Mises Daily Articles
Keynesianism Loves the Total State
J.M. Keynes's Famous Foreword to the 1936 German Edition of the General Theory
Historians write about economics with a fearful and trembling hand, but economists brashly and cheerfully tackle historical enterprises as if they enjoyed some special commissioned prerogative. What follows this brief introductory material is not an expository essay but a document for all to examine: economists, historians, and the general reader alike.
It may be of some embarrassment to both Keynesian and anti-Keynesian partisans, to both those who have never known of this subject and those who have known of it but who have been inhibited by psychic pressures, ranging all the way from an exaggerated sense of delicacy to intellectual cowardice, from ever saying anything about it.
One can read whole reams of economic literature written by both fervent followers of John Maynard Keynes and his attackers as well and never know that there was a German language edition of his profoundly influential General Theory late in 1936, for which Keynes wrote a special foreword addressed solely to German readers. By that time the National Socialist regime of Adolf Hitler was four months short of four years in power in Germany.
Even the perfumed and sanctified Life of John Maynard Keynes by R.H. Harrod, a book going on to almost 700 pages, never even faintly alludes to the fact that Keynes had a German publisher, nor that the General Theory appeared in Hitler Germany a few months after it was published by Macmillan in England in 1936. (Keynes's foreword to the English edition was dated December 13, 1935.) Perhaps it would have thrown readers off stride for Harrod to discuss such a matter since his book was published in the heat of the immediate post-World War Two years, appearing in 1951. But incongruous and ill-fitting matters such as this are almost always left out of romantic and poetic essays passing as biography.
Two prestigious English economic periodicals, the Economic Journal and The Economist, with meticulous coverage of European and world economic affairs, failed to make any reference to a German edition when they reviewed Keynes's tour de force, nor did subsequent issues in the immediately following years, as far as I have been able to determine. In recent years only Henry Hazlitt has called attention to this important matter.
Some economic scribblers hostile to Keynes want too much to attack him personally as if he created the modern state, but appear to be most hesitant about challenging the state themselves. Keynes did not create the modern state. He found it the way it is, and, obviously, from the context of his German foreword, prepared a scheme or system to work within its confines; the greater and more total the state employment of his General Theory, the better. The core of Keynes is found in two consecutive sentences in the German foreword:
The theory of aggregate production, which is the point of the following book, nevertheless can be much easier adapted to the conditions of a totalitarian state than the theory of production and distribution of a given production put forth under conditions of free competition and a large degree of laissez-faire. This is one of the reasons that justifies the fact that I call my theory a general theory.[i]
We are deep in an age of scriptural exegetics devoted to Keynes and a plethora of what-Keynes-really-meant glosses akin to the tidal wave of similar print which deluged us on Marx in the 1930s. But it ought to be interesting to see what kind of sinuous evasion must be employed to discount the very clear testament involved in this declaration by the Master.[ii] The main purpose for this publication is to make it available to students of all persuasions and to general readers who might have an interest in original documentation, for a change. The original German text is included to aid those who wish to make a careful examination of their own.
James J. Martin
Foreword to the German Edition/Vorwort Zur Deutschen Ausgabe
Alfred Marshall, on whose Principles of Economics the education of all contemporary English economists has been based, took particular pains to call special attention to the relationship of his thought to that of Ricardo. His work consisted for the most part in stuffing the law of limited use [Grenznutzen] and the law of substitution into the Ricardo tradition, and his theory of production and of consumption as a whole — contrary to his theory of producing and distributing a given production — has never been laid open. I am not certain whether he himself ever perceived the need for such a theory. but his immediate successors and disciples surely have abandoned it and evidently never perceived its absence.
I was educated in this atmosphere. I have taught these doctrines myself and it was only in the course of the last decade that I became aware of their inadequacy. In my own thought and development, this book, therefore, presents a reaction, a transition and a disengagement from the classical English (or orthodox) tradition.
How I have stressed this and the points in which I deviate from the recognized doctrine has been regarded by certain circles in England as extremely controversial. But how could someone educated in English economic orthodoxy, who was even once a priest of that faith, avoid some controversial emphasis, if he becomes a protestant for the first time?
I can, however, imagine that all this may concern the German readers somewhat differently. The orthodox tradition which reigned in the England of the 19th century never had such a strong influence on German thought. In Germany there have always been important schools of economics which strongly questioned the adequacy of classical theory for the analysis of contemporary events.
The Manchester School as well as Marxism, have, after all, stemmed from Ricardo — a conclusion that need cause surprise only when superficially considered. But in Germany there has always been a majority of opinion which adhered neither to one school nor the other.
