In August 1925, John Maynard Keynes addressed the Liberal Party's Summer School. His presentation divided the pressing questions of the day into five categories--peace, government, sex, drugs, and economics--and each was discussed in turn. When Keynes reached the last category, containing the questions "on which I am most qualified to speak," he probably surprised those assembled by structuring the commentary around an analysis he attributed to John R. Commons (Keynes 1972, 303-306). (1)
Keynes presented a lecture the following month in Moscow on "The Economic Transition in England," and again the core of the talk came from Commons's analysis (Keynes 1981, 438-442). What did Commons offer that Keynes found of vital importance to the major economic questions of the day? How can a familiarity with Commons's writings help inform readers of Keynes's two lectures? And, how did Keynes learn of Commons's analysis? Exploring the first question spotlights lesser-known aspects of Commons's scholarship and has relevance for the contemporary development of "evolutionary Keynesianism;" addressing the second clarifies ambiguities in Keynes's lectures; and providing an answer to the third resolves an intriguing puzzle in the history of economic thought.
Scarcity, Abundance and Stabilization
Keynes's August 1925 address--entitled "Am I a Liberal?"--identified Commons as "an eminent American economist" and among the first to recognize "we are now living" in the early days of a worldwide transition in economic eras. In particular, Keynes reported that Commons divides economic history into three epochs (Keynes 1972, 303-306).
The era of scarcity extended from the earliest days of human civilization until about the late eighteenth century. Its phases included tribal communalism, feudalism, and mercantilism. The period was characterized by shortages of the material means of life--"whether due to inefficiency or to violence, war, custom, or superstition"--and minimal individual liberty (Keynes 1972, 304).
The era of abundance followed and lasted until the late nineteenth century. Its abundance was the product of the industrial revolution and the emergence of factory production. The period was also characterized by the rise of individualism and laissez faire.
The era of stabilization, the latest epoch, emerged because individual liberty was now constrained through collective action, initiated by either the public or private sectors. Such constraints emerged as a way to control economic booms and busts at the national level and to address labor-management disputes and other conflicts at the enterprise and industry levels. Stabilization took various forms across the globe, including Italian fascism and Russian communism; in the United States and England, it appeared via business combinations, industry-wide collective bargaining, and government regulation.
The shift to an era of stabilization in the Anglo-American world was far from a settled matter, Keynes stressed. "The transition from economic anarchy to a regime which deliberately aims at controlling and directing economic forces in the interests of social justice and social stability, will present enormous difficulties both technical and political," he warned. Addressing such challenges was Keynes's preoccupation, and he told his audience that this should also be the aim of the Liberal Party: "We have to invent new wisdom for a new age" (Keynes 1972, 305-306).
Saving Capitalism by Making It Good
In John R. Commons's autobiography, he writes that his goal was to "save capitalism by making it good" (Commons 1934a, 143); a similar sentiment runs through Keynes's "Am I a Liberal?" and "The Economic Transition in England." While Keynes's two essays--which are devoid of endnotes and bibliographical references are critical of "individualistic capitalism," they also contain his belief that socialism offers no constructive alternative to reformed capitalism. The problem with socialism, however, is never explained. In both essays, Keynes writes only that socialism "is sprung from the presuppositions of the era of Abundance, just as much as laissez-faire individualism and the free play of economic forces" (Keynes 1972, 304; 1981,439).
Keynes's brief statement about socialism acquires some clarity when considered in conjunction with an article by Commons that appeared in The Atlantic Monthly late in 1925 under the title "Marx Today: Capitalism and Socialism." In the article, Commons maintains that followers of Adam Smith and Karl Marx were united by an interest in liberating individuals, a faith in the productive power of industrial machinery, and the belief that all economic instability and conflict could be permanently eradicated with the right social system-a capitalism of perfectly free competition in the case of the former and an untainted socialism in the case of the latter (Commons 1925a, 690-693). It seems a good bet that the common ground Commons attributes to economic orthodoxy and Marx represents what Keynes had in mind with the phrase "the presuppositions of the era of Abundance." Commons's article fills the gaps in Keynes's argument, while the latter's lectures make it clear that Keynes was familiar with at least some of what Commons was writing on the subject.
