 Good afternoon. Before we resume our program with Professor Bruner's lecture, let me point out to you that on the last page of the official Nobel program, there are small question forms, apparently perforated, which you can use to submit questions to members of our panel. We will reconvene. The panel will reconvene the complete panel at the close of Professor Bruner's lecture, and we will do something similar, as often as time permits, throughout the conference to permit the participants to respond to one another's lecture, to query one another, and to take as many questions from the audience as we are able to. So I mention again, we do have the question forms on the last page of the Nobel program. Now I would call upon my colleague, Professor Ann Leidecker, to give the introduction for Professor Bruner, Professor Leidecker. It is indeed an honor and a pleasure for me to introduce you to this afternoon's first speaker, Professor Karl Bruner. Professor Bruner comes to us from the University of Rochester, where since 1979, he has held the title of Fred H. Gowan Professor of Economics in the Graduate School of Management. Since arriving at the University of Rochester campus in 1971, he has directed the Center for Research in Government Policy and Business. Professor Bruner is well known for his work in monetary theory and monetary policy. He has done extensive research and writing in many areas of economic science, including the methodology of science, econometrics, political economy, economies of developing economies, international financial markets, and the extension of economic analysis to a broad range of social issues. Professor Bruner has been actively involved in an ongoing debate over the selection of appropriate monetary policy and methods of implementing the policy. In addition to his research, extensive publishing and lecturing, Professor Bruner has found time to co-organize a number of seminars, conferences, and committees on monetary theory and policy. Among these are the biannual Carnegie Rochester Public Policy Conferences, the Shadow Open Market Committee, and the Shadow European Economic Policy Committee. Professor Bruner has also founded and edited two journals, most recently, The Journal of Monetary Economics. Although much of his life has been spent in his native Switzerland, in West Germany, in California, and in New York State, Professor Bruner is most not unfamiliar with the Midwest. He taught as a visiting professor at Northwestern University, at Michigan State University, and at the University of Wisconsin at Madison during the early 60s. And he spent five years as a professor of economics at Ohio State University prior to moving to the University of Rochester. In fact, he attributes some of his fondness for small private colleges and universities to his experiences at large UCLA and these Midwestern universities. But Gustavus has an additional appeal to Professor Bruner beyond the fact that it is a small private liberal arts college. He apparently has a very strong interest in the 30 years war. His hero, Gustavus Adolphus. We are delighted that Professor Bruner could make time in his busy schedule to be a part of this year's Nobel conference. Yesterday, as Greg Meyer, the student host, and I, were escorting him from the airport to campus, we heard Professor Bruner describe Keynes as a romantic utopian dreamer who spoke generally and vaguely of his economic hopes. Greg and I are interested in hearing more of what he has to say about Keynes. I'm sure you are also. Let's give Professor Bruner a warm welcome as he speaks to us on the topic, The Legacy of Keynes, Sociopolitical Visions of Keynes. Ladies and gentlemen, the moral crisis of our age has been frequently and long discussed by many learned and thoughtful men. One of the last exercises of this thought was in this fascinating book by Johnson on Modern Times. The old orientations, conveying meaning, valuations, and interpretations of life, the universe, the position of man in life, the relation of man to the universe transmitted by the Christian churches, crumbled, and decayed. Nietzsche expressed this situation in a famous and remarkable passage in his book on the joyful science. He describes a man searching in the dark with a lantern, running around, looking in all the dark corners, and ultimately announcing that God is dead. The philosopher Moore, the English philosopher Moore, late in the 19th century, experienced his moral shock himself in his life and tried to cope with it for his whole lifetime. He tried to find the new orientation, to devise a new ethical steering for man in order to replace the void which has been created by this development. And so did the Christian churches, at least some of them. They moved increasingly in this century into the direction of a social and political activism. And it is a matter of remarkable historical irony that by doing so, they fulfilled the prophecy made about 140 or 150 years ago by Feuerbach, a post-Tigalian philosopher overlapping in time with Karl Marx. He projected that a new religion would arise above the historical horizon, and that this new religion would be politics, politics as a new religion was seen. Now Keynes was born into this age of intellectual moral fermentation. The philosopher Moore affected very much his early beliefs. And these early beliefs, according to Keynes own testimony, shaped his life and influenced his life for the rest of his time. It was a time and an age of questioning, a questioning extended to the inherited social order where the consensus which had been established and which had been maintained for a long time was increasingly eroding. The social and political order and the moral order increasingly became the central problem. And diverse, many essays of Keynes written during the 20s, beginning with the economic consequences of peace, testified to his interest and deep concern in this direction. They are united by a single theme, namely the search for a viable human order, a viable order of human affairs. Keynes was much more than a technical economist, important in spite of however lasting the influence he may have had in this respect. He had a broader horizon and a wide interest addressed to fundamental issues in our time. Now, in order to understand and appreciate his socio-political vision, I have to prepare the ground very quickly. And for that purpose, I want to lay out in the shortest and roughest outline the socio-political spectrum scheme for that. Basically, I concentrate for that purpose on two criteria. One is the constitutional arrangement with respect to government and the role of political institutions. And secondly, the constitutional arrangement with respect to property rights, particularly private property rights. Now, I use for further, however rough and ready the classification may be, I fall back in my case on a European tradition, and not so much on the US classification, a European tradition, particularly on the continent. And I group things and positions into four groups, namely the socialist, social democrat, liberal, and conservative vision. Now, first, the socialist vision, to be as short as possible, it essentially emphasizes the elimination, abolition of private property. There may, of course, in practice, as we know from the satellites of the Soviet Empire, some variation on the theme of residue of private property, tenuous, as