Three important “essays in persuasion” on the proper economic role of the state: 1925-1926

Continued high unemployment and the high-interest rate policy associated with the return to gold at par forced Keynes to elaborate on his increas­ingly radical vision of political economy in a series of articles published in 1925 and 1926.

"The End of Laissez-Faire" was first delivered as the prestigious Sidney Ball Lecture at Oxford in November 1924, not long after the debate over "Does Unemployment Need a Drastic Remedy?" The general topic is the total inadequacy of the "individualism and laissez-faire" associated with classical theory as a "disposition towards public policy" in the postwar era (CW 9, p. 272). In this context, laissez-faire stands for severe limitations on government domestic economic intervention, free trade (which he supported until the end of the 1920s), and free capital flows in the inter­national sector (which he always opposed) in the context of the gold standard.

Three important “essays in persuasion” 71 unleashed a diatribe against the use of the associated theory of govern­ment policy under the conditions of modern capitalism.

The essay is an all-out attack on classical theory - the theoretical foun­dation of laissez-faire policy - built on a scathing criticism of its method­ology. In sharp contrast with the dominant positivist methodology used in both classical theory and today's economics profession, Keynes insisted that the realism and completeness of the assumption set that is the foundation of a theory is a crucial determinant of the empirical validity of its derived hypotheses. And he showed that classical theory was built on an assumption set that was in sharp conflict with the "facts" that described the interwar British economy. On the opening page of The General Theory, before he did any­thing else, Keynes made this core methodological point. It is intended to frame his project.

I shall argue that the postulates of the classical theory are applicable to a special case only and not to the general case, the situation which it assumes being a limiting point of the possible positions of equilib­rium. Moreover, the characteristics of the special case assumed by the classical theory happen not to be the those of the economic society in which we actually live, with the result that its teaching is misleading and disastrous if we attempt to apply it to the facts of experience.

(CW 7, p. 3)

Though the conventional wisdom has it that Keynes did not think much about competition and generally accepted the assumption set of perfect competition, the truth is quite the opposite. One important part of Keynes's attack here focused on the theory of "perfect competition." He argued that this theory fails to consider the destructive dimensions of intense com­petition, especially under conditions of chronic excess capacity such as existed in the staple export industries in this era.

Keynes attributed the benign view of intense competition to the emer­gence of a complex set of developments in politics, philosophy, and eco­nomics in the eighteenth and nineteenth centuries. Among these were the undeniable failures of state economic interventions and the economic success of private initiative. He noted, "Almost everything which the State did in the eighteenth century in excess of its minimum functions was, or seemed, injurious or unsuccessful." Thus, it appeared that "material pro­gress between 1750 and 1850 came from individual initiative, and owed almost nothing to the directive influence of organised society as a whole"

(CW 9, p. 275).² The increasing influence of Darwin's theory of evolu­tion reinforced belief in laissez-faire. "The economists were teaching that wealth, commerce, and machinery were the children of competition - that free competition built London. But the Darwinians could go one better than that - free competition had built man" (CW 9, p. 276). These historical developments helped explain why "we feel such a strong bias in favour of laissez-faire," and why there had been such strong resistance to Keynes's recent policy proposals in support of "state action to regulate the value of money, [and] the course of investment" (CW 9, p. 277).

A key reason for this unfortunate situation lay in the misuse or misunderstanding of the methodology appropriate to economics. It is reasonable, Keynes said, for economists to begin their analysis with an assumption set that does not fully reflect in a realistic way all aspects of the economy they wish to study or incorporate all of the key "facts" about it.

Keynes began his analysis with the theory of competition because it is a centerpiece of conservative thinking and, he argued, because the theory of perfect competition that is the sine qua non of laissez-faire theory and policy is fatally flawed. Its flaws destroy the claims to efficiency of dis­equilibrium dynamics in free-market economies, a point often referred to here in part because it is rarely referred to in more traditional accounts of Keynes's economics. The concept of competition used in classical theory assumes that:

there must be no mercy or protection for those who embark their cap­ital or their labour in the wrong direction. It is a method of bringing the most successful profit-makers to the top by a ruthless struggle for survival, which selects the most efficient by the bankruptcy of the less efficient. It does not count the cost of the struggle, but only looks to the benefits of the final result, which are assumed to be permanent.

