government insurance systems are open to all who want to see them, then there can be no bilking of the subscribers. I think that Libertarians, Republicans and Austrians believe that insurance is served from a poll of past savings as opposed to being served from the proceeds of current premiums. It seems to be a religious disorder. _ALL_ insurance systems are "socialism" as that term is defined in rightardia. And the only way to make them _NOT_ pure "socialism" is to rip off the people paying the premiums by taking the proceeds of "investments" (funded by the policy holders) for the benefit of "stock holders" and/or the insurance company's officers. This theft makes private insurance OK for the rightarded.

Eric Nilsson said...

In recent decades some on the right have decided to redefine two terms-- "socialism" and "central planning"-- so that they mean something quite different from their original meanings.

It is not clear that analytical preciseness is enhanced by this mushing up of the meanings of these two words.

But such mushing up does serve an important rhetorical purpose: to shift the debate from something potentially important ("does capitalism require some sort of external stabilizing institution") to something intended more as a smear than a serious debate ("in what sense was Keynes like those who created gulags?")

Methinks said...

"in what sense was Keynes like those who created gulags?"

Can you provide an example of such an egregious mischaracterization of keynes by someone on the right (other than Glenn Beck, please - just the name gives me a severe headache). I think you're misrepresenting the argument or this must be a very fringe group you're muttering about.

Of course, you ominously charge "some on the right" the way many on the left charge "some in the Tea Party" of racism and thus smearing everyone in the Tea Party. Based only on what you assert in your comment without supporting evidence, your comment also seems to be just a smear. It's fun throwing dirt around and all, but I think you actually mistakenly believe that your straw man is serving some constructive purpose.

You know, it is actually possible for Keynes to be both wrong or naive about certain things and nothing like Stalin.

Eric Nilsson said...

The ONLY reason to imply Keynes supported "central planning" is to suggest a possible comparison between Keynes and the USSR (and others who suggested/used central planning).

It is--dare I say--merely a form of red baiting.

Barkley Rosser said...


I do not think that John P. and Russ R. were really playing that game. They have themselves convinced that Robert Skidelsky thinks that the main reason Hayek criticized Keynes was on the basis of disagreements over central planning, although I have just reread Skidelsky on their relations and find no such thing in there. Either he said something to them (I gather one or both of them have spoken with him), or they are interpreting something somewhere he wrote as saying that.

However, Methinks, go look at the commentary on this matter one finds on Russ's blog, Cafe Hayek. It is not coming from either John or Russ, most of whose remarks are pretty reasonable, even if I do not agree with all of them, but comments by others are pretty off-the-wall, fully Glenn Beckish, even dredging up old lines from the McCarthy era.

When I mentioned this last point in a Facebook discussion, John got all in a huff, and the host of the FB discussion threatened to throw me out. However, the discussion on Cafe Hayek is full of truly nauseating garbage that makes Glenn Beck look almost sane, such as a claim that Paul Samuelson has the blood of millions on his hands for his supposed support of Stalinist central planning, just to pick a really egregious one.

Eric Nilsson said...


The idea that Keynes supported "central planning" is bizarre. But such an idea strikes a responsive cord for some as it fits well into their notion that anything to the left of, say, Hayek are indistinguishable on some level. The fact that this way of looking at things has become so common does not mean it is not red is merely an intellectual institutionalization of red baiting.

Methinks said...


Would you be more comfortable if I said "government planning" instead of "central planning"? I don't think that you or Keynes would disagree that more government planning comes at the price of a larger amount of forgone personal liberty. I'm getting the feeling the use of the words "central planning" are evoking strong emotions.

Before I go on, let me set the record straight: I do not now nor have I ever been under the impression that either Keynes or Samuelson favoured a system of "central planning" (if you want to call that blood-soaked hot mess "planned") akin to that of the Soviet Union.

Maybe three years ago, via an exchange on another econ blog you set my thinking in a new direction on the subject of the Soviet collapse. I am much richer for it.

So, I'm deeply disappointed that you came to Cafe Hayek, berated virtually every commenter on the thread for such a low level of discourse and then proceeded to further lower the discourse by engaging in the same drooling hyperbole.