it may be operating in a gray-black zone, as in Poland and Hungary and so on. But nevertheless, the major theme is the abolition of private property. Also, whatever constitution exists has no meaning and is irrelevant with respect to specifying anything under the circumstances about any relevant constraints about government and the political institutions. Now, I have to leave it rough and ready as it is, unsatisfactory as it is, and incomplete with that. It's sufficient for my purposes immediately at the moment. The social democrat vision is quite a bit different. The social democrat vision emphasizes the large, open-ended government, particularly designed for a massive redistribution of wealth between the various income groups. There may be some constitutional provisions bearing on the government, but highly qualified and highly conditional, which can be easily, relatively easily modified by legislative processes. Also, private property continues to exist in the private sector, even in the means of production. But the private property also, while there is a constitutional anchoring, the anchoring is rather loose and easily qualified and conditional in many, many ways. And basically, the operation of markets and private property are always looked at with some sense of suspicion in this context. The liberal vision is very, very different, differs quite radically from all three others. It provides very severe constitutional contraint on the government and the political institutions and very severe anchoring and rigid anchoring with respect to the guarantees and safety of private property. Firstly, the conservative position is really the hardest to describe a bit in many ways. It accepts a large government, a comparatively open-ended government with a substantial element of redistribution, supplemented, however, by a large net of semi-government enterprises and the complex interlocking system of private enterprises with government agencies of various kinds. There has been always looming or lurking behind the conservative position, some flavor of a corporate or corporativist state. And I will come back to that later on in connection with some of the ideas of Keynes' position himself. Now, having laid out this, I should mention the following quickly in passing. The first two positions are usually subsumed under the American liberal position and the last two under the American conservative position in a rough approximation, however. There is some shifting around sometimes a bit in this respect. Also, we should be very careful not to correlate this classification with party labels. Friedrich von Hayek wisely decided to address his book, as he says on the front page, to the socialists of all parties. There is substantial overlap between conservatives and social democrats, for instance, in Europe. You can observe in Europe. There is substantial overlap between the liberal parties and the social democratic parties in some of the European countries, particularly also if you look even in some of the small countries like Switzerland and so on and so forth. Lastly, I haven't said anything about ideas. Now, I can only mention it very, very closely. After all, it is quite true man does not live of bread alone. And all these positions on institutional features are associated with the whole superstructure or under structure, whichever way you want, of important ideas. And these ideas are quite crucial. They give justification, rationale and support for the vision with respect to the institutional structure which I tried to address and outline in the roughest way possible. Now, these ideas are very important. They give us, however, a scale against which we can measure, actually, the performance of these institutions. And the point is why I emphasize this institution because ultimately the actual consequences are the result of the working of these institutions and the incentive structure addressed by these institutions. However, the ideas associated play a useful function because sometimes in some ways, if I look around, I find that the ideas are essentially ultimate reality in the behavior of many people, that behind the ideas and the words which express them, the actual reality expressed by the institution seems to be fading away. But we may have to re-emphasize the actual reality time and again. Now, what is Cain's position in this context, in this general broad framework? First, very clearly, he rejects quite unambiguously the liberal position. He's very firm, very definite, quite unambiguous about this. Now, he has a very useful article which gives us a very interesting clue to him and his thinking. The article I refer to is Amaya Liberal, written somewhere in the middle 1920s. He reviews the three parties, the labor, conservative, and the liberal, and assesses what do they mean to him, to him in terms of how relevant are they for society, in terms of what they do and what they propose. Well, the conservative party, we can start with them, gets very shortly dealt with. They simply don't get anywhere else at all. They have no future, it has no future, it has no standards, no intellectuality, nothing. So, out it goes. The labor party is a party of class, and it's nothing class. If a class war would emerge, his side would be, in this case, on the side of the educated bourgeoisie. And then he makes a very interesting point, which, after six years, is quite interesting to observe. He makes the point, namely, that it is always in danger of getting under the control of an autocratic inner ring. And if so, then this inner ring will operate in the interests of the left wing, which he labels a party of catastrophe. So, no, that's not the party which he sees a relevant future for society. But what about the liberals? Well, he indicates that this is the best instrument and the best hope of success for the future. But it is too much tied to the glory of the past, to the glory of the past battles which were victoriously won. Or it has a lack of leadership, and it needs a new program. And then he lays out essentially a program of five points. Let me only pick out two. The two which I want to pick out are the government, where, and I emphasize this first, and I come back to this afterwards again, namely, the government needs a vast overhaul and a vast extension of the new agenda with many new tasks and operations. And this has to be proceeding in the form of many different semi-autonomous enterprises which ultimately work, however, under the democratic principle of parliamentary sovereignty. That's a verbatim quote of what he says there in his passages. With respect to the economy, he emphasizes essentially one major point. He doesn't elaborate very much or give much detail. Namely that the economy needs deliberate control and deliberate direction in one sense or another. Now, if we lean back and ponder that, the question is, does he ponder for socialism? Well, now, let us consider that. Let us have a look, consider the following. In one of his essays, he presents a very long passage with an interesting phraseology. He really knows how to make words. It goes like this. He compares communism with a new religion. And that's a very, very important theme in Keynes which is really related to Feuerbach's point and which will occupy us a bit in my presentation to you. He compares it with a new religion and he goes like this. Like many new