(CW 9, pp. 282-283, emphasis added)

Orthodox theory requires the assumption of an ongoing process of "ruthless" competition, but it incorporates only one of the two key dimensions of the competitive struggle - the benevolent state of its claimed final equilibrium position. It ignores competition as a perpetual process that has destructive as well as constructive dimensions.

Three important “essays in persuasion” 73 the cost of the struggle," Keynes said. Keynes here implicitly allied him­self with Karl Marx, who believed that competition had both positive and negative dimensions, the latter of which create the economic crises and depressions observed in the historical record. He also prefigured Joseph Schumpeter in this regard. Schumpeter emphasized capitalism's endogen­ously generated "gales of creative destruction."⁴

Moreover, Keynes continued, the wonderful orthodox conclusions about laissez-faire are based on "an incomplete hypothesis introduced, presumably for the sake of simplicity... [that] depends on a variety of unreal assumptions" (CW 9, p. 284). He began by arguing that ortho­doxy requires two general assumptions: that "the processes of production and consumption are in no way organic" (CW 9, p. 284); and that "there exists a sufficient foreknowledge of conditions and requirements, and that there are adequate opportunities of obtaining this foreknowledge" (CW 9, p. 284). The first assumption refers to the organic-atomistic debate stressed in the Treatise on Probability and continued by interpreters of Keynes even today. The second refers to the axiomatic elimination of fundamental or "Keynesian" uncertainty from orthodox theory. Of course, by the time he published The General Theory, fundamental uncertainty had become a cornerstone of his macro theory.

Keynes then listed six important conditions that had to be omitted from the orthodox assumption set in order to arrive at its preordained economic and policy conclusions. These crucial omissions, he argued, rendered the derived hypotheses from classical theory useless. Good economists, he said, reserve for a later stage of their argument the inclusion of the following important assumptions needed to generate a usable theory - but they must eventually include them or their theory cannot provide useful guidance to policy-makers:

(1) when the efficient units of production are large relative to the units of consumption, (2) when overhead costs or joint costs are present,

(3) when internal economies tend to the aggregation of production,

(4) when the time required for adjustments is long, (5) when ignorance prevails over knowledge, and (6) when monopolies and combination interfere with equality in bargaining - they reserve, that is to say, for a later stage of their analysis the actual facts.

(CW 9, pp. 284-285)

The first, third, and sixth conditions deal with the effects of large econ­omies of scale in production relative to the size of the market as a pre­condition for oligopoly and monopoly and to the damage these cause to classical theory. The fourth and fifth conditions point to problems caused by the existence of fundamental - later Keynesian - uncertainty. If the assumption set is expanded to include these important "actual facts," orthodox laissez-faire conclusions cannot possibly be sustained.⁵

But this is not the whole problem. We must now add to the analysis the costs of the destructive dimensions of the disequilibrium dynamics of the competitive process. As we have seen, Keynes had already devoted considerable effort to an attack on the disequilibrium dynamics used by classical economists to defend the return to gold at par. In this essay, he added a powerful new weapon to this war on orthodoxy. To make his point, he referred to a Darwinian story about competition among giraffes for access to leaves at the top of trees. We must "bring into the calcula­tion the cost and character of the competitive struggle itself, and the ten­dency for wealth to be distributed where it is not appreciated" (CW 9, p. 285). We cannot leave out of our cost-benefit calculations, he insisted, the "sufferings" of those defeated in the struggle "who are starved out," or the loss of the productive resources destroyed in the process (for example, in the staple export industries), or the maldistribution of income and wealth that results (the "overfeeding" of the winners), or the "evil look of anxiety" on the faces of the losers, or the "struggling greediness" of the winners (CW 9, p. 285).

