Speech Professor Giorgio La Malfa at the Accademia Nazionale del Lincei 23 May 2019
In a lecture given in Dublin in the spring of 1933, while the drafting of the General Theory was in full progress, Keynes observed that: "The decadent capitalism, international but individualistic, into whose hands we found ourselves after the war, is not a great success . It's not smart, it's not beautiful, it's not fair, it's not virtuous, and it doesn't even deliver the promised results." In fact, the surrounding reality amply justified this judgment. After the crisis of '29, unemployment in England and the United States had exceeded 25 per cent. In central London the lines of unemployed workers could be seen waiting for a bowl of soup from the public charity.
In many quarters it was believed that we were facing the final crisis of capitalism advocated by Marxists. Keynes added that in the search for an effective answer to the economic problem - I quote - "one country after another abandons the general assumptions about the fundamental characteristics of economic society". He was referring to fascism in Italy, communism in Russia and now also Germany that had just fallen into Hitler's hands. A few months after that conference, Keynes addressed an open letter to the new president of the United States, Roosevelt, in which he wrote:
“Dear Mr. President, you have made yourself the guardian of those who, in every country, seek to heal the ills of our condition through rational experimentation within the framework of the existing social system.
If you fail, the change on rational foundations will be seriously jeopardized all over the world and only orthodoxy and revolution will remain on the battlefield.
But if you succeed, bold new methods will be tried everywhere, and we may see your election date as the first chapter of a new economic era.”
This is the political background of the General Theory, which is Keynes's contribution to the struggle to defend the existing social system, making it economically successful. But in itself the General Theory was and is a book of economic theory, indeed of high economic theory. In a conference for the BBC in November 1934, Keynes clarified the terms of the problem in a masterly and still relevant way. He explained that economists were divided – as they still are today – into two great schools of thought, separated by a very deep abyss. On the one hand there are those - he had written - who think that the system in which we live, capitalism, regulates itself "albeit with creaks, groans and jerks". On the other hand, there are those who think that the system alone cannot make it and that state intervention is needed to ensure full employment in the first place, but also greater social justice. The former - he explained - are stronger because they have the economic science of the last 100 years behind them. The heretics, among whom he himself ranked, had common sense on their side, but if they had not succeeded in undermining the theoretical framework of orthodoxy, the game would have been lost.
The General Theory is Keynes' theoretical assault on the citadel of orthodoxy. He would write to George Bernard Shaw on January 1, 1935. “I am writing a book on economic theory which, I believe, will revolutionize to a great extent the way the world thinks about economic problems… I do not expect you or anyone else at the moment to believe it, but for my part I have the absolute moral certainty of it.” This, Mr. President, is how the underlying political inspiration – to save capitalism and with it liberal democracy – is connected to the sophisticated analysis of the General Theory.
In 1989, in the aftermath of the fall of the Berlin Wall, the great French historian Francois Furet observed that with the end of communism for the first time in 150 years, political democracy and the market system had won the challenge. The observation was correct, but the economic system that had won the challenge was not the capitalism of nineteenth-century laissez-faire, but the profoundly reformed capitalism of the Beveridge plan for social security, of trade union struggles around working conditions, Keynesians for full employment, of the Bretton Woods system that Keynes had helped design. These were the ingredients of the thirty glorious post-war years that allowed Western countries to win the challenge.
But in a certain sense the disappearance of the alternative has allowed the old capitalism to raise its head again. The market without correctives has once again become the dominus. And a crisis like that of 2008 returned in 29, from which Europe has not yet fully recovered and Italy even less.
Today we need a corrective to the market system. Can we tolerate such high unemployment? Can we accept an impoverishment of the middle classes and a frightening concentration of wealth? Can we address the technological revolution that can lead to further problems of wealth concentration and unemployment without collective action? Can we accept the disappearance of the ideals of international collaboration on which the world was rebuilt after the Second World War? In short, can we ignore the ethical aspects of the economy?
This is why Keynes is still needed to ask these questions and to stimulate the search for new answers to new problems. The idea that the Keynesian recipe is always and only more public spending must be debunked. Pierluigi Ciocca has written several times that Keynes was hostile to public spending as such. He supported the obligation to balance the current part of the budget, and at the same time the preparation of investment programs to be used when indispensable. And Cristina Marcuzzo has just quoted her speech from 1943 in which she said that competence in public management must be ensured.
In this regard, a letter that Keynes wrote to Friedrich Hayek in 44, after reading his The Road to Serfdom, all centered on the totalitarian danger inherent in public intervention, is of great importance. Keynes writes to him that he totally agrees with this concern, but notes that Hayek himself admits that some tasks still fall to the state. He adds that he believes that many more must be attributed but – he explains – we must ensure that those who make these interventions have the same diffidence towards public intervention as Hayek towards the excesses of public action.
Here, this is still the crucial point today, especially in Italy which needs to get back on track, to resume a path of growth interrupted for too many years, which sees unacceptable youth unemployment and a condition of the South and which undergoes a progressive deterioration of the climate of social coexistence for this very reason. Mr President, isn't this what we need today? An authoritative presence of the public hand that integrates or corrects the market in its spontaneous determinations, entrusted to a ruling class that knows the dangers of an excess of public action and that administers these interventions with competence and shrewdness. This I believe is the new wisdom for a new era that Keynes spoke of. And this is the contribution I have tried to give to the definition of him.