Nobody accused Samuelson of "having the blood of millions on his hands for his supposed support of Stalinist central planning". I know this because, while you jumped on Vikingvista for that comment, I was the original author of the comment about Samuelson. I never ever made that claim. I am not happy that you (a critic of such behaviour) completely shut down with rage, misquoting and engaging in hyperbole to malign the commenter (wrong one at that). I mean...come on. At least make sure you're aiming at the right target :)

For my own reasons, I don't like Samuelson (I admit it - so, sue me), but I'm not willing to ridiculously accuse him of actively supporting Stalinism! I am, of course, deeply revolted by some of the things that seeped out of him over the decades. It's possible that I did not make myself clear in my original comment. Based on your visceral response, I went on to clarify (I'm the only Methinks posting there, if you care to have a look). You may still disagree with me, you may think I'm misreading something, you may think I'm a fool. But, please, don't misread my comment, assign motives to me that are not my own and then hold me responsible for your concoction.

I'd like to also point out that we are all human. We all sometimes say things too strongly, feel things too deeply or don't think about things enough before we speak. We're sometimes too quick to accuse or sometimes we just say dumb things (hello, have you read trucker's comment on your own blog?). Given that you are, from time to time, guilty of these human shortcomings, I think you were terribly unfair to the patrons of the cafe and I was angered and disappointed by your comments.

Eric Nilsson said...

"Would you be more comfortable if I said "government planning" instead of "central planning"?...I'm getting the feeling the use of the words "central planning" are evoking strong emotions."
Are you really unaware that the term "central planning" has particular connotations and that by using that term you ARE invoking these connotations? Are you really unaware that nothing Keynes proposed can be classified as "central planning"?

"I don't think that you or Keynes would disagree that more government planning comes at the price of a larger amount of forgone personal liberty."
The above is not obvious and is, indeed, very possibly wrong.

Let's say a government program permits people who were unemployed to get jobs and this permitted them to engage in activities that before were denied them. It is not obvious that this increase in liberty (for the previously unemployed) MUST be less than (absolutely value of) any reduction in liberty other people have suffered because of this program. I'm no great fan of utilitarianism (although sophisticated versions are serious theories) but even the crudest utilitarian theory calls into question your statement above.

More particularly, it is not clear that the sort of "personal liberty" you seem to hold dear is the most important (only?) thing when thinking about a good society. Indeed, defending your notion of "personal liberty" might lead to some very bad consequences.

John said...

Please watch this clip before any further discussion and/or condemnation of our lyrics with regard to the our use of “plans” and “central plan”. Thanks! This interview was conducted over a year ago and I learned a bunch from Lord Skidelsky. He was very gracious with his time and wanted this clip posted in its entirety. I’m sorry that it has taken this long or come about in this context.

John said...

New Link, same video

Methinks said...


If you're going to take umbrage at what you consider to be a malicious redefinition of certain terms in one breath, you can't engage in the same activity in the next and remain credible. You've completely tortured all meaning out of the word "liberty".

Having rendered "liberty" meaningless, you want to change the argument to some undefined "good society".

If you want to talk about shoving a single morality own the throats of a whole population, talk to a priest or a Marxist. I'm not interested in remaking mankind.

I'm interested in crazy libertarian values like maintaining rule of law, maximizing individual freedom and limiting the size and scope of government so that we plebes can decide for ourselves what makes a good society and you and Glenn Beck can be free to bleat whatever nonsense you want.

Eric Nilsson said...

"If you're going to take umbrage at what you consider to be a malicious redefinition of certain terms in one breath, you can't engage in the same activity in the next and remain credible. You've completely tortured all meaning out of the word "liberty"."

The term "central planning" has a pretty definite meaning and one can reasonably say that people are misusing this term. Saying that Keynes' ideas have something to do with the notion of "central planning" reveals a lack of knowledge about Keynes' ideas and/or a lack of knowledge about what central planning involves.

The word "liberty" is different, however. Certainly you're aware of debates about the concept "liberty," correct?

So complaining about the misuse of "central planning" is very different from someone using the term "liberty" in a way that differs from your own subjective definition.