religions. It is thus and thus and that and that. Like many new religion, it behaves in this and this way. Like many new religion, it is that and that and so and so and so on down the line. I just pick a few of them. It is intolerant. It is merciless. It persecutes without justice and without pity. Also, it takes the joy out of life and it creates a drab existence expressed by wooden faces. Well, so much for that. And then he has a particularly interesting sentence. So I quote it. He says, if we sit in our comfortable capitalist easy chairs and we want to frighten ourselves, we might think of the following. Consider the early Christians led by Attila the Hun using the equipment of the holy inquisitions and the missionary apparatus of the Jesuits in order to enforce ruthlessly the literal economics of the New Testament. Now, if you consider that from the literal economics of the New Testament, two groups in the last two years, the Catholic bishops in this country and the lay commission of under William Simon have drawn a radically opposite conclusion, you will realize that the enforcement apparatus would have been rather strong and definite in this respect. Now, however, there is more to it. And Cain's is more complex and more ambivalent than it seems with all these statements. There is the following. We also read the following. We read, for instance, in great detail, namely that the moral problem of our age is the love of money. Now, of course, it doesn't mean literally the love of money. What he refers to is, say, for instance, our endeavor to accumulate wealth and to improve our lot in this respect through the systematic accumulation of wealth. We don't want just simply to sit on a pile of money. Hardly anybody I see wants to do that. So we have to really understand him what the address is doing this respect. And he deplores that social approbation and social status is distributed according to the criterion of wealth. And he thinks that it is a moral challenge which we face in our time that this be changed in some substantial and definite ways. He emphasizes that we should change the relative importance of the various criteria according to which we judge people and persons and human affairs. He emphasizes that we need to change our thinking and feeling in this respect. There is another point, a passage, which is very revealing and very interesting in this respect. He talks about why he does not object to what he calls doctrinaire state socialism and why he does object to doctrinaire state socialism. And he says, for instance, he does not object because it is opposed to laissez-faire, so is he. He is not opposed to state socialism because he wants to engage man's altruism in the service of society. He wants to do the same. He is not opposed to state socialism because, as he says, it takes away the liberty of making a million. He sees no reason why people should be able to make a million and so on and so forth. There is also a further interesting passage which I find very revealing in the sense of the point raised by Feuerbach. Namely, he says, we should look at communism as a first stirring of a great new religion of the future. So if you put all this together, these various points, first, which I mentioned, then the ambivalences afterwards, the picture which emerges is a man with a social political vision who rejects the implementation of socialism, the only one which we know historically so far, but at the same time accepts major and central strands of the socialist vision. Now, what is actually, however, Cain's own position? Well, we know that he certainly is not in favor of the standard socialism. That is out. It's an interesting combination of elements, an intriguing combination of elements which we encounter. We encounter a central element strand of the socialist vision as I tried to indicate before, and at the same time elements from the Social Democrat and Conservative program. And we find particularly emphasis in the following directions. He emphasizes time and again the importance to develop large autonomous bodies encompassing major industries, putting together groups of firms in one form or the other. And then he argues that the managers of these autonomous bodies will be essentially proceed to follow the public good. We can pretty much rely on that. That deliberations of private advantage, considerations in pursuit of private advantage in one manner or one dimension of the other can be trusted upon not to be followed, will be disregarded. And that, therefore, the thing will reasonably function to the extent that this is not the case. There will be people around like himself who will keep a watch and speak up in order to keep the managers on the straight road which they should go. Lastly, he emphasizes that in the last resort, there will always be the accountability to a parliament and parliamentary control. And it's quite clearly that the trust parliament will be not only able to do this job, but actually also perform this job adequately and efficiently. Now, there is a strong flavor here, at least to the extent these suggestive points go, of elements of a corporate or corporative state. President Teddy Roosevelt would have found this appealing. All the French conservative intellectuals from the early parts of this century, strongly influenced by the papal senslicical de rerum no varum, would have also found this very intriguing and very interesting. The institutionalization in Italy during the 19th in the interwar periods bears some vague family resemblance to that, continued by the coalition of parties in the post-war period in Italy, which offered ultimately an opportunity to a substantial underground economy of small enterprises to develop and to develop particularly a dynamic Italian economy producing a real income substantially above the English real income at this stage. Now then, there is a further element which I want to emphasize, because it is particularly important if we look at the development of Cain's thoughts as a whole, over 15 years or more. He emphasizes an element in the agenda of government, which he took up in the general theory. Then he emphasizes very much the existence of a pervasive uncertainty throughout the economic system, a pervasive uncertainty which obstructs its machinery and obstructs its efficient performance. And that the obstruction lies at the heart as he emphasizes already 10 years before the general theory, it is at the heart of the investment savings nexus. It doesn't function properly and this improper functioning of the investment savings process really requires attention and is really the basic rationale why we need a new program expressed by a new liberalism. Now, having developed that in this way over the 20s, there is, if we look in detail, there is really not yet the sufficient and adequate rationale for this vision which he laid out. It seems to hang in the air. And the rationale was really provided by the general theory. And if you look at the general theory in the context of all these essays which he had written since the economic consequences of the peace, I find it a remarkable and coherent story fitting really well together. That the general theory gave the basis and analytic foundation what he wanted really to express already throughout 1920. Well then, I have therefore to spend a few minutes with you on the general theory. I tried to be very short