"The Keynes Solution" by Paul Davidson (2) - Concessions to Liberty and Capitalism

Image credit. Continued from here.

Pace Churchill, it has been said that capitalism is the worst form of an economy except all those other forms that have been tried from time to time.

Despite its imperfections , Keynes believed that capitalism was the best system humans have devised to achieve a civilized economic society. He recognized, however, that capitalism had two major faults: (1) its failure to provide persistent full employment for all those who want to work, and (2) its arbitrary and inequitable distribution of income and wealth. Until these  faults were corrected, Keynes argued, the capitalist system could be extremely unstable and therefore subject to periods of economic boom that could often lead to catastrophic economic collapse.

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Keynes argued that, with properly designed government policies that cooperate and augment private initiatives, we could develop a stable, fully employed capitalist economy that would still enjoy the advantages of a market-oriented entrepreneurial system. These advantages, Keynes noted, are:

of decentralization and of the play of self-interest....But, above all, individualism, if it can be purged of its defects and its abuses, is the best safeguard of personal liberty in the sense that, compared with any other system, it greatly widens the field for the exercise of personal choice. It is also the best safeguard of the variety of life, which emerges precisely from this extended field of personal choice, and the loss of which is the greatest of all losses of the homogeneous or totalitarian state. For this variety preserves the traditions which embody the most secure and successful choices of former generations; it colours the present with the diversification of its fancy; and being the handmaiden of experience as well as of tradition and of fancy, it is the most powerful instrument to better the future.

 (Davidson, p. 6, emphasis added)

For a man, like me, with die-hard neoliberal reflexes, it is reassuring to read Keynes qualified commitment to capitalism. For I usually miss in Keynesians a sense of appreciative understanding of capitalism's ingenious working. I am still in search of an author who provides a balanced view of the micro-economic beauty and the macro-economic risks of capitalism.

Be this as it may, the second sentence in the above Keynes-quote has an awkward ring to it. I am left a little confused to read that "individualism ... is the best safeguard of personal liberty." By extension, I am unclear as to how "individualism ... greatly widens the field for the exercise of personal choice." I would have thought that personal liberty, a socially constructed and socially protected institution, was the safeguard of practicable individualism, especially of the kind that allows for a wide "field for the exercise of personal choice." 

According to me personal liberty secures individualism and the personal choice that goes with it. According to Keynes individualism secures personal liberty and personal choice.

It is also interesting that Keynes seems to consider individualism, personal liberty, and personal choice of particular value because they admit the variety of life that "preserves the traditions which embody the most secure and successful choices of former generations." Individualism appears as a precondition for the conservative continuity of experience, of frozen, sedimented knowledge among generations, while at the same time creating scope for "fancy," which I take to mean the kind of spontaneous creativity that originates with the individual.

Why would personal liberty of all things give us a keen instinct for what has been handed down to us from the past? Because radical social movements are predatory and therefore can afford to be iconoclastic at the expense of the exploited, whereas the individual, lacking such power, is cautiously conservative? Because only as part of a mob does man fall for the rabid illusion of unconditional discontinuity? Because the individual, left to his own devices, must be circumspect or else he faces ruin, thus being more prone to defer judiciously to the wisdom accumulated over thousands of years? Because the individual, unable to socialise the costs and losses of his projects, will tend to invest in the future more responsibly? Is this what Keynes means? Is he always as vague about the advantages of capitalism and freedom as here? Is he, like so many Keynesians after him, disinclined to spell out the splendid mechanics of the freest markets we have ever been able to thrive on? Is he one-sided, is he balanced? I am looking forward to learn more about this from Paul Davidson.

Continued here.