"If you want to talk about shoving a single morality own the throats of a whole population, talk to a priest or a Marxist. I'm not interested in remaking mankind."

Wow. I use the term "good society" and you immediately assert I'm proposing that my particular notion of the good life should be shoved down anyone's throat. You seem to be reading from a crib sheet that dates from the high years of the US anti-communist movement.

(Did I refer to the activity of red-baiting yet?)

I will merely refer you to the literature associated with, say, Rawls, Sen, and Nussbaum (and many others) for a discussion of the good society which does not involve shoving anything down anyone's throat.

Ironically, today it is the libertarians who are much more likely to shove things down people's throat: they have a very clear notion of what the good society involves and they insist that their perspective about how society should be organized is the only valid one.

"I'm interested in crazy libertarian values like maintaining rule of law, maximizing individual freedom and limiting the size and scope of government so that we plebes can decide for ourselves what makes a good society and you and Glenn Beck can be free to bleat whatever nonsense you want."

Again, if you read any of the authors above I referred to you'll find a thoughtful consideration of freedom, liberty, autonomy, and much more! And you'll find an extreme advocacy of freedom and much more good stuff. These writers dispute that your use of the notion "liberty" is the best one to use.

Your response reveals that you are not familiar with the debates about liberty, freedom, and the good society that have occurred in the past 40+ years. Writers like Rawls and Sen are not exactly obscure and so it is surprising that you have missed their work.

And I'm not sure that the above folks have "bleated" out nonsense.

You'd think that someone so dedicated to liberty would want to be familiar with this literature if only to sharpen their own arguments. The perspective on "liberty" that was developed in, what the 1940s and 1950s, was not the last final work on the relevant concepts. Much interesting thinking has occurred since that thinkers who are no less dedicated than you to the notion of freedom, liberty, and the elimination of the misuse of power.

TheTrucker said...

When one combines the concept of insurance with the concept of fiat money it is revealed that "planning" may not even be necessary. With a sample size of three hundred million the statistical probability of a barn burning down or of colon cancer approaches certainty. That persons can be protected from the financial devastation of such events is seen in that all persons are equally "at risk" based on the value of the underlying asset. If all men are created equal then it would seem that all lives are equal whether they own a barn or not. And the acceptable way to pay an equal share of health insurance is to have a JOB. Is this "planning" or the administration of _REALITY_. A flat asset tax and partial redistribution of true _rent_ is the proper solution. Why do libertarians believe that they are "at liberty" to prevent the use of naturally occurring resources by others? The concept of "ownership" does not actually apply to natural resources because the concept of individual ownership arises in the hands that produce that which is to be owned. And as production is not possible without use of natural resources then the productive owe some small fee to the society for the use of the commons.

Barkley Rosser said...

I am publicly apologizing to John Papola that I am leaving town for a conference at Duke University on "Integrating Evolutionary Theory into Behavioral Economics," without having read the interview he and Russ Roberts did with Robert Skidelsky. I am swamped and should have left an hour ago. Anyway, John has argued that in that interview Skidelsky supported ideas and usages in this most recent video, indeed, that the interview inspired the video. I shall look at it when I am back in some days and judge for myself.

As it is, I think a major bottom line remains whether or not in this (or another) interview Skidelsky supports saying that Hayek thought Keynes was a supporter of a "central plan" or not (again, he said nothing of the sort in his 2006 essay on Hayek and Keynes). If he did, then they will be off the hook, and all of us giving them a hard time on this point will owe them an apology. We shall see.

Methinks said...


Thanks for the offer, but I got enough social engineering before I immigrated from the USSR. I just can't eat another bite.

I'm also not that interested in indulging your personal hysteria over the term "central planning". If you can't tell the difference between what I said about Keynes and your understanding of Stalin, you just need to go read up on the subject.

Eric Nilsson said...


You dismiss the work of folks like Rawls and Sen as "social engineering" and link their work to what you experienced in the USSR? You do know that this is classic red-baiting, right? And it likely confirms my initial claim that the linking of Keynes with central planning was a type of red baiting.

And then you decide to go ad hominem with the claim that my perspective is based on "personal hysteria" (this term raises very interesting questions of subtext but I won't do into that!) rather than address my substantive points.