Keynes argued that if we take all of these important dimensions of real-world competition - including uncertainty about the future, econ­omies of scale (which were growing rapidly), the increasing market power of monopolies and oligopolies, the large costs or losses involved in disequilibrium processes (including the plight of the poor and unemployed), and the maldistribution of income and wealth - it is impossible to make a convincing argument in support of laissez-faire in the current era.

Keynes believed that a key reason as to why classical theory had become the conventional wisdom among elites in spite of its obvious flaws was that it reflected the perceived material interests of ruling elites. Individualism and laissez-faire "could not... have secured their lasting hold over the conduct of public affairs, if it had not been for their con­formity with the needs and wishes of the business world of the day" (CW 9, p. 286).

Keynes summarized his general perspective on laissez-faire as follows:

It is not true that individuals possess a prescriptive "natural liberty" in their economic activities. There is no "compact" conferring perpetual rights on those who Have or those who Acquire. The world is not so governed from above that private and social interest always coincide. It is not so managed here below that in practice they coincide. It is not a correct deduction from the principles of economics that enlightened self-interest always operates in the public interest. Nor is it true that self-interest generally is enlightened; more often individuals acting separately to promote their own ends are too ignorant or too weak to attain even these. Experience does not show that individuals, when

Three important “essays in persuasion” 75 they make up a social unit, are always less clear-sighted than when they act separately.

(CW 9, pp. 287-288, emphasis in original)

Therefore, the central task of the moment is:

to determine what the State ought to take upon itself to direct by the public wisdom, and what it ought to leave to individual exertion... Perhaps the chief task of economists at this hour is to distinguish afresh the Agenda of government from the Non-Agenda; and the com­panion task of politics is to devise forms of government within a dem­ocracy which shall be capable of accomplishing the Agenda.

(CW 9, p. 288)

Keynes first addressed the latter question: what are the appropriate insti­tutional forms in a democracy for the creation and implementation of an unprecedented degree of government economic influence and control in a capitalist system? He believed that the institutions that will design and implement the details of economic planning must be free of political interference in their day-to-day operations. These should be the exclusive province of experts and technicians. But the general objectives and relative priorities of planning are to be under democratic political control, the sole province of the elected authorities. "Semi-autonomy within the state" - as in Britain's "public corporations" - is the key concept here.

I believe that in many cases the ideal size for the unit of control and organisation lies somewhere between the individual and the modern State. I suggest, therefore, that progress lies in the growth and the rec­ognition of semi-a utonomous bodies within the State - bodies whose cri­terion of action within their own field is solely the public good as they understand it, and from whose deliberations motives of private advantage are excluded, though some place it may still be necessary to leave, until the ambit of men's altruism grows wider, to the separate advantage of particular groups, classes, of faculties - bodies which in the ordinary course of affairs are mainly autonomous within their prescribed limitations, but are subject in the last resort to Parliament.

I propose a return, it might be said, towards medieval conceptions of separate autonomies. But, in England at any rate, [public] corporations are a mode of government which has never ceased to be important and is sympathetic to our institutions. It is easy to give examples, from what already exists, of separate autonomies which have attained or are approaching the mode I designate - the universities, the Bank of England, the Port of London Authority, even perhaps the railway companies. In Germany there are doubtless analogous instances.

(CW 9, pp. 288-289, emphasis added)⁶

Keynes then argued that an increasing percentage of the country's largest and most important private economic institutions were evolving toward a status that is, or could easily be made to be, equivalent for planning purposes to that of a public corporation. Such companies are very large, are in important industries, often act in coordination with other large firms to influence if not control their markets, and operate independently of their stockholders - for example, "a big railway or big public utility, but also a big bank or insurance company" (CW 9, p. 289). A "public cor­poration" was a corporation under the ultimate control of Parliament but free to operate as its management believed appropriate in its normal day- to-day operations. Public corporations had grown to be quite important by the mid-1920s. Keynes believed that "the public concern might become the typical unit of industrial organization" in Britain, an eventuality about which he was quite positive (Skidelsky 1992, p. 267, emphasis added). The public corporation became a cornerstone of the new political economy he envisioned for Britain.