and just to emphasize what I consider the fundamentals which are important in this particular respect. The central theme of the general theory, of course, is that capitalist societies or societies based on the social coordination via markets will are unable essentially to produce in the average a full employment solution. That they will typically and in the average settle on an under-employment around an under-employment equilibrium, an under-employment substantially below full employment. And that this is due to a deep structural flaw, a deep structural failure in the economic machinery. And the point of the general theory is to trace and locate and make us understand what the nature of this failure is and having traced the nature of this failure, what the cure is and how the cure really involves an application of a sociopolitical vision. Now, if you look a bit further at his presentation in the general theory, there are a few points which I wish to emphasize. One is the following. The problem which exists emerging from an interaction between aggregate real demand for output and aggregate supply of output is really that the process is dominated by underlying real conditions, non-monetary conditions, basic institutional factors in a way which play a role in this respect. Money and interest rates occur in the title, but they are really an appendage. They are a sideshow away from the central stage. They play a role quite temporarily, creating possibly some movements around the under-employment equilibrium, but they cannot jog the under-employment equilibrium to higher levels in any way. They cannot exert a permanent effect on the under-employment equilibrium. In a way, Keynes denies then therefore a major building block of post-war mainstream Keynesianism, namely the Phillips curve and the permanent trade-off. There is no permanent trade-off in this analysis. It excludes the idea of a permanent trade-off between inflation and under-employment. Now, where is now the problem located in this respect? The problem is located in the investment process, and in particular, the nature of the stock market. I have to be now very, very short to give you just the major emphasis, which is important for me. There was a lot of interesting detail in this analysis bearing on the problem of investment, but it ultimately goes back to the stock market as an organizing device, linking savings and investment. And something goes wrong there in this mechanism, linking the two activities. What he emphasizes is that there are two kinds of operators there, they are the enterprises and they are the speculators. And the enterprises are essentially concerned with assessing fundamentals and getting an assessment of investment projects on the basis as best they can of their true values relative to their cost. The speculators, however, they try just to assess the future price, the immediate price in the future. And they guess this price, but then that's not the end. Then they try to guess what all the others are guessing and try to get the average of everybody else's guesses, but that's not the end either. Then they try to guess the average guess of the average guess of everybody else. And then they try to guess the average of the average of the average and so on. And then he says this is like a beauty contest game of a newspaper which gives you a photographs of pretty girls and you have to pick the one which looks prettiest, but at the same time the one which is nearest to what everybody else will guess. And the conclusion is that the result is total irrationality and that the process which links saving and investment cannot lead to a rational allocation of savings into building resources for future consumption. Now what is a cure? It toys with the idea of transfer taxes, transfer taxes, but he rightly rejects it because it would not be consistent with his own analysis which has a totally different stress. He advocates socialization of investment. What is interesting, he does not advocate adjustments in fiscal policy or financial tinkering of any kind and again rightly so, because that would again not be consistent with some basic thoughts which are related to his theory. Because his point is once you socialize investment you might just as well utilize this opportunity to build up the real capital within two generations to the point where it is a non-scars free commodity and the interest rate has been driven to zero. And that would at the same time contribute to a redistribution of wealth along the lines which he desires. That was essentially the central point justification as I can see in the general theory why he favors socialization of investment over fiscal policy pursuits to play and to solve this problem. Now let us look now a bit at some of the problems which arise in this point. And I have here, I offer some reservations, some questions to ponder and to look at. Some of them probably a bit controversial, that's all right. But we'll see. First I have two points which I want to consider. One is his diagnosis and the problems with his crucial diagnosis. The second point is bears on positive and normative aspects of the underlying political economy. Now let's look first at the diagnosis. There we have the beauty contest game. The problem I have two problems there, an inference problem and a factual problem. The inference problem is simply this, that I contest that the conclusion he draws follows from his analysis, from his argument. Namely when he compares it with the beauty contest game. As a matter of fact, his analogy limps very badly and is really quite inadequate. But consider, there are two possibilities as Jakubowski told the column, you remember. Namely either in the first level and the first round of estimating the stock prices. The speculators assess fundamentals directly or indirectly. Are you watching the enterprises? Or then they do themselves a job. And then afterwards they go to the second round. But the second round offers them more information under the circumstances relative to the first round. And the third round again exploits information which they didn't have before and so on. So under the circumstances the process is really improving information and therefore would contribute to market efficiency. But that's not the case in the case of the beauty contest. You don't change your information patterns about what you think is pretty. That has no bearing in this respect at all. Or then suppose there are random guesses. Well, if there are random guesses and unbiased, the result is exactly the same. If there are biased random guesses, then the question is simply this, how long can the speculators survive against the enterprises? Against the enterprises. And there the point, the factual issue comes up. Is it really true that the New York Stock Exchange, the speculators and enterprises are distributed according to Keynes the way asserts? If we look at the immense amount of resources, systematically invested into information gathering, information assessment, if you'll follow a bit the finance literature which has investigated these issues in specific detail over the past five to 10 years. There I have some doubts in this respect. So I have some reservations in this respect bearing on his diagnosis which is at the bottom of his conclusions. But let us move on. There is now matters of political economy. There, there is a