Thursday, February 4, 2016

Keynes on "Ruthless Truth-Telling"--and the IMF Connection

Back in 2006, Mervyn King--who was then the Governor of the Bank of England--gave a talk about "Reform of the International Monetary Fund," in which he offered a lovely snippet of rhetoric from John Maynard Keynes. In talking about how the IMF must persuade, rather than order or mandate, King said: 
With countries naturally reluctant to cede any control over their own monetary and fiscal policies, it is likely that the IMF will have as instruments only the powers of analysis, persuasion, and, in Keynes’ own favourite words, “ruthless truth-telling”.
That phrase "ruthless truth-telling" struck a chord, and  quick Google search will confirm that it has been cited in many places since. I ran across it again in editing the article by Barry Eichengreen and Ngaire Woods in their article on "The IMF’s Unmet Challenges," which appears in the just-released Winter 2016 issue of the Journal of Economic Perspectives.  But what I hadn't known, until the authors told me, was that when Keynes mentioned "ruthless truth-telling," he wasn't actually commenting about the IMF at all. Instead, the phrase appears in a letter that Keynes wrote to General Jan Smuts on November 27, 1919. It appears in The Collected Writings of John Maynard Keynes, edited by Elizabeth Johnson and Donald Moggridge, in Volume 17, Activities 1920–1922: Treaty Revision and Reconstruction (pp. 7-8)

At the time, Keynes is about to publish The Economic Consequences of the Peace, which suggested that the Versailles Treaty at the end of World War I was far too harsh toward Germany, and thus was likely to lead to future conflict. The book was a best-seller, and it's one reason why the very different approach of the Marshall plan was politically acceptable after World War IL But back in 1919, copies of the manuscript have been circulating, and Keynes has been receiving mostly friendly criticism from a variety of early readers. Here's a snippet from the letter that Keynes wrote to Smuts on November 27, 1919:

My book is completed and will be issued in a fortnight's time. I am now so saturated with it that I am quite unable to make any judgement on its contents. But the general condition of Europe at this moment seems to demand some attempt at an ├ęclairecissement of the situation created by the treaty, even more than when I first sat down to write. We are faced not only by the isolation policy of the U.S., but also by a very similar tendency in this country. There is a growing an intelligible disposition to withdraw (like America), so far as we can, from the complexity, the expense, and the unintelligibility of the European problems: and particularly as regards financial assistance, the Treasury is inclined, partly as a result of our own financial difficulties and partly because of the hopelessness of doing anything effective in the absence of American help, to let Europe stew. Also anti-German feeling here is, still, stronger than I should have expected.  But perhaps most alarming is the lethargy of the European people themselves. They seem to have no plan; they take hardly any steps to help themselves; and even their appeals appear half-hearted. It looks as though we were in for a slow steady deterioration of the general conditions of human life, rather than for any sudden upheaval or catastrophe. But one can't tell. 
Anyhow, attempts to humour or placate Americans or anyone else seem quite futile, and I personally despair of results from anything except violent and ruthless truth-telling--that will work in the end, even if slowly.  
There is of course some irony that a phrase about "ruthless truth-telling" is often used out of its context as if Keynes was referring to the IMF. But the hope that "violent and ruthless truth-telling ... will work in the end, even if slowly," remains perpetually relevant.

(Full disclosure: I've been Managing Editor of the Journal of Economic Perspectives since the inception of the journal in 1987. All JEP articles back to the first issue are freely available on-line compliments of the journal's publisher, the American Economic Association.)