by Sylvia Nasar
Essentially, Samuelson integrated the new Keynesian economics with the economic theory inherited from Marshall, while following Marshall’s example of inserting his own insights and techniques. In the fourth edition of Economics, Samuelson gave his approach the name of “neo-classical synthesis.”36 Marshall and Schumpeter had emphasized productivity growth as the primary driver of gains in living standards. To this Samuelson added “the importance of preventing mass unemployment.”37
He described the implications of the new theory by invoking Alice in Wonderland. In the world of full employment—in other words, a world of scarcity and substitution in which there were no free lunches and getting more of anything meant giving up something else—the old rules, perhaps restated more precisely in the language of mathematics, applied. In the Keynesian world of abundance and less than full employment, impossible things like getting something for nothing became possible. The best example is the “paradox of thrift.”38 In a full-employment economy, if households save a bigger fraction of their incomes, the total amount of savings goes up. In a depression, saving more actually reduces the total pool of savings because cutting spending causes production and incomes—and hence savings—to fall. At less than full employment, “everything goes into reverse.” The same applies to governmental thrift.
The Great Depression was a breakdown not of a single market but in coordination among markets, but Samuelson did not coin the term macroeconomics that now refers to effective demand by households, businesses, and government; total amount of unemployment; the rate of inflation; and such. If there was one message that Samuelson meant students to take away, it was that monetary policy no longer worked. The Great Depression was proof of that, he asserted: “Today few economists regard Federal Reserve monetary policy as a panacea for controlling the business cycle.”39 The ideas of the Fed seemed as dusty and dated as flapper fashions. The same could be said about Irving Fisher, who had died the year before, or, indeed, of the pre-1933 Keynes.
• • •
Any impression that the runaway success of Economics in university classrooms implied an embrace of the new economists in Washington is incorrect. Despite the gauzy nostalgia in which the 1950s are wrapped today, the decade was notable for three recessions, one of which was severe, and toward the end of the decade relatively high unemployment. Historians have sometimes underestimated the urgency with which Truman, and later Eisenhower, viewed the need to balance the federal budget and, in particular, to cut military spending. They have also sometimes confused Truman’s hawkish Cold War rhetoric with actual commitments to back words with resources. But, as Herbert Stein explains, Truman sought major cuts not just in 1945, but in 1946, 1947, and 1948 as well. The Marshall Plan was an exception, not the rule.
How to explain the gap between theory and practice? Fiscal prudence, for one thing. Truman was convinced that a strong defense was predicated on a healthy economy and attributed Allied victory in no small measure to America’s ability to fulfill its role as the arsenal of democracy. To Truman, who was a Midwestern fiscal conservative and economic conservative (and, in any case, was dealing with a Republican Congress), the top priority was putting a stop to the run-up in war debt by eliminating the federal government’s annual deficit. What’s more, as America’s complete lack of defense in 1940 shows, there was no tradition in the United States of a large peacetime military. After the defeat of Germany, the pressure for demobilization was irresistible, and Truman’s subsequent proposal for a universal peacetime draft was overwhelmingly defeated. So, added to the need to project power globally in order to defend the United States was the need to do it on a shoestring.
The Keynesian revolution didn’t capture Washington until the sixties. Of all of Samuelson’s students, none was more important than John F. Kennedy, who, shortly before the 1960 presidential election, invited Samuelson to give him an alfresco seminar at his family’s home in Hyannis Port on Cape Cod. “I had expected a scrumptious meal,” Samuelson later joked. “We had franks and beans.”
On the whole, JFK’s cold, calculating, cautious temperament appealed to Samuelson. The new president was hard to sway, but he would stick to his guns once he had made up his mind. Despite a large budget deficit, Kennedy called for a huge tax cut to revive the sluggish economy and his abysmal approval ratings. “The worst deficit comes from a recession,” he told the nation in a televised address, adding that cutting tax rates for individuals and businesses alike was “the most important step we can take to prevent another recession.”