following. Underlying his analysis, there is a fundamental issue which affects all our disputes about the nature of societies in a subtle way in many, many ramifications. It's something which has sort of occupied me now for quite some years and which I followed up in a variety of articles and tried to develop in a variety of articles. I can only give you the shortest outline of this. Namely, there are two alternative perceptions of man. Both going back to the 18th century. One to the French Enlightenment and the other one to the Scottish moral philosophers. And their yields went further developed as they have been over the last 200 years to radically different implications pertaining to the evaluation of political institutions, constitutional arrangements and the nature of our social arrangements and what the desirable society looks like. There is one perception going back to the French tradition which looks at man born as an empty slate, an empty slate which can be filled in any which way by social engineering and social experience. Man is totally mullable. The basic nature is changed by institutional variations. On the other hand, we have a different perception of man. Man is born with a genetic endowment. The genetic endowment is not deterministically affecting man. Man are not bees, they are not ants. They are born with general dispositions to respond and to act in various ways under different circumstances. But the point is among this general disposition is one basic feature. I mean that the basic nature of man represented particularly by his self-interested behavior is invariant under institutional variations. Now I do have to make quickly a point about that because there is a lot of confusion in the social science literature on that one always equated with egotism, it is not. Self-interest essentially simply means that man given a choice will prefer to make fundamental lifestyle decisions and all kind of other decisions himself. And he will not irrevocably and permanently is not willing to delegate them irrevocably and permanently to others. He may delegate them under conditions for a while in order to make life easier to economize in but to monitor them also what's going on. That's a fundamental difference. Even the one of the saintliest man I ever know in history at least my legal knowledge, Francisca Zafacisi very clearly reflects his attitude. He was not very obedient to the pope or to his own organization. He followed his own understanding of God. Now then following that there are serious implications and I can only give the roughest indication of that as to cane sociopolitical vision. First there is frequently a confusion particularly in the sociological literature as to a change in the basic nature of man and the change in his specific behavior pattern following the same basic nature but adjusts to the opportunities and incentives which are totally different institutional environment offers him under the circumstance. And we have to consider the following that the alternative to what Keynes emphasizes the love of money or simply that man is interested to pursue wealth and to improve his lot in one fashion or the other but also I find if I look around that he's hardly single-minded about that because most of us have a lot of trade-offs in this respect which he express every day in our life in many ways. So we have to be a bit more careful in this respect but that the alternative if you abolish that is not generalized love thy neighbor attitude a generalized altruism addressed to everybody but something entirely different. He will follow other attitudes expressing his self-interest and improving his love. There will be career, influence, positions of various kinds expressed by various criteria in one fashion or the other. All we have to do is wander around Washington for some time or wander around organized churches around for some time or universities for that matter and other non-profit and non-market organizations of one kind or the other and look at what happened over history continuously in this context. Now, that has a bearing on this vision of autonomous bodies. Why should we think that we can't rely? If we really watch on the behavior of man why should we think that they will single-mindedly pursue the public good? If they have an opportunity to misuse their power and get away with it? Well, but what about parliamentary control? Well, let us look at the following. Keynes is very right if he says that's why he rejects socialism that the trend of what he proposes is already underway. He's right in many ways. I look just at my own native country, Switzerland. Indeed, their vast systems of autonomous, see my public, see my private bodies. And they are really autonomous. Parliamentary control, that's a joke. Parliamentarians have a collusion with many of the managers. They belong to the same party. And the various autonomous bodies are divided according to a cartel between the parties. The same in Germany or Italy. All parliamentarians are on supervisory boards, coordinated with the managers or they expect appointments as executives once they leave parliament in one fashion or the other. There are many, many interlinking, interlocking arrangements as a result of which there is very little incentive for parliament to do the job which Keynes proposes. Or also the information problem is really very, very serious so that the monitoring problem is very hard leaving a large leeway for the managers to pursue some private advantages not in a pecuniary sense but there are many, many other dimensions to do so at the cost of the public interest in one fashion or the other. So this is one major problem which we encounter in this respect. And this raises a fundamental issue which we really should ponder again. And it is implicitly raised by Adam Smith and I think it is still highly relevant today. Namely, as a slogan, should we fit man to the institutions or the institutions to man to put it a bit better? Should we expect that we can change the basic nature of man as proposed since the church follows by suitable institutional arrangements and engineering? Or should we accept the basic nature of man and then adjust institutions which do the best under the circumstances to mobilize man's nature which he has so that in the average he produces something useful that something useful in the average for which the rest of the community can benefit? And this still remains a fundamental issue and another one that leads me to the moral question which I want to touch upon which I cannot elaborate in detail. I have in detail developed this in the paper because it is part of Cain's problem at this point. And this is what kind of institutional arrangements moderates the impact on third parties. If man engages in moral lapses in one kind or the other. Is the range of third party effects larger under the socialist institutions? Or is it larger under the open institutions of a market-oriented economy? Or put it differently to those who watch television? Is the occurrence of JRU-ings more pernicious in a market-oriented economy for the rest of society? Or is it more pernicious if the JRU-ings get into the position of commissars? Well, this is a question I think which is worth pondering at this point. Now, however, the question could be it is really immoral to accept man's nature the way it is. We have to change it. But there we should