Zach Carter on the Life and Legacy of John Maynard Keynes (Ep. 110)

How Keynes became so influential—despite being so hard to pin down.

After reading Zach Carter’s intellectual biography of Keynes earlier this year, Tyler declared that the book would qualify “without reservation” as one of the best of the year. Tyler’s assessment proved common, as the book would soon become a New York Times bestseller and later be declared one of the ten best books of the year by Publishers Weekly. In the book, Carter not only traces Keynes’ intellectual achievements throughout his lifetime, but also shows how those ideas have lasted long after him, making him one of the most influential economists who’s ever lived.

Zach joined Tyler to discuss what Keynes got right — and wrong — about the Treaty of Versailles, how working in the India Office influenced his economic thinking, the seemingly strange paradox of his “liberal imperialism,” the elusive central message of The General Theory, the true extent of Keynes’ interest in eugenics, why he had a conservative streak, why Zach loves Samuel Delaney’s novel Nova, whether Bretton Woods was doomed to fail, the Enlightenment intuitions behind early defenses of the gold standard, what’s changed since Zach became a father, his next project, and more.

Watch the full conversation

Recorded October 29th, 2020

Read the full transcript

TYLER COWEN: Hello, everyone, and welcome back to Conversations with Tyler. Today I’m chatting with Zach Carter. He’s a senior reporter at the Huffington Post, but more importantly, this year, he published a new book, as biographer, called The Price of Peace: Money, Democracy, and the Life of John Maynard Keynes. Just last week, Publishers Weekly selected this book as one of its best 10 titles of the year. Zach, welcome.

ZACH CARTER: Thanks so much for having me, Tyler.

COWEN: Let’s start with a simple question. Wasn’t Keynes simply wrong about the Treaty of Versailles?

CARTER: Man, tough question out of the gate. I don’t think so, but of course, there are people who made this case over the years.

In his critique of the Treaty of Versailles, as an economic critique or a political critique, I think a few years after 1922, after the treaty had been signed, Keynes did a follow-up analysis called A Revision of the Treaty, which was basically 80,000 words of “I told you so.” He goes through the debt and resource numbers in detail and says, “Look, I was right.” I find that persuasive.

There’s a very prominent critique from the 1940s by the son of the translator for Clemenceau at Versailles which says Keynes is wrong about all the economic numbers, but I don’t find that persuasive. I don’t have it in front of me, so I can’t get into the exact details, but I don’t think so.

If you think about the Treaty of Versailles as a political document that sets the terms for international cooperation over the coming decade, the imposition of scarcity across not only Germany, but also Britain and the victorious Allies, through the refusal to wipe out debt and to impose de facto austerity on Germany through high reparations levies results in a lot of international discord. People see their money going to other countries, and it fuels nationalism and discontent.

I think he’s basically right about that, but do you not agree?

COWEN: Well, if we look at the numbers, it seems Germany never paid more than 2.5 percent of its GDP in a given year in terms of reparations, and that’s less than what Hitler asked Germans to pay for rearmament. So if Keynes had simply made a political argument, “Well, this is going to irritate the Germans politically,” but he made an economic argument that it’s impossible, and that seems entirely feasible.

There were plenty of countries back then 2.5 percent poorer than Germany, or more. Didn’t Keynes in fact lend some credence to the notion that Germany had been stabbed in the back by the Allied powers, by Britain’s most prominent intellectual endorsing the notion? He had somewhat of a political critique, but on the economics he was wrong.

CARTER: Well, you’re right that Germany never paid the reparations duties that were due, but that’s sort of inherent in the critique. If they were unaffordable, they weren’t going to pay them. Of course, by 1923, Germany is in a hyperinflation crisis, so I think the idea that Germany could afford to pay is tied up in the political circumstances of the day.

COWEN: But again, countries poorer than Germany didn’t have to hyperinflate, right? The Germans brought that upon themselves. Plenty of Eastern Europe was more than 2.5 percent poorer than Germany. They made various mistakes, but in terms of what it interjected into German politics, didn’t Keynes misread the situation, thinking that his message ultimately would be supporting German liberalism?

What turned out is that Europeans ended up more at each other’s throats. Again, on the economics, it just doesn’t seem that convincing. No one likes to pay 2.5 percent of GDP, but you go to the later 1920s — there’s the transfer-problem debate with Ohlin. Wasn’t Keynes wrong about that as well?

CARTER: Just to stick with the 2.5 percent — the task for Germany was not just paying money. It’s holding together a democratic coalition, so the politics of this are, I think, inseparable from the economic numbers.

When we talk about mistakes that the German government made in the 1920s, whether it’s up to hyperinflation or even later, clearly, there are a lot of mistakes. Into the late 1920s, Germany is deflating in a way that I think is wrong-headed, but particularly early on, the German government is trying to hold together a political coalition, and those political realities have to be taken into account.

You have people who are suffering, particularly at the very early days of the postwar treaty, like serious material suffering throughout Germany. People are literally starving to death, largely due to the Allied blockade, but also just because the war cost a lot of money and drained a lot of resources. So, if you want to get people to support democracy under those circumstances . . .

Remember, Germany is in literal revolt. They’re executing communists in 1919 and 1920. You’ve got to find some way to tell people, “Here is a better future for you. You do not need to turn to authoritarianism on the right or the left. We are going to provide you with things. We are not going to raise your taxes, and each of these political parties needs to have its own financial base.”

Could Germany have raised more taxes and shipped more money abroad? Yes, probably, but how much? I think Keynes is right. What was being asked of Germany was too much.