The 1963 Kennedy tax cut, passed after the president’s assassination, was a huge success. By 1970, President Richard Nixon was insisting that, “We are all Keynesians now,” but the tax cut marked the high-water mark for Keynesian theory of managing the business cycle. Samuelson’s view was that Keynesianism was toppled by stagflation—that nasty combination of unemployment, inflation, and stagnating productivity that afflicted the world’s richest economies in the 1970s and 1980s—rather than a rival theory. But by the late 1950s and early 1960s, Milton Friedman was already mounting a major assault on the reigning paradigm from the University of Chicago, challenging the notion that the government could pick any combination of unemployment and inflation that it wished by fiddling with the government budget. Reviving the legacy of Irving Fisher, and the theory that the supply of money determines the level of economic output, and reinterpreting the Great Depression as a colossal failure of monetary management, Friedman first convinced young economists and later President Jimmy Carter, who appointed Paul Volcker to tame the inflation monster, that money mattered after all. Neither Friedman nor Samuelson ever returned to government, both confident that they could have a bigger impact by teaching and writing than the staff of a president or the Fed.
Chapter XVII
Grand Illusion: Robinson in Moscow and Beijing
It’s very difficult these days to lecture on economic theory because now we have both socialist countries and capitalist countries.
—Joan Robinson, 19451
Moscow in April is still frigid, and the snow has not yet melted away, but daylight lingers until almost nine at night, and old women from the country selling mimosa blossoms suddenly appear on street corners. In the spring of 1952, not long after Winston Churchill announced that Britain possessed the atomic bomb, Joan Robinson stared at the golden domes of the Kremlin, feeling that her heart might burst. The sight was both intensely familiar and strangely unreal. “I gaze and gaze,” she wrote in her diary, “and wonder if what I see is really there, and if this is really me looking at it.”2
Later, in the mammoth Hall of Columns, Robinson only half listened to the bombastic speeches, peace resolutions, and “fraternal” greetings from the “women of Scotland.” Her mind was taken up with impressions of the new society outside: the farmers’ market with its rosy heaps of radishes and piles of chartreuse lettuces; the sparkling shops with plaster hams, sausages, and cheeses in their windows (not because, as in England, the real thing had run out, but to avoid wasting food on a window display); the free day care centers where working mothers dropped off well-dressed, well-fed children; the clever consignment shop where outgrown clothes could be recycled (“What a good idea!”); the “ ‘Swedish’ standard of public orderliness and cleanliness”—without the joyless Scandinavian atmosphere. What a contrast to dreary, dirty, dilapidated London.3
Robinson luxuriated in her hosts’ generosity, so lavish that it almost seemed as if money really had been abolished by the first Socialist Great Power. Four hundred and seventy delegates to the Soviet-sponsored International Economic Conference were being treated like royalty.4 They were housed in a hotel with “sweeping staircases, chandeliers, malachite columns” grand enough for any sultan.5 Travel from Prague, Czechoslovakia, was gratis. Each delegate was given 1,000 rubles of pocket money to spend on vodka, furs, and caviar in specially stocked stores. A fleet of one hundred limousines, with uniformed chauffeurs, was on perpetual standby, though Robinson gamely
insisted on trying out the subway and trams despite the absence of street maps and her lack of Russian.6 The best seats at the opera and ballet were always available to the delegates. In contrast to English rations of powdered mashed potatoes and sausages that tasted like wet bread, Moscow dinners were “fabulous.” Even the homely act of eating was a reminder of what it meant to be a “coming” rather than a “going” Great Power. After one feast, Joan could almost see “the continent stretching around me, as a Victorian diner might have felt the seaways of the world bearing provisions to his table.”7
“Oriental lavishness” notwithstanding, Robinson stressed that her Russian hosts displayed “Nordic efficiency” in running the conference. Five hundred interpreters, translators, typists, messengers, and other minions, more than one per delegate, were at the visitors’ disposal. Joan was confident that “All the interpreters, cars and guides are not to check our movements, but for our convenience.” The promise to refrain from overt propaganda was scrupulously observed. (Time reported that the Russians had even removed the ubiquitous life-sized portraits of Stalin that normally hung in every public room.)8 In postracist Moscow, Robinson exulted, “you can freeze off an Oriental bore just as you would an English one.”9 Here was the reality about which the West was in denial.