ponder the correlation between the moral motivation of many societies and the moral reality of these societies and why the tension between in this correlation really exists and why the tension exists what are the incentives really truly on man under these various institutional arrangements. And here we have a subtle problem namely it seems to me that many times if I talk particularly with social philosophers and similar colleagues, there seems to be inherent tendency to devise institutional arrangements which protect man from moral problems and moral dilemmas. Man should not be involved in such problems. He should be protected from them. Well, all I can say that Dostoevsky's granting visitor would really quite agree to that point. But let's consider what it means. In my judgment, this dehumanizes man completely. Man is man just because he's not an aunt and a bee. He has moral problems. He has moral problems and should express his moral problems to his own free choice. And if moral choices are not possible if he's forced to behave like he were moral we have really created a pattern which has no moral virtue at all. What good is a morality which is not the result of a voluntary free decisions for that. So in a way I would argue very shortly and very crudely at this point that a moral society is one where man can make moral mistakes and moral lapses. But he has to live with them. And it's up to him to live with them and his environment and his neighborhood who have to live with him and see how they cope with him. Now there is another moral issue raised by Keynes and he's very explicit about this. And I find this very interesting that he addresses such issues. Namely, he quite clearly approves of the sense of a new religion as politics from the way he writes. And then he laments that capitalism is essentially irreligious. And that's quite true. He's correct. And I would argue that this is a virtue of capitalism for the following reason. First, I just throw this at you. He goes through his presentation like many other new religions. Bang, bang, bang. He does not differentiate at all between religions which get hold of the state apparatus to impose their vision. From other new religions like Protestantism in the Netherlands competing in under open institutions for membership in contention with other religions like in our society, in the United States. Whatever religions we have and organized religions they have to compete as moral communities with other moral communities. He used Jim Buchanan's terminology in this respect. That's an entirely different situation where religion gets hold of the state apparatus or not. I do not need to elaborate this point. But cruelty and brutality has typically been the result. Even much more so than if the state apparatus is in the hands just of a simple scoundrel. Now, the other point is the following. To have a religious commitment to a social order is exactly the kind of religion which gets hold ultimately if successful of the state apparatus and creating this problem. So I think it is preferable, I would argue, to have a social moral order which is not itself made a component of the religion but which at the same time should whatever religions, groupings and moral communities exist should be understood by them. They better uphold if they want to survive in the long run as moral communities because why should each one of these moral communities expect that they will be the victorious ones getting their hands on the state apparatus? These are just simply a few questions. I'm quite sure controversial but at the same time I found them very interesting and intriguing reading canes again after many years to encounter these ideas in reaction to some of these discussions. I conclude, I have not given you a well-rounded picture of canes, that was not my topic. It was given by Harrod, it was given by Skidelsky in a very, very interesting and readable way. I attended to his socio-political view. Now, canes was a remarkably ambivalent man full of complexity, a brilliant mind as acknowledged by Hayek, one of his major intellectual opponents. Now, there is much in canes, I find, I have great sympathy. I find his deep concern for human affairs and society very attractive. I find his interest in policy, his indefatigable interest in current problems, serious issues very attractive. I find his approach to policy problems most congenial and important and I wish we would heed it more today if I look around particularly what happens today sometimes in macro theory. And I refer as an example to his approach to the German reparations problem. I refer also to his implicit methodological stress. He had no use for an emphasis on everything depends on everything else. He understood that this is a sterile prescription leading to total emptiness and nothing. He understood the role of felicitous simplification in the best tradition of great economists and all that we should heed. He understood, not explicitly, but through his work, that it is a futile illusion to search for first principles and to propagate and legislate that nothing counts except it is derived from first principles. Let us start with a broad empirical regularities and try to push our understanding as far as we can but concentrate on first order problems and not get lost in second and third order problems. All that I find very important today. What about this general theory? Well, I submit that it was a detour, an intellectual detour but as it happens in the history of our human affairs and human knowledge, I think it was a very important one that it contributed tremendously to attract economists attention to unresolved problems, to hard issues which had been not really quite understood and posed a serious challenge and this challenge, well, we had quite a turmoil of the vehement exchanges of ideas and I think that was very useful indeed. But what about the socio-political vision? Well, there I really sensed in a way a strange dimension in case. I conclude that it was a remarkable romantic utopian dream in many ways but then that may have been his way to overcome the void left us by the 19th century. We wish to take this opportunity to open some dialogue among and between our panel members. We also invite you, as I mentioned earlier, to submit questions which we will get to as we have time. What I would like to do to begin with is to call on each of our panel members individually to the panel members who have not yet delivered their presentations, to give any comments that they might have on either Professor Harcourt's paper this morning or Professor Brunner's paper that we have just heard. I will then ask Professor Harcourt and Professor Brunner to give any responses that they would like to make to the comments made by the others and if we have time, we will take questions that have been delivered from the floor. Let's see, I'll begin, I suppose, on my left and call on Professor Buchanan and please will all the panelists try to speak to the microphone. Well, I find it hard to make any comments in particular on either of these two fine presentations. I was a little confused, I'd just like to ask Carl a question. I was a little confused at one point in the middle of his discussion where he made the point that Keynes did not reject state socialism for several reasons but I gathered, at least as I was listening, you left out that ultimately he