COWEN: If we think of Bertil Ohlin’s critique in 1929, he’s actually saying Keynes is oddly non-Keynesian. Ohlin is saying if you transfer the money abroad, the German mark will weaken. This will boost German exports. In what later became known as Keynesian open economy macro models, Germany gets back a lot of what it sent abroad. Probably not all of it, but quite a bit. Paul Samuelson thought Ohlin was correct. Was Keynes wrong about the transfer problem in the late ’20s?

CARTER: Oh, I’m much more sympathetic to this sort of broader critique that Keynes in 1919 is not Keynesian. He’s looking at these transfers as a very zero-sum game. What Germany ships abroad, it doesn’t get back.

There is a time problem here, though. Even he accepts this critique. It takes time for the money to come back to Germany. The money has to be lent back into the German economy by somebody. During the 1920s — I think later on, Keynes is pretty clear about this — the United States is lending money, not only to Germany but to Europe, and so long as that game keeps going, the cycle of funds is sustainable.

Of course, by the late 1920s, the United States stops lending money for various reasons. But right up into 1922, 1923, when you have the French government occupying the Rhine, there are political instabilities there that make the flow of funds pretty difficult. Those political tensions are occurring. They don’t just spring up in 1923. They’re there from the moment the treaty is signed.

COWEN: Early in his career, why was Keynes so keen to work in the India Office? He chose that.

CARTER: I don’t know if he was so keen. He really wanted to work in the Treasury Department, and it was sort of a disappointment to him. I think he’d come in second or third on his big exams at the end of his time at Cambridge. He’d wanted to be number one. He was recognized as this brilliant fellow, so I think he wanted to be at Treasury.

He viewed the India Office as a bit of a disappointment, but I think one of the things he liked about working there was the way he could . . . He did seem to take to looking at the currency situation.

He wrote a book. His first book is called Indian Currency and Finance, from 1912 or 1913. It’s his first real serious analysis of the gold standard and the way it works within the British Empire. I think he finds it intellectually engaging in certain respects, but it’s not as prestigious as being in Treasury, which is what he really wants, and he feels a little bit guilty about that sense of ambition.

His friends in Bloomsbury think that working for the government is this embarrassing sort of political thing to do. He should be pursuing art and aesthetics and writing and philosophy instead of government.

I don’t think he’s super happy at the India Office, but it is his introduction to the British bureaucracy, and I do think he enjoys being part of the British bureaucracy, and I do think he likes being a man of affairs who’s connected to the great problems of the day. I don’t think in the India Office he feels like he is attached to the grandest problems of the day. He feels like it’s a lesser-than kind of post.

COWEN: What do you think of the substance of Keynes’s work for the India Office?

CARTER: It’s interesting. [laughs] He has a lengthy report on — I haven’t reviewed this in years — he has a lengthy report on conditions after a type of recession in India where he says, essentially, the British government’s response has been rather lackadaisical and a lot of suffering has happened. You can see his superiors are like, “This is a little bit too much, can you tone it down?” And he does.

At this point in his life, he’s thinking about liberalism and internationalism. He thinks of the British Empire as this grand liberal enterprise that is bringing freedom and democracy and prosperity to the rest of the world. I think he views the relationship with India like everybody in Britain — it’s the essential British colony, economically, in terms of resources. I don’t think he ever really questions seriously what the substance of that relationship means, based on the economic relationships that he is analyzing.

He is looking at the India issue as a very technical and narrow issue, largely on how the gold standard operates and how India, not allowing the convertibility of gold within its borders, functions. It’s a narrow and technocratic analysis. I don’t think he’s focused on the big questions with India the way he would later be when he would be working in Treasury during the war.

COWEN: I think of the India Office as having been good for Keynes. It made him less conformist. But if you look at his writings on Malthus, he was obsessed with Malthus at the time. He talked about competition between the races. He was interested in eugenics. He has a lot of remarks about India that show a bigger-picture concern, but one that’s very non-egalitarian, so I view Keynes on India as decidedly anti-egalitarian. Would you agree with that?

CARTER: No. [laughs] I don’t have strong opinions.

COWEN: But he wants the British to rule them. He never entertains democracy for India, which was not that radical an idea then.

CARTER: I agree with that. Look, throughout his career, he views the British Empire as this sort of force of benevolence throughout the world. He thinks that being part of the British Empire is a way for people, from wherever they are, to participate in democracy and prosperity, and that is very much part of the liberal-imperialist conception of the time.

The idea that it’s not egalitarian — that’s where I think he’s confused about that. He’s just wrong, but he believes the way that he thinks about joining the British Empire. He believes that is an egalitarian thing to do, which imperialists across time have believed when they come from a progressive perspective. Of course, that’s often not true, and I think in the case of Britain and India, it’s not.

COWEN: In Indian Currency and Finance, Keynes shows this remarkable knowledge of numbers and statistics from India, which he had a phenomenal grasp on. So, he must have known the Indian growth rates under British rule were quite low, which has been confirmed by later research as one of the big problems with colonialism — not the only one.

My implicit mental model of Keynes, consistent with his interest in eugenics, is that he thought that India, on its own, was just intrinsically a slow-growth nation. They’d have a slow growth rate under the British, but they would do worse on their own. Do you think that’s the wrong implied mental model of how Keynes viewed this?

CARTER: I don’t know that it’s wrong. He clearly knows that something’s not quite right. Otherwise, he wouldn’t be studying the financial system in India, and India’s relationship with Britain under the gold standard, and the particular way that India, not having convertibility — it’s the basic subject of Indian Currency and Finance. So he does think that British rule can be improved.

