Daniel Johnson: We should begin with Keynes. Robert, you've just published an important new book, The Return of the Master, which has already had a great impact here and abroad. Why is this great economist, who died more than half a century ago, still in your view the key thinker for those who want to understand the present situation, and what part of his legacy do you think is the most important?
Robert Skidelsky: He still provides the best explanation of how economies can crash, and also of how they can then stay in a depressed state for a long time. He overturned the classical view of his time — which actually was then revived — that markets are always efficient and that economies are always self-correcting without very much trouble. The effect of his theory was to give governments a definite role in both preventing big upsets, and, if big disturbances occurred, in getting economies out of the holes they were liable to stumble into and remain in for a long time.
DJ: Tim, you too respect Keynes as an economist, but I think you take a slightly different view from Robert's about what part of his legacy matters now.
Tim Congdon: Keynes wrote a lot about the Gold Standard, and indeed about many different currency standards — his first book was about the Indian monetary system, of all things — and he realised that in the 20th century we couldn't base our monetary regime on gold, or indeed on any precious metal. We needed to manage the currency, and manage it with a view to achieving price stability and a stable economy which would generate, as far as possible, high employment. I agree with all of that entirely.
The debates are about the extent of his enthusiasm for fiscal policy, for high government spending and for a large state sector. Robert has written a wonderful biography of Keynes, which I think will be definitive. But even that biography shows that Keynes had second thoughts about whether it really was a good thing for governments to be trying actively to manage the economy through budget policy.
DJ: Robert, how much do you think the present stimulus policies that have been very widely adopted across the Western world owe to Keynes, and are they working? Was this the right way to go, in your view?
RS: The stimulus has come in two forms. There's been a monetary stimulus, that is to say that governments have printed money; and there's been a fiscal stimulus, that is that their budget deficits have expanded. And both are in the mould of Keynes. Without Keynes they might not have done any of these things, and the test of that is that before, in the actual Great Depression, governments did all the wrong things. And that's one of the reasons why the economy slid down, all the way, 12 quarters of decline.
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