My must-read of 2020: a page-turning biography of Keynes

It's the last day of the year. So I thought I'd take a quick look back at some of the more notable books I've read this year.

I didn't actually read many investment books this year. As well as being faced with something of a surfeit of news during 2020, I chose lockdown to tackle Hilary Mantel's Wolf Hall trilogy. If you haven't read it, I can thoroughly recommend it (for my money, Bring Up The Bodies, the second book, is the best, but they're all excellent).

However, compelling as the reimagined life of Thomas Cromwell was, it's the life of another historic figure that ended up being the ultimate page-turner for me this year.

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A page-turning biography of Keynes

Does the world need another biography of John Maynard Keynes? If it’s as good as Zachary Carter’s The Price of Peace, then the answer is “yes”. I honestly could not put this book down. That's really not something I expected to say – obviously, Keynes himself is fascinating, but Carter is a superb writer. His aim in the book is not just to discuss Keynes' life and the evolution of his ideas, but to consider his legacy and how Keynesianism – in his view – lost its way.

The book starts with the near-40-year-old Keynes somewhat unnerved to find himself falling in love with Lydia Lopokova, a famous Russian ballerina, having been contentedly and pretty much exclusively in relationships with men up until that point. His Bloomsbury friends and his colleagues in politics and high finance – even more snobbish than Keynes himself – are appalled. But Keynes goes on to marry (and remain happily married to) Lopokova regardless.

It’s a clever opening. It breaks the reader in gently – focusing on Keynes' human, flamboyant side rather than on the rather less approachable General Theory, say. But it also highlights what were arguably Keynes’ defining characteristics – his ability to entirely disregard the views of others; and his ability to change course completely while maintaining high conviction in his own views.

In Carter's telling, he was a pacifist, but a hard-headed pragmatist too. While the Bloomsbury set lapsed into self-indulgent moping during World War I, Keynes assisted reluctantly in the war effort, working at the Treasury and being resented and sneered at by his friends even as he pulled strings to land them cushy posts far away from the front lines.

What also comes across clearly is just how extraordinarily famous Keynes was in his lifetime. Between his bestselling writing, and his marriage to a glamorous Russian ballerina, he was quite the rock star.

The idea of Keynes as a "bestseller" might come as a surprise to anyone who has tried to read his most influential work – The General Theory of Employment, Interest and Money, published in 1936. But its virtual unreadability was a deliberate strategy on Keynes’ part. He wanted his work to be taken seriously by economists, so he made it impenetrable to ordinary people. (Sadly, economists don’t seem to have grown up at all since then.)

Carter's portrayal is a sympathetic one and Keynes is very much the hero of the book. So for example, if you're hoping for a debate as to just how farsighted (or realistic) Keynes' 1919 polemic The Economic Consequences of the Peace really was, this isn't the place to go – in his gripping re-telling of the events of the Paris Peace Conference, held in the midst of a Spanish flu pandemic that ripped through several of the delegates, including Keynes himself, Keynes is pretty much the only individual to come away with any credit.

Yet that doesn't mean that Carter is blind to his flaws. Despite his fame and the undoubted regard in which he was held, it's striking how rarely Keynes got his own way. He was an idealist, and so neglected the importance of the politically possible. But he clearly also just rubbed a lot of powerful people up the wrong way.

The problem with economics

The Price of Peace loses momentum in the final third or so, after Keynes himself, the main attraction, bows out of the picture. Going beyond his death in 1946, right up to the present day, Carter aims to depict how Keynesianism lost its way and was even betrayed by US politicians.

The author’s political sympathies are too obviously on show during this section of the book for my taste, resulting in a well-written but one-sided romp through post-World War II American politics. Carter’s arguments in this section are increasingly polemical and while his writing continues to engage, it’s a potted history that could never have done justice to the ideological battles of the era, and doesn’t try to.

What Carter does nail however, is the fundamental weakness of modern economics, whether of the left or of the right. Keynes and Friedrich Hayek are often cast as opposites, but both had a big-picture focus on human beings, human action, and the practical quest for a better life.

Modern economists instead turned towards a narrow and unimaginative focus on spuriously accurate equations and ego-driven academic politicking. As a result we have ended up with public policy that focuses on box-ticking and theoretical quantities (target this inflation rate – offset it with that unemployment rate) at the expense of quality and flexibility.

In all, it’s an excellent read and one I’d heartily recommend, regardless of your political persuasion. As for Keynes, I have no idea what he’d think of today’s economic problems – but it’d certainly be useful to have someone with his brains and intellectual flexibility around right now.

Other books of note released this year

As for other financial books of note I read or listened to this year – I couldn't ignore Stephanie Kelton's The Deficit Myth.

Kelton, an American economist, is probably the best-known proponent of MMT (Modern Monetary Theory). As with almost everything in economics, you can get into endless circular arguments about what MMT is with hyper-defensive academics, but the practical point of it is simple. Governments who can print their own currencies (ie the UK or the US, but not Italy or Greece, say) don't have to worry about deficits. The only real restriction on spending money is inflation. And, argues Kelton – unconvincingly – a vigilant, responsible government can spot that coming if they plan ahead properly.

Kelton's book doesn't take long to explain MMT because there isn't much to explain. Most of the rest of the book is a manifesto for the leftier end of the Democratic Party (which inevitably, to British ears, doesn't sound all that radical, because a lot of it is about healthcare). So really, it's a couple of chapters arguing that, in effect, the government can spend as much as it wants as long as it spends the money wisely, followed by a shopping list of all the wise things that Kelton wants the government to spend money on. This of course, rather sums up the problem, because you or I could've written that shopping list too – it would just be a different list according to our own "wants".

So I wouldn't bother reading it. MMT's importance isn't about what it says. In itself, it's not saying anything new. The reason you need to be aware of it as an investor is that the popularity of its ideas – and its staking out of the moral high ground – are why you should expect an inflationary dénouement to this particular economic cycle, rather than another bout of austerity.

Another notable release this year was Morgan Housel's The Psychology of Money. I'm a big fan of Housel's writing – he's one of the clearest thinkers in personal finance and an excellent story teller, with a real knack for finding the right anecdote to illustrate a point.

In a way, this went against the book – most of it didn't feel new to me. Also, a book is a very different medium to the relatively short, punchy, blog-style format at which Housel excels. What feels fresh and stimulating in bursts of a few thousand words, can start to feel repetitive in the longer format.

That said, I reckon this would be an excellent book to give to someone in their late teens or early 20s who's curious about money, investing, and making good choices.

Finally, I don't like to review books I haven't finished but I must give an honourable mention to Stephen Clapham's The Smart Money Method, which is currently top of my reading pile – it's so far absolutely packed with useful ideas for stock pickers, and I suspect it's one I'm going to thoroughly enjoy, and that MoneyWeek readers would to.

Anyway – here's to next year. I hope it's a good one for you all. Money Morning will be back on Monday 4 January. And if you don't already subscribe to MoneyWeek – well, now's the time to do it. Get your first six issues free here.

Until 2021,