But, yes, broadly, he’s a liberal imperialist. He thinks that Britain is bringing prosperity and freedom around the world. He thinks that if you join the British Empire, particularly at this stage of his life, then you are signing up to be led into the light.

On the main message of The General Theory

COWEN: I have at least 20 different friends who studied The General Theory, Keynes’s book from 1936, the big famous one. I ask them, “What’s the central message of The General Theory?” They all give me different answers, so I’d like to know, what’s your answer? There’s so much in the book, right? Incredibly rich and multifaceted, but what’s the bottom-line core of The General Theory?

CARTER: You love the hard questions. I wrote in the book that the bottom-line core message of The General Theory is that prosperity is not hardwired into human beings, that it has to be guided through political leadership. I think that traces back, to some extent, to what you were just talking about about India. He views the state and the government, from a very early age, as this sort of guiding hand. In the case of India, it’s a bit paternalistic, but also, domestically, he believes that government is a necessary force to organizing human affairs.

The General Theory — it’s a complicated book. In certain respects, it’s not always consistent with itself, but I think that there’s a political message, which is that political guidance is needed for prosperity to exist, for markets to function. There’s also a reevaluation of what economics is doing and how economics functions. Keynes is not focused on scarcity at this point, and I think Michał Kalecki has written about this.

I think this idea that Keynes is refocusing the nature of economics and economic humanity, from competition for scarce resources towards the idea that uncertainty about the future is the most important psychological condition for economics. If you believe in scarcity as the overriding issue, you’re going to come to different conclusions about how the world works than if you believe uncertainty is the overriding issue. I’m not sure which one of those is the most important, but those are the two that I think are key.

I think this idea that Keynes is refocusing the nature of economics and economic humanity, from competition for scarce resources towards the idea that uncertainty about the future is the most important psychological condition for economics.

COWEN: At the more specific level of macroeconomics, some people will say it’s wage and price stickiness. Some say it’s fiscal policy. Some say it’s the theory of liquidity preference. That’s what Milton Friedman thought. Which of those makes it all work?

CARTER: It’s interest rates. Look, I think chapter 12, where he talks about financial markets, is a really critical chapter for me. That’s where the uncertainty really comes to be key.

We don’t know what the future brings, and so if we don’t know what the future brings, the way that we think about markets as being things that correct for errors or social problems really is much more complicated. If we don’t know what the future is going to bring, then we may hoard money when it may not be good for us to hoard money. We will make spending choices that are different.

Paul Krugman has a fairly famous — at least among liberal economists — analysis of Keynes, where he says there are chapters 1 through 4 Keynesians and chapter 12 Keynesians. I don’t really like that breakdown. I think chapter 12 is really essential to understanding the critique of Say’s law, which you get in the first four chapters.

On technocratic governance

COWEN: Did Keynes have significant misgivings about technocratic governance? And should he have had more misgivings, given how British rule over India went, given how the postwar settlement went? Those people were, by and large, technocrats.

CARTER: Yes. With a lot of these questions, it depends on which Keynes you ask. There’s a great memoir that he presents to his friends in Bloomsbury in 1938, I think, where he says, “When I was young, I didn’t realize that civilization was this thin crust that was preserved through the skillful acts of a few.” That’s a very non-egalitarian way of conceiving of human progress. But at other times, he seems to think that people are capable of this spontaneous flowering of goodness and light through aesthetic achievements, arts, or whatever.

To believe in progress the way he does, he has to have a certain faith in the ability of ordinary people to make good decisions. He certainly thinks that good ideas will conquer bad ones, and this isn’t just because the smartest, best people will be persuaded. He thinks people in general have this sort of rational rationality about them, where they will come to see things that are true as true.

I think, yes, he probably does have too much faith, on the balance of his life, in the ability of technocrats to order affairs to the good. Certainly, he has far too much faith in the ability of the British Empire to order its affairs, although I think the experience of Versailles sort of jaundices that view for him a bit. He sees the British Empire in a new light after the war, largely because his friends in Bloomsbury are telling him he’s this terrible, horrible sellout for participating in the war. But he never totally loses that sense of at least the desire to view the British Empire as this fountain of goodness.

Even in World War II, when he’s much more influential as a policymaker, he’s perplexed that the Americans desire to carve up the British Empire. He just sort of takes for granted that, obviously, we would want to keep all of these different colonies and territories under British rule. That would be good for the world. He can’t even really come to see that Roosevelt is going in that direction when it’s really quite obvious, at least in hindsight, what Roosevelt is doing.

Yes, I think he probably does have too much faith in technocrats, but also, a lot of his legacy as a policymaker is forged by technocratic policymaking at the end of the war. The British National Health Service is still with us. That’s innovation of British technocracy at the hands of the Socialist Labour Party at the time, and Keynes was —

COWEN: But that’s not Keynes’s doing.

CARTER: Well, he is the sort of financial architect of it. He works very closely with getting the numbers right and having the papers to wave around to say that this stuff adds up. There’s a decent argument to be made, at the time, that the numbers don’t add up, but I certainly think Keynes is an important player in that view.

On whether Keynes was too flexible in his views

COWEN: Do you think Keynes was, in some ways, too flexible a thinker? You discuss in your book his 1933 essay on national self-sufficiency, which is quite protectionist, though usually Keynes was a strong free trader. What’s striking to me in that essay is not that he makes the Keynesian jobs argument — you need tariffs to protect domestic jobs — that you would expect, but that there is a whole section talking down the benefits of division of labor, saying, “Oh, these aren’t so great. We don’t need it.”