Keynes believed that "a new partnership had to be established between the government and the private sector to match the growing corporatism of industry" (Skidelsky 1992, p. 231). Keynes would have more to say in support of corporatism soon, but here he called attention to:

the trend of joint stock institutions, when they have reached a certain age and size, to approximate to the status of public corporations rather than individualistic private enterprises. One of the most interesting and unnoticed developments of recent decades has been the tendency of big enterprise to socialize itself. A point arrives in the growth of a big institution - particularly a big railway or big public utility, but also a big bank or a big insurance company - at which... the shareholders, are almost entirely disassociated from the management, with the result that the direct personal interest of the latter in the making of profit becomes quite secondary [and] the direct interest of the man­agement often consists in avoiding criticism from the public and from the customers of the concern. This is particularly the case if their great size or semi-monopolistic position renders them conspicuous in the public eye and vulnerable to public attack.

(CW 9, p. 290)

Given the dominance of giant firms operating cooperatively to avoid destabilizing competition, a vast new wave of industry nationalization was not a precondition for effective national economic planning, Keynes argued. His approach to the issue of nationalization was always prag­matic and case by case. He believed there was still a good case for nation­alizing "many big undertakings, particularly public utilities enterprises and other businesses requiring a large fixed capital" (CW 9, p. 290). But he was opposed to an ideologically driven commitment to the creation

Three important “essays in persuasion” 77 of a detailed central plan based on a general nationalization of the entire economy, one that gave central planners quantitative control over all microeconomic aspects of accumulation, production, and distribution as envisioned in what Keynes called the "doctrinaire State Socialism" of the Labour Party.

Once the more macro-oriented decisions - such as the determination of national income, the levels of investment and saving, the proportion of savings invested at home versus abroad, and the allocation of invest­ment across broad industrial categories - were under government control, there would be no reason to nationalize most firms. Public corporations and private firms in consultation with and under the ultimate control of government planners could then make the more detailed micro-oriented decisions.⁷ Note how the opening sentence suggests Keynes is a socialist speaking to other socialists.

The battle of Socialism against unlimited private profit is [already] being won in detail hour by hour... We must take full advantage of the natural tendencies of the day, and we must probably prefer semi- autonomous corporations to organs of the central government for which ministers of State are directly responsible. I criticize doctrin­aire State Socialism, not because it seeks to engage men's altruistic impulses in the service of society, or because it departs from laissez- faire, or because it takes away from man's natural liberty to make a million, or because it has the courage for bold experiments. All these things I applaud. I criticize it because it misses the significance of what is actually happening.

(CW 9, p. 290)

Keynes would soon (1927) present data to support the assertion that the sum total of the capital controlled by socialized, semi-socialized, state- regulated, not-for-profit, and cooperative enterprises was on the order of "two-thirds of the total capital of large-scale enterprises in this country" (CW 27, p. 352, emphasis added). Thus, with two-thirds of large-scale cap­ital already under public, semi-public, or not-for-profit control, and with important segments of private industry organized as oligopolies that could be induced or forced to cooperate with state economic planners, effective state regulation of the main contours of economic life was already realis­tically within reach.

Keynes's main example of important economic problems that require a collective solution related to saving and investment. He argued that the broad outlines of the saving and investment decisions of the commu­nity would have to come under central control, as would the amount of savings allowed to flow abroad.

I believe that some coordinated act of intelligent judgement is required as to the scale on which it is desirable that the community as a whole should save, the scale on which these savings should go abroad in the form of foreign investments, and whether the present organisation of the investment market distributes savings along the most nationally productive lines.

