David Warsh: The outside helpers who helped make Keynes and Friedman iconic

John Maynard Keynes (1883-1946).

Keynes was a key participant at the Bretton Woods conference, which lay the foundation for much of the world’s financial system after the devastation of World War II.

The conference took place at the Mount Washington Hotel. Clouds here obscure the summits of the Presidential Range.

— Photo by Shankarnikhil88

SOMERVILLE, Mass.

John Maynard Keynes and Milton Friedman traveled different paths to become the dominant policy economists of their respective times. In The Academic Scribblers, in 1971, William Breit and Roger Ransom invoked the motto of the Texas Rangers to explain Friedman’s success: “Little man whip a big man every time if the little man is right and keeps a’comin’.”

But there was more to it than that.

Both Keynes and Friedman were slow starters and late bloomers. “It was The Economic Consequences of the Peace [in 1919] that established Keynes’s claim to attention”, as biographer Robert Skidelsky wrote at the beginning of the second volume of his trilogy. In murky circumstances, the prescient warning about the hard terms imposed on Germany after World War I failed to be recognized with a Nobel Prize for Peace, as Lars Jonung has shown.  Not until 1936, with the appearance of The General Theory of Employment, Interest, and Money, when he was 58, did Keynes acquire the sobriquet that Skidelsky confers on him in that second tome,  “the economist as savior.”

Friedman was 50 when, in 1962, he published both Capitalism and Freedom and, with Anna Schwartz, A Monetary History of the United States 1867-1960. He was nearly 40 when he turned to monetary theory.  Within the profession he enjoyed growing success in the ‘50’s and ‘60’s. But vindication and celebrity waited until 1980, when he turned 69, as Federal Reserve Board Chairman Paul Volcker battled inflation under a monetarist banner; when Friedman’s television series Free to Choose, with his economist wife, Rose. was broadcast on America’s public network; and when Ronald Reagan was elected president.

Both Keynes and Friedman freely offered advice to American presidents, which only enhanced the economists’ stature.  Keynes, at arm’s length, disparaged Woodrow Wilson; encouraged Franklin Roosevelt, whom he admired, and, 15 years after his death, saw his policies adopted by John F. Kennedy.  Friedman, after a 1964 unsuccessful campaign with Barry Goldwater, enjoyed considerable influence with Richard Nixon and Reagan.

So, how did the Keynesian Revolution roll out in America?  There are many accounts of the process by economists, but only one by an economic historian of how America’s leading most trusted newspaper columnist first resisted, then was convinced, and facilitated the movement’s acceptance for the next 40 years. (Michael Bernstein’s A Perilous Progress: Economics and public purpose in twentieth century America (Princeton University Press, 2001) surveys the period from a somewhat different angle.)

Walter Lippmann was already America’s foremost public intellectual, a common enough species today, but then more or less one of a kind.  He published A Preface to Politics a year after graduating from Harvard College, studied Thorstein Veblen and Wesley Clair Mitchell, made friends with Keynes when both attended the Versailles Peace Conference, in 1919, compared notes with U.S. presidents, Supreme Court justices, scientists, philosophers, central bankers, lawyers, corporate leaders and Wall Street financiers.

Lippmann began writing an influential newspaper column in the Depression year of 1931. For a taste of how different that world was from our own. I recommend a viewing of Orson Welles’s Citizen Kane.  In Walter Lippmann: Public Economist (Harvard, 2014) the late Craufurd Goodwin, of Duke University, traces the twists and turns of Lippmann’s columns as he sorted through various explanations of the Great Depression – too much free trade, too little gold, too many monopolies, unbalanced budgets, before becoming convinced that more public public spending was the key to recovery.

After World War II, Lippmann grew close to MIT’s Paul Samuelson. He tracked the debates of emerging “neo-liberal” factions, including leaders F. A. Hayek and Friedman, but declined to join the Mont Pelerin Society.  His influence as a columnist finally came to grief over his prolonged support for the War in Vietnam, and he died, at 85, in 1974.

The sources of Friedman’s support are more complicated.  Within the profession he had many key allies– his Rutgers professors Arthur Burns, later chairman of the Federal Reserve Board, and Homer Jones, later research director of Federal Reserve Bank of St. Louis; his graduate school friends, George Stigler and Allen Wallis; his brother-in-law Aaron Director, later dean of the University of Chicago’s Law School; his co-author Anna Schwartz; and, of course, his wife, economist Rose Director Friedman, to name only his closest associates.  These were among his fellow Texas Rangers.

It has been Friedman’s acolytes outside the profession who were quite different from those of Keynes.  The story of the law and economic movement has been well told by Steven Teles in The Rise of the Conservative Legal Movement: The battle for control of the law.  On the financialization of markets, no one has yet topped Peter Bernstein’s Capital Ideas: The improbable origins of modern Wall Street.  Friedman’s contribution to globalization is discussed in Three Days at Camp David: How a secret meeting in 1971 transformed the global economy, by Jeffrey Garten. The story of various business anti-regulation and anti-tax lobbying groups can be found in Free Enterprise: An American history, by Lawrence Glickman

It’s not that economics departments weren’t also special-interest groups, but they are special interests of a different sort, organized as competitors, which permits swift reversals within the profession itself. Whether that is the case with the legal, financial, corporate, and media industries remains to be seen. Maybe; maybe not.

David Warsh, a veteran columnist and an economic historian, is proprietor of Somerville-based economicprincipals.com, where this column originated.