Didn’t he, too many times, put on the hat of a kind of advocate and played too often the role of debater?

CARTER: He certainly loved to play debater. That starts very early. He loves being part of the Cambridge Union Society. He loves debating conservatives in particular, in his early days. I think it’s impossible to separate Keynes the political activist from Keynes the economic analyst, and I don’t know that he would want us to separate those things, at least from this stage in history.

Certainly, during his lifetime, he occasionally put on the hat of “I’m just looking at the numbers. This is just what the numbers say.” But he’s a philosopher first and an economist second. In a lot of ways, I think his economics are just this dressed-up mathematical justification for philosophical views that he’s been wrestling with on a deeper level, particularly when he’s at Cambridge.

He’s embroiled in these debates with Bertrand Russell and Ludwig Wittgenstein and all of his friends in Bloomsbury about what constitutes a good life. I think that social vision stays with him over the course of his lifetime. The reason his economics keeps changing is because he’s trying to find some intellectual justification for that social vision, which is really paramount in his worldview and in his work.

He’s embroiled in these debates with Bertrand Russell and Ludwig Wittgenstein and all of his friends in Bloomsbury about what constitutes a good life. I think that social vision stays with him over the course of his lifetime. The reason his economics keeps changing is because he’s trying to find some intellectual justification for that social vision, which is really paramount in his worldview and in his work.

COWEN: What should we make of the preface Keynes wrote for the German-language edition of The General Theory, where he basically says to the Nazis, “My ideas will work better under your system”? It’s not at all that I think Keynes was pro-Nazi. Clearly, he was not at all, but is that another example of Keynes, in a sense, being too flexible, even philosophically? Hayek never did that to Pinochet, right? Friedman didn’t.

CARTER: Well, what is the language? The language was something like, “I’m aware that in many respects, my economic system is easier to operate under an authoritarian government.” Something like that.

COWEN: Something like that, but in German, of course. Yes.

CARTER: Right. Look, isn’t that just true? If you’re looking at Keynesian economics from a technical perspective, it’s a theory about how the state can organize resources better than atomized financial markets can. The dangers of the authoritarian government for Keynes are not in the organization of resources, but in what they’re organized for. In his letter to Hayek about The Road to Serfdom, he discusses this in greater detail.

He’s clearly aware that this system can be abused, but if you’re just thinking about how to create economic growth, yes, certainly you don’t have to deal with all of these inconveniences of democracy to just make things happen in an authoritarian system. I don’t know if I read that as Keynes being sympathetic to the German government, or advising —

COWEN: No, he’s not. He’s sympathetic to his own ideas and wants to promote them. But to me, there’s a discord. Milton Friedman spends, what, 45 minutes talking to Pinochet, has a very long record of insisting economic and political freedom come together — maybe even too simplistically — writes against the system of apartheid in South Africa and Rhodesia, calls for free markets there. And people give Friedman hell over that.

Keynes writes the preface for the Nazis and favors eugenics his whole life, and that’s hardly ever mentioned.

CARTER: I don’t know that the way that Keynes talks about eugenics is as salient as you suggest. The best article that I came across on Keynes and eugenics is by this guy — I think David Singerman. It’s in the Journal of British Studies. It’s a pretty in-depth look at the way Keynes came to eugenics and what he did and did not support. It’s very clear that Keynes didn’t support eugenics in the way that Americans sterilizing poor Black workers in the South were interested in eugenics.

Keynes was broadly interested in it from the perspective of birth control. This is a time when eugenics and genetics are not as clearly defined as they are today, so he’s thinking about heritability of eye colors — how he gets involved in this stuff. He never really supports anything other than birth control.

When he actually has power as a policymaker, he just doesn’t do any of this stuff. He is working on the Beveridge plan. He is working on financial stuff that is much more egalitarian than what we think of him when we think about eugenics.

COWEN: But he is chair of the British Eugenics Society for eight years late in his career.

CARTER: He doesn’t do much there. There are big debates that are happening within that society, and he’s mostly sitting them out. Singerman goes into this in much more detail. It’s been a while since I read the article, but Singerman seems to think that this is a useful way of understanding Keynes’s worldview, but not that Keynes is some guy who’s going around wanting to sterilize people and do the things that we think of with the eugenics movement in the United States.

COWEN: I don’t think he wants to sterilize people, but he has those essays on population, which are not put into the collected works. They’re not mentioned by Roy Harrod. He is greatly worried that the people from some countries — I think including India — will outbreed the people from Britain, and this will wreak havoc on prices and wages, and it’s a big crisis. He even says, “We need to worry not only about the quantity of people, but the quality of people in the world.”

CARTER: Yes, and if you look at him in the 1920s in particular, he has extremely disparaging things to say about working people in general. There’s an essay in 1926, I believe, where he is talking about the proletariat and the coming revolution, and he says, “How can I prefer a theory that holds up the working people who are the mud to the fish of the middle class?”

He’s very much a middle-class kind of pugilist. He believes that the British middle class that he comes from is . . . Much the way that he thinks that the British Empire is this fountain of goodness and light, he thinks the British middle class is also superior.

But I do think those ideas temper over the course of his career. He comes to believe that prosperity is something that can be shared more broadly. By prosperity, I mean the type of life that he and his friends in Bloomsbury lived around the turn of the century, where they were thinking about art and philosophy and doing all the stuff that intellectuals think about as fun. I think he comes to believe that that can be shared by a very broad swath of the population, but he does not believe that his whole life, certainly.