(CW 9, p. 292)

These were extraordinarily powerful economic functions to propose to allo­cate to the British state in the 1920s. The state was to choose: the percentage of national income to be saved; the balance between foreign and domestic financial investment (a cause he was obsessed with, one that necessitated the use of capital controls); the allocation of domestic investment across competing uses broadly defined; and, by implication, the level of national income itself. And, as we have seen, Keynes believed that the government should itself organize and finance a long-term program of capital accumu­lation whose main goal would be to sustain full employment.

This really was heresy. Keynes understood that, however thoughtful and academic his tone, he was calling for a revolution in the organization of British economic life, in the power relations between the central govern­ment and the private sector, and in the relation between the state and the capitalist class. He understood as well that his proposals would be vehe­mently opposed by the most powerful elements of British society - espe­cially by the City and the rentiers it represented - as radically irresponsible and the first step towards Bolshevism.

It has often been observed that Keynes's overarching policy objective in the interwar years was to "save" the capitalist economic system in an era of anti-capitalist revolution. Logically, one cannot agree or disagree with this claim until a definition of capitalism is provided. However, as noted in the Introduction, by the definition of capitalism commonly used in eco­nomic theory this claim is incorrect. What Keynes wanted to preserve was an economic system that would sustain Britain's existing social, cultural, and political way of life. Looking over his writings on economic and social questions, it is clear that Keynes was enthusiastic about changes in the structure and organization of the capitalism of his day that were so radical they would shock liberals and social democrats in the West if proposed today. In 1926, Keynes wrote:

I am sure that I am less conservative than the average Labour voter; I fancy that I have played in my mind with the possibilities of greater social changes than come within the present philosophies of [socialists] Mr. Sidney Webb, Mr. Thomas, or Mr. Wheatley. The republic of my imagination lies to the extreme left of celestial space.

(CW 9, p. 309)

But he remained unalterably opposed to any change that would create impediments to the existence of democracy and of the way of life of the British intellectual and cultural, though not the economic, elite. In "The End of Laissez-Faire," Keynes clarified his position on this central issue. Note that he used an elastic definition of capitalism here - any economic system that depended heavily on material incentives is, apparently, capit­alistic enough for Keynes. Skidelsky said that Keynes "defines capitalism as a spirit, not as a social system" (Skidelsky 1992, p. 236). In interpreting the following quotation from Keynes, keep in mind that communism and fascism were on the march.

These reflections have been directed towards possible improvements in the technique of modern capitalism by the agency of collective action. There is nothing in them which is seriously incompatible with what seems to me to be the essential characteristic of capitalism, namely the dependence upon an intense appeal to the money-making and money­loving instincts of individuals as the main motive force of the economic machine... [T]he fiercest contests and the most deeply felt divisions of opinion [on the proper economic role of the state] are likely to be waged. not round technical questions, where the arguments on either side are mainly economic, but round those which, for want of better words, may be called psychological or, perhaps, moral. Many people, who are really objecting to capitalism as a way of life, argue as though they were objecting to it on the grounds of its inefficiency in obtaining its own objectives. Contrariwise, devotees of capitalism are often unduly conservative, and reject reforms in its technique. which might really strengthen and preserve it, for fear that they may prove to be first steps away from capitalism itself. Nevertheless, a time may be coming when we shall get clearer than at present as to when we are talking about capitalism as an efficient or inefficient tech­nique, and when we are talking about it as desirable or objectionable in and of itself. For my part I think that capitalism [defined here as any economy that relies heavily on material incentives], 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.

(CW 9, p. 293, emphasis added)

Ironically, one of capitalism's most socially and morally objectionable characteristics to Keynes is also its defining economic characteristic - dependence on the love of money as its main motive force.

In "Liberalism and Labour" (1926), Keynes turned again to this question of the distinction between capitalism as an economic system and capit­alism as a way of life.

The political problem of mankind is to combine three things: economic efficiency, social justice, and individual liberty. The first needs criti­cism, precaution, and technical knowledge; the second, an unselfish and enthusiastic spirit, which loves the ordinary man; the third, tol­erance, breadth, appreciation of the excellencies of variety and inde­pendence, which prefers, above all else, unhindered opportunity to the exceptional and to the aspiring.