Instead of dark forebodings about the future of the West, Robinson was filled with Panglossian optimism about the East. The conference was a Socialist Bretton Woods, a United Nations of Socialists. The conference hall was “cleverly outfitted” with simultaneous translation machinery that seemed to embody the delegates’ hopes for a unified global economy and global understanding.10 A rift had developed in the world economy, thanks to a Cold War that Robinson, like most of the other delegates, assumed was instigated by the world’s new imperial superpower, the United States. Lord Boyd Orr, head of the twenty-three-member British delegation, spoke for most of the delegates when he called for East and West to “burst the iron curtain by wagons of goods coming from the East bringing a surplus of goods which the West needs, and wagons of goods going through taking the surplus goods from the West that the East needs.”11 Delegate after delegate insisted that once “artificial barriers” such as the new American ban on strategic exports to the Soviet bloc were removed, the current trickle of East-West trade would become a torrent capable of sweeping away economic ills—from unemployment in the British textile industry, to chronic poverty in India. One delegate from the United States was sure that trade agreements would spark a “spiritual chain reaction of the brotherhood of man” and stave off a nuclear holocaust.
After a week in Moscow, Robinson decided that Stalin was no dictator but a solicitous if stern and somewhat distant father. She recorded a story that she found especially touching: An old cook who had been in service with a Moscow family before the war was assigned to factory work in a rural town after the Nazi invasion. When the war was over, her mistress’s family got permission to return to Moscow, but the old servant was left behind. “After trying the regular channels in vain,” Robinson noted in her diary, “she wrote to Stalin . . . explaining that factory work did not suit her, that all her village had been wiped out and that she had no friend in the world but her old mistress.” According to Joan, “She got a permit within three weeks.”12
Robinson left Moscow more certain than ever that the Cold War was a mistake rooted in American paranoia rather than in Soviet designs. Her Conference Sketchbook, published soon after her return to Cambridge, concluded serenely. “I soak through every pore the conviction that the Soviets have not the smallest desire to save our souls, either by word or sword,” she wrote. Without alluding explicitly to the imposition of Soviet rule in Eastern Europe, she was convinced that the Soviets were motivated solely by the fear of Western encirclement. “If they could once be really assured that we will let them alone, they would be only too happy to leave us to go to the devil in our own way,” she assured readers. “If our local communists think otherwise, they are the more deceived.”13
Robinson portrayed herself not as a pilgrim in the new Socialist Mecca but as an objective observer, a truth teller. She insisted that she and the other participants in the conference were not “delegates from anyone but, a job lot of individuals” aware of “the importance of telling the exact truth about all we have seen here.”14 She did not necessarily expect to be believed, however. She wrote to Richard Kahn, “We are steeling ourselves to meet all the dirt that will be slung at us when we get back.”15 Instead of dirt, her lectures on Soviet society drew decent-sized crowds in Cambridge when she returned. “But what about the alleged plot of Jewish doctors to kill Joseph Stalin?” one undergraduate with an American accent had ventured. She didn’t miss a beat: “And how about your lynchings in the South?”16
• • •
By then Robinson was well on her way to becoming one of the Communist bloc’s Parade-Intellektuellen, or trophy intellectuals, a demanding but rewarding role that involved yearly junkets, photo ops with potentates, a Moscow bank account, and a network of friends consisting largely if not exclusively of government apparatchiks, underground Communists, and spies.