Is it fair that Friedman and Hayek get a lot of flak for talking to Pinochet, and Keynes wrote a German introduction to his book? I think that’s up for people to make their minds about. All of these thinkers — if you’re trying to find a hero who fits some model for decency and goodness by today’s standards, and you’re looking at intellectuals from the early, mid-20th century, you’re going to find things you don’t like about them.

Joan Robinson, who is, in a lot of ways, one of the most important intellectual partners that Keynes works with on The General Theory — what Joan Robinson goes on to say about North Korea . . . North Korea is not quite as bad as it is today when she was praising it, but certainly, what she says about China and the Cultural Revolution — I don’t see how you can really defend that stuff. It’s pretty bad, and particularly for a theory that’s supposed to be . . .

As I take Keynes, I take him to be thinking about economics as the field where liberalism can fight authoritarianism. Through economic policymaking, we can keep authoritarianism at bay without resorting to war and violence and all these horrors that he’s scarred by in World War I.

If that’s the purpose of the project, then when you come around and start talking about the Cultural Revolution as a good idea, I think you’ve lost the plot of it. There are a lot of these people who are super smart, making great innovations in their field, who are also doing things that are just politically indefensible, certainly by modern standards.

On things under and over-rated

COWEN: Are you ready for a bout of underrated versus overrated?

CARTER: [laughs] I’m enjoying this. I hope you are. Yes.

COWEN: Okay. First one: overrated or underrated — traveling in Taiwan?

CARTER: Underrated. I love Taiwan. Soup dumplings. It’s a beautiful place — big mountains, beautiful ocean. What’s not to like?

COWEN: Other than Taipei, where should people go next?

CARTER: Well, where did we go? We went to Taipei, and we went to a beach town. I don’t remember which town. [laughs] My wife’s family is from Shanghai, and then Taiwan, and then the United States. We went on a trip with them about four years ago, and they were our tour guides. It was incredible, but I really only know Taipei. I can’t give you better advice.

COWEN: The 1965 Immigration Reform Act — overrated or underrated?

CARTER: Wow, you’re going right at it. My wife, who I just mentioned, just wrote a book about the 1965 Immigration Reform Act.

COWEN: Tell us the title, please.

CARTER: It’s called One Mighty and Irresistible Tide: The Epic Struggle over American Immigration, 1924–1965. I find her book really complicated. I think it generally is underrated because people just don’t know what it is. I would say underappreciated maybe. It’s just not very well known in American society, but there are things about this law that work. There are things about this law that don’t work.

Some of the things, at least from a progressive standpoint today, I would say are good about the law are kind of an accident that take place largely because the architects of the law don’t intend them to take place. So the significant increase in Asian American immigration — certainly, the architects of the law aren’t anticipating that.

My wife’s family is here because of that law, so it’s underrated. It’s great, I met my wife. Otherwise [laughs], that wouldn’t have happened. That was important for me. Certainly, from a narrow selfish standpoint, I will say it’s underrated.

COWEN: The Sex Pistols — overrated or underrated?

CARTER: God, come on, man. It’s so hard because they are a one-trick pony.

COWEN: One album, right? The rest, you can forget.

CARTER: Yes, and it’s really just one note. All the good songs in there are basically the same song rewritten. But look, they changed the face of music. You wouldn’t have the Replacements. I’ve been reading this Bob Mehr biography of the Replacements, which was my favorite band, and you just absolutely wouldn’t have that band without the Sex Pistols. I think that people get that they’re a big deal, though. I think very highly of the Sex Pistols. I would say they’re overrated people. They’re deeply influential but still overrated.

COWEN: That some of these former punk rockers now support Donald Trump — is that a fluke, or is that actual consistency?

CARTER: It’s tough with Johnny Rotten and John Lydon. It’s hard to say. The Sex Pistols are not anarchy for the UK. I mean, which kind of anarchy? There’s anarchy from the right, from the left. I think “Bodies” is certainly conservative from abortion rights perspective.

My next book is a look at populism in the 1890s. I do think you have to grapple with the way that these radical figures, radical ideas — there’s always an interpretation that makes them look good. But do you think you have to wrestle with the way that radical change is often flirting with stuff that’s really not great?

I really came to appreciate the conservative streak in Keynes, writing this book. He is very afraid of social change in this way that contemporary progressives are not. He likes Edmund Burke, and it’s not a con. He’s not putting on some sort of act so that he can get more conservative subscribers to his Patreon. He really is worried about social change and social upheaval, and I don’t think people who haven’t lived through revolutions and war often appreciate how bad things can go.

With the Sex Pistols, I’m not sure that Johnny Rotten loving Donald Trump is a huge change from 1977. I didn’t really follow Public Image Ltd and a lot of the stuff that he did in the ’80s musically.

COWEN: It’s not bad, but it’s not important, I think.

CARTER: It didn’t do anything for me. I’m not against it, but I remember listening to it when I was 17 or 18, the age where you get into this stuff, and it just didn’t grab me. Maybe there’s a whole lot of really interesting intellectual stuff happening there that you could tell a story about, but I can’t because I just don’t know the material.

I really came to appreciate the conservative streak in Keynes, writing this book. He is very afraid of social change in this way that contemporary progressives are not. He likes Edmund Burke, and it’s not a con. He’s not putting on some sort of act so that he can get more conservative subscribers to his Patreon. He really is worried about social change and social upheaval, and I don’t think people who haven’t lived through revolutions and war often appreciate how bad things can go.

COWEN: Samuel Delany — overrated or underrated?

CARTER: Oh yes, how do you know this? You did your research. Super underrated.

COWEN: Why is it important? Nova. Tell us why.