(CW 9, p. 311)

The source of efficiency, of technical expertise and constructive criticism, would be provided by Keynes, his close associates in the Liberal Party, the non-communist wing of the Labour Party ("educated, humane, social­istic reformers"), and the left wing of the Tories ("educated, humane, Conservative free traders" (CW 9, p. 300). The Labour Party would pro­vide the thirst for social justice and the love of the ordinary man. Though it is not clear to me that Keynes himself ever was close friends with an "ordinary man," he did support what he considered to be the responsible segment of the union movement and had many influential acolytes in the Labour Party (Durbin 1985).

The third point underlines Keynes's emphasis on the non-technical, non-economic aspects of the great problems of the age. It embodies his insistence that he would not support any economic transformation that threatened Britain's cherished "way of life." "Appreciation of the excel­lencies of variety and independence" and "Above all else, unhindered opportunity to the exceptional and to the aspiring" were non-negotiable for Keynes. The "exceptional" and the "aspiring," it is reasonable to pre­sume, included Keynes and his friends and associates in the worlds of education, culture, and politics.

"Am I A Liberal?" published in August 1925 after the return to the gold standard, is devoted primarily to an analysis of the strengths and weaknesses of the three major parties as potential political vehicles for the implementation of his proposed revolution in the economic role of the state. All three are found wanting, though for different reasons. He concluded that an alliance between the Labour and Liberal parties was most promising, a hoary proposition in Liberal Party thinking. The Labour Party would provide the "heart" of the alliance as well as the bulk of its electoral strength. The Liberal Party would contribute what Keynes believed it to be so rich in - intelligence, experience, and coolness of tem­perament; it was the party best able, in his view, to provide the requisite analytical skills and the emotional detachment needed to resist what he

Three important “essays in persuasion” 81 saw as Labour's propensity to turn to dangerous electoral appeals to workers' emotions and to foment class conflict.

Most important for our purposes, the essay underscored Keynes's core belief that the West had entered a completely new historical era in which the institutions and policies currently used to regulate economic life were totally inappropriate. He associated himself with the American institutionalist economist John R. Commons's view that Europe and America were currently in transition to a new historical epoch in which the main task was to create a new "regime which deliberately aims at con­trolling and directing economic forces." Commons "distinguishes three epochs," Keynes told us, "three economic orders, upon the third of which we are entering."

The first is the era of scarcity... In such a period "there is the min­imum of individual liberty and the maximum of communistic, feu- dalistic or governmental control through physical coercion." This was. the normal economic state of the world up to (say) the fif­teenth or sixteenth century. Next comes the era of abundance. "In a period of abundance there is the maximum of individual liberty, the minimum of coercive control through government, and individual bargaining takes the place of rationing.". [I]n the nineteenth cen­tury this epoch culminated gloriously in the victories of laissez-faire and historic Liberalism. It is not surprising or discreditable that the veterans of the party cast backward glances on that easier age. But we are now entering on a third era, which Professor Commons calls the period of stabilisation, and truly characterises as "the actual alternative to Marx's communism." In this period, he said, "there is a diminution of individual liberty, enforced in part by governmental sanctions, but mainly by economic sanctions through concerted actions, whether secret, semi-open, open, or arbitrational, of asso­ciations, corporations, unions, and other collective movements..." The abuses of this epoch in the realms of government are Fascism on the one side and Bolshevism on the other. [State] Socialism offers no middle course. 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. I suggest, nevertheless, that the true destiny of the New Liberalism is to seek their solution.