did reject state socialism. He didn't reject it because of the laissez-faire, the overcoming the laissez-faire, he didn't reject it because of other reasons but I gathered that he did ultimately reject it. That was a thrust of your remark, but why? I think you left that out in your discussion. I did, yes. Okay, yeah, I did not mention it because it's a simple tactical reason. I saw the watch was really getting ahead of me. The point is really this. The point is developed in the paper after at the end of the section on the general theory and simply this, that given the analysis which he has and he is very consistent and logical about this, that the analysis only indicates what is required is a socialization of investment. He's very explicit about this. There is no need to socialize the consumer good sector. As a matter of fact, the consumer good sector does not pose any problem at all. It doesn't create any waves according to his analysis and that's quite correct. That's what an implication of his analysis is. And therefore the consumer good sector can be left open to private property and market coordination and he says the market coordination that will be functioning quite efficiently and adequately and it doesn't require any further action in this respect. This is fundamentally his rationale why he doesn't want state socialism according to his own analysis. Baron Rommel. I would like to start off by saying that after having heard Dr. Bronner's conclusion, I think there is not much to be added from this of next speakers. I think this is your conclusions is what we will bring with us back home from this conference. It's, you should have been the last speaker I think. It was so brilliant. But I would like to ask you a question about how Lord Keynes looked upon the politicians who tried to follow his theories and to follow up in practical policies, his ideas are Roosevelt and the New Deal. How did he look upon the New Deal and how Roosevelt and his administration, some of his administrations, tried to carry out Keynesian policies and how did he look upon what was done in Great Britain and in Scandinavia? Can you say something about, especially I'm interested in how he looked upon Roosevelt? I suspect that Geoffrey Harkwood has more information about that than I do. I have not sufficiently read his, whatever he has to say in this respect on during, after on the Roosevelt situation on the NRA. There is one point however which interests me in this is the following. The NRA was really in terms of its institutional arrangements approaching what he proposed. It was a huge capitalization arrangement where there was the development and evolution of interlocking bodies, setting prices and wages and in many ways it seemed to be sort of a halfway house getting towards a kind of a corporate state. Now I'm not quite sure however we approved of that or not. I'm really not sufficiently informed and I'd like to ask Geoffrey whether he has something to offer in this respect on this point. Thank you very much. Well, I don't know that much about the details of Keynes's attitudes to Roosevelt but what I have read suggests that they passed in the night. Keynes liked Roosevelt particularly because he admired his hands. This was a very important thing for Keynes that in summing up people he looked at their hands. He didn't like your President Wilson because he had a fine body and a fine face and when he got to his hands he was disappointed with them and that was one of the things that he brought out in his portrait in the economic consequences of the piece. But when he met Roosevelt he found that he had very nice hands and therefore he was very favorably disposed to him. Now I, and he himself thought after he had his first meeting with him that he'd made a big impact and that perhaps it would have an effect on Roosevelt's policies. But as I understand it, when he left Roosevelt turned his advisor and said I didn't understand a word the man said. So, but I think that Professor Bruno and Professor Buchanan have raised very important points because you see Keynes has come down to us in the textbooks. It's very unlike the very complicated and sophisticated and subtle mind that Keynes and many of his close colleagues had and we tend to forget that when Keynes was trying to tackle the very deep unemployment of the late 20s and the 30s and then thinking about unemployment after the war the orders of magnitude of unemployment which he thought could be tackled by what we call Keynesian policies now were amazingly high. They were bad golf scores and almost good cricket scores if I can put it that way. You know if you're a golfer the lower the score you take the better you think you're doing. If you're a cricketer the higher the score you make the better you think you're doing and the orders of magnitude that Keynes had in mind of bringing unemployment down by the sorts of things that he was proposing and which he thought his arguments in the general theory were relevant for were very high orders. He didn't want to stop there of course but then he would have been inclined to have joined hands. Sometimes I suspect with Milton Friedman some of his proposals as far as information and retraining and relocating was concerned and sometimes with President Roosevelt with his industrial organization and micro proposals because Keynes was very pragmatic and didn't have an absolute commitment to the competitive model with Smithian roots. I mean he recognized that other things being equal diffused power was a sine qua non for competitive capitalism to work but if this wasn't the order of it wasn't the nature of the beast then he was happier to go along with things which many Smithian Americans would find quite unacceptable. So I suspect and I'm sure that Professor Tobin knows far more about this than any of us here I suspect that the link between Keynes Keynes his policies and Roosevelt was not that strong at least in the early part of the 30s when the new deal was on. Dr. Arcott for this explanation to me why Keynes was not in favor of laissez-faire liberalism because you said that he liked hands so much and he didn't like the invisible hand. Professor Thoreau. I enjoyed both of the talks but I'm going to accuse them of a defect which you're going to think is peculiar. I think they were both too clear, too logical and too antiseptic in that we first had a talk on the intellectual development of Keynes that made it a very clear logical process. We then had a talk on how Keynes' political and social views in a very clearly and logical way led to the general theory. And I noticed in both of those talks unless I was wrong there were two key words that were never mentioned. The two key words are the Great Depression. The general theory would not have been written without the Great Depression. Now, on my last sabbatical and instead of working at a university I spent a year working for the New York Times in 1979. And I was assigned by the editors of the New York Times since 1979 was the 50th anniversary of the great stock market crash to go back and read the newspaper, the New York Times, every day from the 1st of January 1928 through the end of December 1933 to get a feeling for what it felt like to be there at the time and then write an article about these events. Now, you remember the stock market went down 95%. 