Commons's article also helps explain what Keynes would find troubling about the presuppositions underlying socialism. The solution to human conflict in Smith and Marx is what Commons calls achievement of an "automatic harmony of interests." It is a notion Commons rejects: "This entire idealism of harmony of interests, whether under capitalism or under socialism, falls to the ground if we once recognize that social conflict has always been and always will be a fundamental fact in the progress of mankind" (Commons 1925a, 692)
Commons adds: "There has not been and never will be an automatic harmony of interests." There always will be new wants, a scarcity of premium-quality resources, and differences of opinion over social provisioning. (2) As a result, "[i]f harmony of interests is actually attained, it can be accomplished only as we go along, from day to day, dealing with each conflict as it arises, and settling it the best we know how" (Commons 1925a, 692). (3)
While Commons provides arguments that support Keynes's rejection of socialism, there is also evidence Keynes accepted this line of thinking. In a 1935 article for The New Republic, for example, Keynes divides economists into two camps. One includes those who believe that "the existing economic system is in the long run self-adjusting, though with creaks and groans and jerks, and interrupted by time-lags, outside interferences and mistakes." The other group rejects the idea that the system is "in any significant sense, self-adjusting." Keynes places Marxists in the self-adjusting camp (because they treat socialism as inevitable and believe capitalism "can not possibly work in practice") and aligns himself with those rejecting self-adjustment (Keynes 1935, 35-36). In short, the notion of an automatic harmony of interests is rejected. (4)
Business Cycles and Monetary Policy
Given Keynes's attention to a wide range of economic and social issues, it is understandable that he would find interest in Commons's analysis of the path of economic history. Still, he was, of course, chiefly a monetary economist. Commons, meanwhile, claimed no special expertise in banking, and told a committee of the U.S. Congress, "[m]y interest is mainly in labor" (Commons 1927a, 1075). This is indeed the way Commons is usually remembered, but there is more to the story.
A look at Commons's writings in the mid-1920s reveals that attention to labor problems led him to study business cycles, which eventually prompted explorations of macroeconomic questions relating to money and credit (see, for example, Commons 1925b). Thus, it is not surprising that Commons's "Marx Today" offers more than a broad discussion of economics--it also draws attention to monetary policy and to the role such policy played in establishment of the stabilization era.
In fact, Commons writes that "the most fundamental stabilization" in the United States has been credit and price-level stabilization achieved by the Federal Reserve. The banking system was not perfect, he admitted. Nevertheless, he considered "stabilization of credit, business and prices" vastly superior to leaving the system "to the accidents of demand and supply of gold" (Commons 1925a, 690). (5)
As Christopher J. Niggle has discussed in this journal, much of Keynes's attention in the early and mid-1920s focused on the need for price stability. In place of reliance upon the gold standard, which he considered a "barbarous relic," Keynes believed monetary authorities should act to stabilize "trade, prices and employment" (Keynes, quoted in Niggle 1993, 1265). This position is hinted at in both "The Economic Transition in England" and "Am I a Liberal?" In fact, in the latter, Keynes states that monetary policy is at the center of the struggle to fashion the stabilization era, and he adds, "[t]he most violent interferences with stability and with justice, to which the nineteenth century submitted in due satisfaction of the philosophy of Abundance, were precisely those which were brought about by changes in the price level" (Keynes 1972, 306). The similarities on monetary policy suggest that Keynes was drawn to Commons's ideas by an interest in economic matters that extended beyond stages of history. (6)
While Commons would probably have been flattered by the attention Keynes gave to his ideas on two continents, there is no mention of it in Commons's autobiography. Historians of economic thought, meanwhile, have been faced with a more intriguing question: How did Keynes learn of Commons's analysis?
A first guess would be that Commons sent Keynes a draft or pre-publication copy of "Marx Today." Although the article did not run in...