CARTER: Oh my god, I love that book. I just read it for a book club. Nova is a book about all these things we were just talking about. It’s about radical change. It’s about economic competition. It’s about the shift between intellectual paradigms and material paradigms in internationalist society. It’s about all the forms of social conflict and possibility that I think exist in a globalized world, even though it’s about an interstellar society.

It’s about freedom and art and cruelty and truth, and it’s also just a fun space opera. It’s all packed into an exciting tale. Nova is one of his 250-page sci-fi thriller novels from the ’60s. His later stuff, where he gets into 800-page books about sexuality, I think are really good, too, but they’re not fun the way Nova is fun.

COWEN: The Bretton Woods monetary system — overrated or underrated?

CARTER: Underrated. We only really had it for about nine years, once all of the rules had been implemented and everything. It’s not like it was this gigantic success for so long, but I agree with Paul Volcker, that was a mistake to blow up.

There was a framework for international cooperation and harmony that allowed for negotiation. There was a shared set of norms that I think we miss today. Particularly the deterioration of the US relationship with China right now, for instance — difficult thing to imagine if the US and China were part of a Bretton Woods report.

COWEN: But didn’t it have to blow up? Wasn’t the whole thing premised on the notion that the US could just keep on printing dollars, which, actually, the world wanted to have out there. And other countries, but most of all, the French, would never take those dollars and convert them into gold. Once the French started going to the gold window, which is inevitable — it’s a general way that a speculative peg gets broken — it was all over. There were particular details to how it ended, but pegs are hit by speculative attacks, and they fail.

CARTER: It’s a story that you see happening in the 1990s and all of the financial crises that happen there. So yeah, there’s a weakness. [laughs] I don’t disagree with the critique, but everybody got along until it blew up. Maybe it did have to fail.

Keynes certainly didn’t like the idea of linking everything to the dollar and linking the dollar to gold, but I don’t think he necessarily was worried about it predominantly from those speculative-peg, hot-money kind of issues. I think he was more concerned about the replacement of Britain with America as a geopolitical, hegemonic issue. I don’t know, it seemed to work okay until it didn’t.

COWEN: Was the euro a good idea? Because if you like Bretton Woods, you might think the euro is a more enduring version of it, but it’s not obvious to me the euro has gone well.

CARTER: No, the euro has been a disaster, but was the euro a good idea? Which part of the euro? The idea of these countries working together and having a shared sense of cooperation and fair play — that’s good. You need to have monetary flexibility within the euro. That’s a problem within the Bretton Woods system, too, but the euro is clearly just too rigid a system to work. I think it has resulted in the opposite of what it was intended to do, but was it a good idea? It hasn’t worked. Let’s say that.

COWEN: Credit card and debit card fees — what is the incidence of those fees in today’s America, 2020? Who actually pays them in the end final analysis? Not where they’re levied upfront, but the actual incidents? You have an article on this. Some people think consumers pay them.

CARTER: Oh, swipe fees. I think, ultimately, consumers probably pay something. The significance of that article — this is from 2011, the swipe fee fight — the significance of that fight is that it didn’t really matter that much at all. Consumers, I do think, ultimately pay some of those fees in the form of higher prices, but retailers do their best to minimize that and capture those fees for themselves. So, who pays? A little bit of consumer, a little bit of the merchant. They share these. It depends on the fee and the merchant.

COWEN: Let’s say we made it completely impossible for credit card companies to stop merchants from offering cash discounts. There are, indeed right now, many cash discounts. Wouldn’t that solve the whole problem, that if it were easier to use cash, those gains would be internalized through a cash discount? And buyers would decide credit, debit card, or cash, and receive different prices, and things will be fine. Correct or not?

CARTER: That sounds okay to me. We’ll just see what happens.

COWEN: Then it’s an easy problem. It’s not a big problem in that worldview.

CARTER: Look, I’m mostly an empiricist on these things. You just see what happens. Do prices go up? You can look into the corporate revenues or not. My general view about the swipe fee issue is not about whether merchants were taking it on the chin or consumers were taking it on the chin. It’s just that it wasn’t that big a deal and that — particularly in 2011 when we were in the middle of a terrible depression — the idea that we were going to fight over this in the Senate for six months struck me as extremely minor.

We are talking about something that mattered, largely, not even to retailers in general, but to large retailers that had to pay a lot of these fees. Walmart, Target — these big companies, these fees add up over time. What you do about it? Depends on what works. Try something.

On Treatise on Money

COWEN: Now, as you know, in Keynes’s Treatise on Money he endorses Knapp’s State Theory of Money. Does the evolution of cryptocurrency show that Knapp, in fact, was wrong, that money is a market phenomenon?

CARTER: Ooh, great question. I don’t think so. I’m very critical of cryptocurrency in general. I’m very skeptical about it, and I think it’s often just a vehicle for fraud. Is cryptocurrency really a currency? Do people really use it the way they use dollars and euros and other currencies? There are transactions that take place.

COWEN: There’s a lot of gray-market, black-market transactions, but the point is they could. It’s a kind of proof by existence. You can have an asset that’s fully market based.

CARTER: We definitely have cases of cryptocurrency-disappearing frauds and the like. Among cryptocurrency users, there is a common agreement that discounts for some things. Can that be sustained as a social phenomenon outside some niche users? Particularly, I think it really does matter that so much of the use of the currency, as currency, is happening outside the political system.

A lot of the stuff that’s happening there is illegal. We’re talking about nongovernmental activity. To me, the experience with cryptocurrency points in the other direction, that you need some political management of this stuff for it to have real meaning. Otherwise, it’s a fleeting and not particularly useful medium.

