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Keynes: the reluctant broker of a hard Brexit

3 October 2020: After much deliberation, the Twentieth Century’s most influential economist would have wanted to “get Brexit done”, argues Stephen Lynch.

Nobel Prize-winning (and Keynesian) economist Bob Solow said the qualities of clarity, hope and faith were required in his profession – and the greatest of these was clarity.

It is impossible to say for certain, but after some initial soul-searching, the Twentieth Century’s most influential economist John Maynard Keynes is mostly likely to have been a modern-day Brexiteer.

Keynes would not have joined the Vote Leave campaign in 2016 to support Brexit initially, as he frequently mentioned the danger of sacrificing present well-being for an unclear future. At the age of 21, he wrote: “Our power of prediction is so slight, it is seldom wise to sacrifice a present evil for a doubtful advantage in the future”.

He would have expressed serious concerns about the risks of withdrawal and damage to the economy, political environment and wider society. Since the 2016 vote, it is difficult for Brexiteers to argue there has been an improvement in these areas.

Believing that wherever possible goods should be “homespun”, Keynes would have also considered capital controls as a permanent, necessary component of the monetary system. He would therefore have rejected the fundamental “four freedoms” of goods, capital, labour and services that define the European Union.

However, eventually, Keynes would have wanted to “get Brexit done”, partly from wanting the UK to retain its commitment to full employment – a goal made more difficult at the European level given the stagnation of the southern Eurozone economies. 

He argued “above all, let finance be primarily national,” and would have prized the sovereignty of the UK to conclude trade deals, determine its own tax and spend policies and to use targeted subsidies to support struggling domestic industries. Dominic Cummings and Keynes would have been at one on the former’s enthusiasm for creating a British Google once the country is unshackled from the EU’s state aid rules. 

In his 1933 National Self-Sufficiency essay, Keynes argued against “economic entanglement among nations.” The ‘hard Brexit’ Canada or Australia-style deals offered by the British Prime Minister would, therefore, have his fellow Old Etonian’s reluctant support – form follows function.

An internationalist and free trader for much of his life, Keynes’ pragmatism would have led him to join the UK side of the negotiating table opposite Michel Barnier from 2017. This is backed up by one of his most famous quotes: “When the facts change, I change my mind. What do you do?”. 

Even in national crises, Keynes would try to get the best deal possible – just as he did after the Second World War to secure the Anglo-American loan from the US to keep Britain’s pummelled economy above water.

As a seasoned and formidable negotiator, Keynes represented Britain in different international forums. In the mid-1940s, he led the British delegation at the Bretton Woods Conference which set up the World Bank, International Monetary Fund (IMF) and the exchange rate system.

Today, Keynes would encourage Britain’s negotiators to understand the position and mindset of their counterparts in Brussels. A good understanding of the other side will “minimise the causes of friction and ill will between nations” and maximise the chances of a just deal.

He would advise David Frost to consider the objectives of the Brussels negotiators – to preserve the European project and the integrity of the single market. The EU’s greatest fear is an independent Britain flourishing outside its legal order and orbit, and other Eurosceptic member states like Italy, Greece or Hungary following suit. For Britain to strengthen its negotiating position, it will have to understand the rational psychology and logical ‘pride’, ‘temper’ and ‘habit’ of their EU counterparts. 

Despite the theatricality and war of words with Boris Johnson’s government, the EU will realise in the end Britain wishes to continue its position as a reliable and desirable trading partner. 

Because of this, Keynes would encourage the Brexit negotiators to commit an independent UK to develop the international trading system as allies, along with the US – particularly the World Trade Organization (WTO) and United Nations. Keynes wanted to avoid establishing economic blocs which limit and restrict “commercial intercourse” outside them, and believed a determination to “make trade truly international” was “an essential condition of the world's best hope, an Anglo-American understanding, which brings us and others together in international institutions which may be in the long run the first step towards something more comprehensive.”

Furthermore, Keynes would advise avoiding using the UK’s past contributions as a tactic in the talks, rather focus on what they can achieve together as neighbours and colleagues. He said Britain’s future prospects and “intention to face the world boldly needed to be demonstrated in its post-war negotiations with the major powers. 

Sir Mervyn King believes it is far more important, for example, for the City of London’s financial system to be more closely “aligned” with the US than it is with Europe. While a free trade agreement is desirable, King argues, it cannot mean having to follow rules and regulations conceived and supervised by the EU, with no UK input.

Keynes would come to the same conclusions as his fellow alumnus of King’s College Cambridge and the Bank of England: that above all there’s no logical reason for a trade agreement to align a nation’s regulatory and legal systems, as the EU is demanding of the UK. Keynes would make the case that free trade rests on maximising opportunities to exploit comparative advantages, rather than mercantilist desires to impose restrictive laws and regulations on trading partners.

In his final analysis, weighing up the long-term economic advantages and implications of leaving the EU, the pre-COVID austerity economics of the continent would have pushed Keynes increasingly away from Europe and reach a position of clarity on the Brexit question, and faith and hope in the UK’s future.

Stephen Lynch is a public affairs, corporate comms and PR consultant, and writes regularly online for The Times, Daily Telegraph and Spectator magazine,

ICAEW Insights opinion pieces are intended to be thought-provoking and stimulate debate. Views expressed in these opinion pieces are not necessarily shared by ICAEW.