25% unemployment rates which were still almost 20% unemployment rates 10 years later existed for a decade. If you read the newspapers over that period of time what you get is a feeling of confusion, chaos and a system out of control. Now, we can't do it, but I suspect that if you could go back and put yourself in Lord Keynes's mind between 1929 and 1933 you would have found a lot of confusion, chaos and a feeling that the system was out of control. And what we've made it sound this morning is all too much reasonable and all too much antiseptic in the sense of not affected by real world events. And I think that's the academic's disease. If you're an academic you like to think that ideas affect ideas and ideas affect events but events have relatively little effect on ideas. And I think if you look at the truth it's more the other way around. Ideas seldom affect events and events often affect ideas. And if it had not been for the Great Depression what we now know as Keynesian economics would not have existed and I would venture to bet that Keynes would just be one of many economists of that period of time and we would not be here today thinking about Keynesian economics because in some sense Keynesian economics became the Bible as to how you get out of the Great Depression. Now whether it was an accurate Bible and how you get into heaven or don't get into heaven doesn't make any difference people regarded it as the Bible you had to study to think about that problem. And so one of the things I want you to throw into this calculus is a lot of confusion, chaos and a system out of control. And if you don't put that into Keynesian economics and the development of Keynesian economics I think you miss both the reason for its development and something that has to be very important to its development. Thank you, Professor Tobin. Well, I found both of the talks extremely good and interesting and Carl Brunner's scope breathtaking and I don't believe I've absorbed all that Carl had to say yet. I agree with Les Theroux though. I don't see a case for relating Keynes's general theory so closely to things that Keynes wrote in the 1920s. He was looking for a diagnosis of the world economic crisis of the Great Depression as Les Theroux said and for a way out of it. Now, I don't put that much stock and serious advocacy of political and social organization in the phrase socialization of investment. I think that could mean in the general theory a lot of different things and it's not clear exactly what was meant. It could mean something as loose as the French plan in which with a bit of consultation with government authorities, private businessmen tried to gain a common realistic appreciation of where the national economy is going and gear their investment in a coordinated but non compulsory way to that vision of the future of the economy. The sort of thing that Jean Monnet was trying to do in France in the wake of the Second World War. It could have meant that. It could have meant using public investment just as a balance wheel of public investment and infrastructure as a compensatory amount which would make up for inevitable fluctuations in private investment. I don't think it meant the corporate state at all and I don't think it meant socialization in the sense of eliminating in any important way private property or even private control of business decisions. I also note that in the general theory, Keynes says that he has no quarrel with the way that a capitalist economy allocates the resources that it employs. His quarrel is with the fact that it doesn't employ all the resources, not with the allocation of the resources that are employed. I think he was too generous to a capitalist economy perhaps in that phrase, but that's what he said. And in many ways, I think you can interpret the general theory as a relatively painless and conservative way of getting capitalism out of the worst crisis of its history in a time when most of the critics of capitalism believed that it was fundamentally flawed and doomed because its structure was just incapable of sustaining prosperity. And Keynes comes along and says that's not true with a relatively easy set of remedies largely using the powers that a democratic capitalist country already gives its government, we can save the day. Now as for Keynes and Franklin D. Roosevelt, I think the record would show that Keynes didn't much understand Roosevelt any more than Roosevelt understood Keynes. And it certainly, I'm confident that Keynes deplored the NIRA, the National Recovery Administration that was not the kind of recovery program that he had in mind. And he also deplored the increases in taxes and the attempts of the Roosevelt administration to balance the budget in their first years in office. He hoped that Keynes would engage on bold spending programs larger encompass than they did at first but of the nature of the WPA, the Works Progress Administration. But he certainly was not for the NRA. He also approved the Roosevelt administration's monetary policy, the revaluation of gold, essentially depreciation of the dollar which was essential to American recovery as the depreciation of found sterling had triggered the British recovery two years before. Now one technical matter and what Carl said, if not true as I understand the general theory, if not true that Keynes' underemployment equilibrium could not be moved by monetary expansion. Could be, it could be. In fact, that is often what Keynes wanted to do. So in a general sense, he was not saying that monetary policy, that we're stuck at some real equilibrium that monetary policy and fiscal policy, either one or both together could not remedy. Thank you. I'm afraid that the tyranny of the clock will prevent us from concluding this round table discussion in the way I had first outlined it, but I will tell you at the rest of the panel that we will pick up where we left off when we are able to reconfine. Before we do break though, I would like to offer at least one of our two presenters an opportunity to respond. And let's see if we can strike a quick agreement as to whether Professor Brunner or Professor Harcourt will have a chance for rebuttal at this time. Thank you very much. Thank you. Yeah, I just want to answer Lester very quickly about, I've been called lots of things, but never antiseptic. Keynes, of course, was a very political figure as came out from Professor Brunner's lecture and he was always actively involved in the very pressing problems of his time. And of course I agree that the pression was an extraordinarily important prerequisite for the general theory to be written, otherwise he wouldn't have responded to that problem. But of course that was not my brief. I mean I see no place for a social scientist who isn't politically active. And I mean I describe myself as Australian rules football and now let me put the record straight. I have always belonged to either the Australian or the British Labour Party or both. I'm a Christian socialist and for five and a half years I led the anti-war movement when Australia was the only respectable ally of America in the Vietnam War. So I know a hell of a lot of our political activity and so did Keynes. So I am not antiseptic. I'm not antiseptic. On that note, we will break for coffee, we will reconvene at 3.30 and we will have an opportunity for the rest of our panelists to continue this discussion and for Professor Brunner to give his response.