COWEN: Keynes works for, I think, seven years on Treatise on Money. It’s two volumes. At the end, what he comes up with is a tabular standard, which I’m fine with, by the way. Is it even a good book at all? Hansen, Hayek — they didn’t like the model. They more or less trash it. Hayek claims Keynes repudiated his own book. What’s in Treatise on Money?

CARTER: I think he does repudiate his own book. There’d be no need for The General Theory if the Treatise on Money was right. The Treatise on Money is a big mess. It’s like 800 pages, two volumes. Keynes himself says aesthetically, it’s a disaster, but he feels like he’s come to a great answer. By the end of the book, he’s got this weird justification for public works. He’s come to the conclusion, by the time he’s done with it, that the public works spending and budget deficits are necessary for getting out of the depression.

He’s just tying himself in knots to come up with an economic theory that will justify that policy preference. These people may exist, but I don’t think there are many people who think the justification for public works in the Treatise on Money is more persuasive than that in The General Theory. He basically says, “This is a one-time thing that we have to do because of the way trade relationships have worked out at this particular moment in time.” It’s very ad hoc.

The thing that’s important about the Treatise on Money is how much fun Keynes has talking about the rise of capitalism in the 16th and 17th century and Knapp’s theory, chartalism, the theory in State Theory of Money. I think that is really essential to the ideas that he develops further in The General Theory.

If you take money to be a creature of the state rather than of markets, as we were talking about, then you’re just allowed to do a lot. The idea of the market as something that can function independently of the government becomes much blurrier, and the idea of the state as the thing that creates and guides markets, I think, opens up a broader realm for government intervention. But god, it’s a mess of a book.

There’s the international system where he talks about the bancor and the international super bank. That’s his blueprint for what he’s going to bring to Bretton Woods later, which he loses on all of those important fights. So that’s in there, but the whole thing is just a mess. He himself is changing his mind so many times over the course of this book in response to political circumstances.

Look, even General Theory is a bit of a mess, too, so it’s not like he has one definitive statement that is Keynesianism. I reject the school of thought that it’s all in The General Theory, but I think of it as a step along the road. It shows that he’s willing to change his mind, but he hasn’t figured it out yet.

On Keynes as biographer and art collector

COWEN: For me, Keynes is one of the greatest biographical writers in the entire English language — ever. What do you think is his best biographical portrait in Essays in Biography? Which is one of my favorite books, I might add.

CARTER: That’s good, isn’t it? I think my favorite is just Newton. He packed so many ideas into the way he writes about Newton. There are a couple of different essays on him. I don’t know enough about Newton to know if his biography is accurate, to be clear. I know the big points on his life. I haven’t read several biographies, but the way that he talks about Newton as someone who was a creative genius . . .

The scientist as an artist who has the certain intuition about the way the world works, who then uses the math to explain why his aesthetically beautiful intuition about God’s plan or the nature of reality — why that makes sense. Maybe that’s true about Newton. I don’t know. I just don’t know the guy psychologically enough, but I think that tells us something interesting about Keynes’s own psyche. I think that a lot of Keynes’s economic work functions in that way.

I also think it’s useful to think about the scientist as somebody who is not just a bloodless technician. That scientific work is creative work, and the great scientists are people who are doing something that is aesthetically significant in addition to being technically significant. That they have an idea that they’re possessed with. We used to think of scientists as people in lab coats who just never smile, and that’s not the way people are.

COWEN: Did Keynes have good taste in art?

CARTER: His friends didn’t think so. What is good taste in art?

COWEN: I think he had excellent taste.


COWEN: He bought this Cezanne apples sketch before people understood how wonderful they are. Also, Degas ballerinas. He didn’t pay that much for them. Cezanne and Degas were not undiscovered artists at that time.

CARTER: No, he did get them in a fire sale, literally. He went to Paris, and the Germans were getting close. They were under bombardment. That’s why they were liquidating it. I like Cezanne and Degas as much as the next guy. I think his friends were so fussy. They were envious of his social position. They couldn’t do the economic work that he did. It just was over their heads, so art was their thing. They were always telling him he had bad taste, but those apples were pretty good in the Cezanne.

What’s the museum in Philadelphia that there was such a fine —

COWEN: Barnes.

CARTER: Yes, the Barnes Museum. I never saw the Barnes Museum before its transformation. These artists — not every single one of their works was amazing. Sometimes, there were bad Renoirs. There were bad Cezannes. I haven’t seen every single one of those Cezannes that Keynes talked about. In the archives at King’s College, there’s a lot of art that’s on display, but it’s mostly stuff from other Bloomsbury people.

The Bloomsburys themselves were probably overrated, as painters at least, but whatever. These tastes shift. I think Keynes was probably okay. I don’t think he was as bad as his friends said.

COWEN: Let me ask you the question Ezra [Klein] asked you: In the time of Keynes, especially the earlier years, why would anyone have defended the gold standard?

CARTER: Almost everyone did who thought about it, and I think it was tied up in a conception of liberalism and freedom that is very intuitively compelling to people who take enlightenment and liberalism seriously. If you believe that capricious sovereigns and governments shouldn’t meddle in the affairs of the people and direct the flows of international commerce for their own short-term gains and political preferences, then the gold standard is a way to put some brakes on the government.

To say not only that we will not meddle in the currency for domestic purposes, but we won’t interfere with international harmony and with the exchange of goods and ideas across different cultures — it’s very easy to see why people, from a progressive perspective, would see that as a good thing.

COWEN: Why weren’t they just correct? Christina Romer has shown GDP volatility was not higher before the Fed, and if countries had stayed on the gold standard, they couldn’t have fought World War I. That sounds pretty good to me.