However, it can hardly be contended that this school of thought ever established a theoretical counter-structure, nor did it ever attempt to do this. It has been skeptical and realistic, satisfied with historical and empirical methods and results which reject a formal analysis.
The most important unorthodox discussion on the theoretical level has been that of Wicksell. His books (until recently not available in English) were available in the German language; one of his most important was in fact written in German. His successors, however, were mainly Swedes and Austrians; the latter linked his ideas in with a substantially Austrian theory, and thus in reality actually brought them back to the classical tradition. Germany thus has — in contrast to her custom in most fields of science — contented herself for a whole century without a dominant and generally recognized formal theory of economics.
I may, therefore, perhaps expect to meet with less resistance on the part of German readers than from English, when I submit to them a theory of employment and production as a whole which deviates in important particulars from the orthodox tradition. But could I hope to overcome the economic agnosticism of Germany? Could I convince German economists that methods of formal analysis constitute an important contribution to the interpretation of contemporary events and to the shaping of contemporary policy?
It is, after all, a feature of German character to find satisfaction in a theory. How hungry and thirsty German economists must feel having lived all these years without one! It is certainly worthwhile for me to make the effort. And if I can contribute a single morsel to a full meal prepared by German economists, particularly adjusted to German conditions, I will be satisfied. For I must confess that much in the following book has been mainly set forth and illustrated in relation to conditions in the Anglo-Saxon countries.
The theory of aggregate production, which is the point of the following book, nevertheless can be much easier adapted to the conditions of a totalitarian state [eines totalen Staates] than the theory of production and distribution of a given production put forth under conditions of free competition and a large degree of laissez-faire. This is one of the reasons that justifies the fact that I call my theory a general theory. Since it is based on fewer hypotheses than the orthodox theory, it can accommodate itself all the easier to a wider field of varying conditions.
Although I have, after all, worked it out with a view to the conditions prevailing in the Anglo-Saxon countries where a large degree of laissez-faire still prevails, nevertheless it remains applicable to situations in which state management is more pronounced. For the theory of psychological laws which bring consumption and saving into relationship with each other, the influence of loan expenditures on prices, and real wages, the role played by the rate of interest — all these basic ideas also remain under such conditions necessary parts of our plan of thought.
I would like to take this opportunity to thank my translator, Mr. Waeger, for his excellent effort (I hope that his vocabulary at the end of this book will prove useful beyond its immediate purpose), as well as my publishers, Messrs. Duncker & Humblot, whose enterprising spirit ever since the days 16 years ago when they published my "Economic Consequences of the Peace" has made it possible for me to maintain my contact with German readers.
7 September 1936
[i] The word "general," italicized in original. This portion of Keynes's foreword, with minor stylistic variations, appeared in Hazlitt's The Failure of the "New Economics" (Princeton, N.J.: Van Nostrand, 1959), p. 277.
[ii] In a letter to Sir Percival Liesching of the British Board of Trade dated October 8, 1943, Keynes also made the following clear and unequivocal declarations:
Thank you for your note on state trading. If in this matter you leave loopholes in your scheme, it will not upset me. Indeed, the more loop-holes you leave the wiser you will be in my opinion.
As you know, I am afraid, a hopeless sceptic about this return to 19th-century laissez-faire, for which you and the U.S. State Department seem to have such a nostalgia.
I believe the future lies with
- State trading for commodities;
- International cartels for necessary manufactures; and
- Quantitive import restrictions for nonessential manufactures.
Yet all these future instrumentalities for orderly economic life in the future you seek to outlaw.
This letter was quoted by Harrod for reasons which are hard to fathom. In fact, his effort to extricate Keynes from his position and to assert that the latter underwent a fundamental and total conversion to a position contradictory to the views expressed here is quite unconvincing.
 Note from James J. Martin: The expert assistance of Robert H. Beebe and Mabel E. Narjes in the preparation of this translation is gratefully acknowledged. The German text is reproduced with the express permission of the publisher, Duncker & Humblot (Berlin and Munich), from whom a 1955 edition of Allgemeine Theorie der Beschäftigung, des Zinses und des Geldes containing this foreword may still be obtained. The full extent of the circulation of the German edition will probably never be known. According to a letter from the publisher of November 4, 1966, figures on the distribution between 1936 and 1945 are missing because all pertinent documents were destroyed during the war. An edition of 1,000 copies was printed in 1952, and one of 2,000 copies in 1955, with another printing of 2,000 copies to appear in 1967.
 Note from James J. Martin: The English language edition of this book was published in the United States by Harcourt, Brace (New York) in 1920 under this title.