Readers of the Sketchbook would have been surprised to learn that the wide-eyed narrator who had tumbled Alice-like into a Socialist Wonderland was, in fact, one of the conference organizers. Robinson was one of two British members of the Initiating Committee, although she insisted that she had signed on merely as a favor to “her old friend Oskar Lange,” a Polish economist who collaborated with the KGB. The British Foreign Office was convinced that she was “well aware of the origins” of the conference, and other committee members commented on her “extreme views,”17 which matched those of the other British delegate, Jack Parry, a Communist Party of Great Britain (CPGB) official as well as a businessman. Alec Cairncross, a member of the British delegation in Moscow, reported that the delegates knew that the conference had originally been conceived as “the next installment of the communist peace campaign” and took for granted that Stalin’s main motive in hosting the conference was political; namely, “to drive a wedge between the USA and her European allies.”18 The economists in attendance, including Lange, Jurgen Kuczynski, Piero Sraffa, and Charles Madge, were nearly all party members or fellow travelers.
That is not to say that Robinson had any deeper insight than Harry Dexter White into the true drift of Stalin’s thinking. For example, she was probably unaware that he had repudiated the entire premise of the conference just weeks before. In remarks distributed to the Central Committee in early February, Stalin had attacked the very notion of peaceful coexistence and economic convergence with the West that was the gospel of the One Worlders like herself. He accused Soviet Communists who predicted a reconstitution of a single global economy of being misled by the flurry of international cooperation during and immediately after the war. The chief legacy of World War II, he warned, was the permanent division of the global economy into “two parallel world markets.” Socialist economies and capitalist ones would evolve in isolation from, and opposition to, one another. The “inevitable” outcome would be deepening economic crisis in the West, intensifying imperialist rivalry, and, ultimately, a fratricidal war between the United States and Britain: “The inevitability of wars between capitalist counties remains in force.”19 All this, Stalin assured committee members, was a matter of scientific law.
He was quite sincere, John Gaddis, the American historian of the Cold War, has concluded.20 Apparently, Stalin was as devout a believer in a secular apocalypse as Marx or Engels a century before. Had they been widely known, the timing of his pronouncements would have put the Russian conference hosts in an awkward position. On the one hand, they had dangled the prospect of huge orders in front of British textile manufacturers and other businessmen to ensure their attendance. On the other hand, Stalin had gone so far as to claim that the Communist bloc would soon be able to dispense with Western imports altogether. If anything, he insisted, the Soviet Union and her allies would soon “feel the nec
essity of finding an outside market for their surplus products.”21 However, on the eve of the conference, Stalin espoused the more politic view that the “peaceful coexistence of capitalism and communism” was possible, subject to noninterference with the domestic affairs of other countries and other conditions.22
If Robinson felt let down in any way by the proceedings, she gave no sign in either her public accounts or her letters to Kahn. In all likelihood, she and the other foreign delegates had not seen Stalin’s remarks to the Central Committee, which Stalin kept from the press until releasing an English translation the following October.23 The trade deals made at the conference added up to very little, particularly when compared to the inflated rhetoric with which they were presented. An economist estimated that the volume of East-West trade implied by the proposals was considerably below prewar levels.
Or perhaps Robinson did suspect the truth. At one point, she wandered into some offices at the commerce ministry where abacuses and desk calculators lay side by side on desks. Possibly it was that anomalous juxtaposition of modern and ancient that drew her attention to another incongruity: namely, that the Soviet economists at the conference had “raised not quoting figures to a fine art.”24
• • •
One of Robinson’s biographers, Geoffrey Harcourt, an economist at Cambridge, dates the beginning of her political “conversion” to 1936.25 For British intellectuals, 1936 is associated less with the Great Depression, which was nearly over in Britain, than with the beginning of the Spanish Civil War. When Germany and Italy intervened on behalf of the Nationalists, and the Soviets on the side of the Republicans, the conflict came to be seen as a proxy war between Fascism and Communism. Stalin’s willingness to fight the Fascists in Spain enhanced Soviet prestige, while Britain’s and America’s refusal to engage in the struggle made them seem, at best, pusillanimous.