CARTER: Well, if she’s right, then she’s right. Ultimately, politics exist, and it’s hard to create a system that says when your back gets up against the wall, you’ve just got to deal with it because people will break the rules. The Keynesian argument against it, by the time he gets to the Treatise on Money at least, is that you have to do something about the short-term social pressures that are caused when you are up against deflation, essentially.

Unemployment, social unrest — that is something governments will have to respond to. If they don’t, what you get will be worse than whatever you would . . . It will prevent the long run from coming to be. This is one of the philosophical dimensions of the “In the long run, we’re all dead” claim. He’s not just saying we can make things better in the short term, and that’s important. He’s saying if you don’t fix things in the short term, the long term may never actually happen if you have an authoritarian takeover or a war or something.

At least for Keynes, once he sees the state of deprivation that’s happening across Europe after the war, he just thinks that this is an untenable system. Before the war? If the gold standard had been managed wisely, we never would have needed Keynesian economics. There would have been no need for Keynes to come up with a complicated economic explanation for deficit spending or to try to focus on uncertainty as this key concept. Things just would have worked out.

COWEN: In a famous essay, as you know, “Economic Possibilities for Our Grandchildren” — I think it’s 1930 — Keynes predicted we — I’m not sure who the “we” is here — would be working 15 hours a week. What did he get wrong? Or was he just off by a few decades?

CARTER: Well, Benjamin Friedman, I think, did the analysis most recently. Bob Solow did one 2007–2008. If you take living standard to be something like GDP per capita, then the actual productive output of society was pretty close to what Keynes is talking about in “Economic Possibilities for Our Grandchildren,” but the distribution of that output is not egalitarian. The answer that I put in my book — that I think is basically right — is that most of these gains are captured by people at the top. As a result, we have people working all the time.

COWEN: But median family income in the US is now still past the range where Keynes would have predicted 15 hours of work a week, right? Uneven distribution, but median wage in Keynes’s time was pitifully low. And now, it’s still pretty high.

CARTER: You can see the decline in working hours is pretty steady over the late 19th century and into the 1940s. I think he writes that essay in 1928. It’s published in 1930. It was 1926 when he actually writes it, but it’s published in 1930. Even in the depression, you can see this decline in working hours. It is very pronounced, and then it stops in the 1960s, 1970s. That to me is, do we want to be working this long? At least, I don’t want to be working 40 hours a week. [laughs]

COWEN: You work much more than 40.

CARTER: Yes, but I would —

COWEN: You wrote a book that just made a top-10 list. That’s not easy. Your wife — her book is very highly regarded. She’s an editor for the New York Times. It’s an incredible amount of work. You and she are going way past 40. So, what’s the deal?

CARTER: The books are an interesting question. Does that count as work? When I write about politics and economic policy and specific issues that people are fighting about in Washington — that feels like work. It’s stressful. I have to learn things that I don’t necessarily enjoy learning. Doing the book, the research, the history — that was fun. That was exciting. That was joyful in a certain way.

Now, once we had our daughter almost 15 months ago —

COWEN: Congratulations.

CARTER: Thank you. To be perfectly frank, my interest in historical research has waned a bit. I don’t know if I would think of historical work and work on the next book as the same pure expression of what I would do with my free time that I did this book. I would probably rather be hiking in the woods with my daughter or reading through books about bears or whatever she’s into. My priorities have changed.

There’s an argument that I think Joe Stiglitz makes this in part . . . There’s a whole book on “Economic Possibilities for Our Grandchildren,” came out about 2008, with all these different essays from people investigating what Keynes got right and what he got wrong. One of the answers is that people actually like working and that there’s a certain class of people who do work that’s not really work, and I’d certainly consider myself to be in that class of people. It’s true that I like that work.

Even the type of work that I do, [laughs] once my daughter arrived, I would just like to do less. I think for a lot of people with families, that’s the case. You wouldn’t work as much as you do if you could work less and feel a sense of security about the future. That sense of security about the future is a tricky thing because what constitutes security?

You get accustomed to a certain standard of living. You want that for your children. I admit that there’s a gray area there — or not even gray, just kind of fuzzy. But I think a lot of people choose to work more than they probably should. I’m sure that as my daughter gets older, whether I want to be writing more books or coaching basketball will be a major decision.

COWEN: Last question: what is your next overwork project?

CARTER: The current working title is called Fields of Fire. It’s a look at the Populists of the 1880s and 1890s. Right now, it looks like we’re going to tell it through the lives of two White Populists and two Black Populists from Georgia and North Carolina, but we’ll see. You kind of got to go where the research takes you with this stuff. In a lot of ways, I think what the Populists are working through in the 1880s and 1890s is very similar to what Keynes is working through.

Their economic proposals are a bit different, but they see themselves as inhabiting an era of crisis in which the economic system is not working. It’s the same economic system. They’re writing about the gold standard at its outset. Keynes is writing about its maturity. They’re trying to come up with ways to reformulate politics to make the economic system work. I think there is — as with Keynes — an enormous amount of promise and also an enormous amount of danger in what they’re doing.

In the same way that you talked about Keynes being enamored with the British colonial system, or at least overly enamored with it, there’s a lot of intellectual stuff happening with the Populists, this period of time, which is inspiring but also dangerous. I just find it a fascinating era. Hopefully, the book — it’s not a biography, but it will try to work with a lot of the same currents and themes that were in the Keynes book.

COWEN: Zach Carter, thank you very much.

CARTER: Thanks, Tyler.