(CW 9, pp. 304-305, emphasis added)

The central message in these three essays is unmistakable. Laissez-faire as a defensible economic theory and as a guide to policy is dead. Continued support for its domestic and international policies will reproduce eco­nomic stagnation and foster social and political unrest, and perhaps even revolution in Britain. The new epoch requires a qualitative increase in the

power of the state to "control and direct economic forces," a "middle-way" revolution in economic and political organization that avoids the stupidity of laissez-faire as well as the political dangers of fascism and communism. "Capitalism... is a technique which, from having been experimental is now perhaps in danger of becoming obsolescent" (CW 19-I, p. 441), and its reliance on "money-loving" as the motive force of economics is mor­ally repugnant.⁸ What he is determined to preserve is the "way of life" that values democracy and intellectual, political, and artistic meritocracy. Fascism and Bolshevism must be rejected as models, but not because they are inherently economically inefficient. Keynes thought they had the potential to become very economically efficient. They had to be rejected because they are authoritarian and incompatible with personal freedom.⁹

"The next step forward," Keynes concluded, "must come, not from pol­itical agitation or from premature experiments, but from thought" (CW 9, p. 294). To the Liberals he argued that while there could be no blueprint for planning at this embryonic stage, the party must think through as care­fully as possible its approach to the central issue of the economic role of the state in the new "epoch." "A party programme must be developed in its details, day by day, under the pressure and stimulus of actual events" (CW 9, p. 306). In July 1926, Lloyd George put up the money to finance the "Liberal Industrial Inquiry," precisely the kind of careful, well-researched policy study Keynes thought necessary. He worked hard on the project in 1926-1927. It resulted in the publication of Britain's Industrial Future (the Liberal Party's "Yellow Book") in early 1928, which served as the Liberal Party's election platform.

Notes

1 Keynes gave two lectures in Moscow in September 1925 that are in the same cat­egory; they follow fairly closely the themes of "Am I a Liberal?" (see CW 19-I, pp.434-442).

2 This statement is in fact grossly inaccurate. Britain's crucial cotton industry was built on its imperial system. See, for example, Sven Beckert (2015).

3 Keynes is not arguing against the necessity of abstraction in economic theory. But he does claim that the assumption set must eventually incorporate, even if in simplified form, all of the relevant characteristics of the aspect of the economy under investigation. He consistently supported the fundamental prin­ciple that the realism of assumptions matters to the assessment of the usefulness or empirical validity of a theory, a proposition contested by modern neoclassical economists who subscribe to Friedman's positivism. See Crotty (2013) for an analysis and evaluation of this debate.

4 For the core of Schumpeter's theory of competition, see Schumpeter (1942, chapters6-8).

5 Keynes's analysis here prefigures much of the modern criticism of Walrasian general equilibrium theory.

6 See the Appendix to Chapter 8 on the importance of "public corporations" in this period.

7 Moggridge explained Keynes's views on these matters as follows. "Here there were questions of whether the Post Office or the telephone system should be run as a department of state under a Minister or as a public corporation, ultim­ately subject to Parliament but autonomous in its day-to-day operations. Similar considerations arose in connection with municipal enterprises. In all these cases, Keynes came down on the side of autonomy and professionalism, even at the cost of some centralisation, to provide varied, wide-ranging careers for the employees. Under a related heading came the matter of the organisation of the private sector, where he observed a tendency towards large units of operation, the separation of ownership from control, cartels, trade agreements and mon­opolies. Here Keynes put his faith in greater publicity in general and regula­tion in particular to protect investors and the general public. He was not averse to bigness itself: in many cases he argued it was inevitable" (Moggridge 1992, pp.456-457).

8 In 1925, in a statement he would often repeat, Keynes denounced the love of money as immoral, even though he considered the pursuit of money to be a defining characteristic of capitalism. "[I]t seems clearer to me every day that the moral problem of our age is concerned with the love of money, with the habitual appeal to the money motive in nine-tenths of the activities of life, with... the social approbation of money as the measure of constructive success, and with the social appeal to the hoarding instinct as the foundation of the necessary pro­vision for the family and for the future" (CW 9, pp. 268-269).

9 In September, he observed in Moscow that the "experimental technique [of Leninism] is necessarily a matter of most high interest. We in the West will watch what you do with sympathy and lively attention, in the hope that we may find something which we can learn from you" (CW 19-I, pp. 441-442).

7