Money and Government: The Past and Future of Economics by Robert Skidelsky delves into the complex relationship between economics and politics, tracing how governments have historically used economic theories to shape policy and control markets. Skidelsky, a renowned economist and biographer of John Maynard Keynes, provides a critical overview of the economic theories that have shaped the world, from classical economics to modern neoliberalism. The book explores the role of money, the state’s intervention in economies, and the ongoing debate between free markets and government control.

With rising economic inequality, global financial crises, and debates about state intervention in economies, Skidelsky’s work is timely and relevant, challenging readers to reconsider the role of government in managing money and markets.

Skidelsky begins by exploring the birth of modern economics, focusing on Adam Smith and the idea of the “invisible hand,” which suggests that free markets, when left alone, self-regulate through competition and self-interest. He describes how Smith’s ideas laid the groundwork for the classical school of economics, emphasizing laissez-faire policies and minimal government intervention. The industrial revolution and the rise of capitalism gave these ideas momentum, but they also sparked debates about poverty and inequality, leading to calls for state intervention.

A key anecdote from this chapter is how the poor conditions of workers during the Industrial Revolution prompted early critiques of laissez-faire policies, particularly from economists like Karl Marx.

Quote: “The invisible hand of the market, left unchecked, often leads to invisible suffering.” This captures the limitations of free markets when social inequalities are ignored.

In this section, Skidelsky highlights the revolutionary contributions of John Maynard Keynes, whose work redefined the role of government in the economy. Keynes argued that in times of economic downturn, such as the Great Depression, government intervention is necessary to stimulate demand and boost employment. Keynesian economics advocates for fiscal policies—like government spending and tax cuts—to influence the level of demand in the economy.

Skidelsky illustrates this with an example of the New Deal policies introduced by Franklin D. Roosevelt, which embodied Keynesian principles and helped pull the U.S. out of the Great Depression. The success of these policies led to a new era of economics where governments took an active role in managing economies.

Quote: “Capitalism, left to itself, is inherently unstable.” This reflects Keynes’ belief in the need for government intervention during times of economic crises.

The third part of Money and Government examines the decline of Keynesian economics and the rise of neoliberalism, championed by economists like Milton Friedman and Friedrich Hayek. Neoliberalism, which gained prominence in the 1980s, called for a return to free-market principles, emphasizing deregulation, privatization, and reduced government spending. This shift, epitomized by the policies of leaders like Margaret Thatcher and Ronald Reagan, marked a significant departure from the Keynesian consensus of the post-war period.

Skidelsky describes the 2008 financial crisis as a turning point, which revealed the flaws in neoliberal economic thought. He critiques the austerity measures that followed the crisis, arguing that cutting government spending in times of economic downturn worsened the situation.

A specific example of this is Greece’s austerity program during the European debt crisis, which led to widespread social unrest and economic stagnation.

Quote: “Neoliberalism won the intellectual battle but lost the war of practice.” This encapsulates Skidelsky’s critique of neoliberalism as an ideology that failed in the real world, particularly in the wake of the 2008 crisis.

In this section, Skidelsky explores the relationship between money and state power, tracing the history of central banks and their role in managing national economies. He delves into the gold standard, fiat money, and the debates surrounding inflation and deflation. Skidelsky argues that money is not just a neutral medium of exchange, but a political tool that governments use to exert control over economies.

He uses the example of how central banks like the Federal Reserve responded to the 2008 financial crisis with unconventional monetary policies, such as quantitative easing. While these policies helped stabilize the financial system, they also had unintended consequences, such as exacerbating income inequality and inflating asset bubbles.

This chapter challenges the assumption that money is purely an economic tool and highlights its deep political implications.

The book’s final chapters focus on rethinking the relationship between government and the economy. Skidelsky argues for a return to the Keynesian principles of government intervention, but with modern adaptations for today’s globalized economy. He critiques the excessive focus on austerity and fiscal discipline, especially in the wake of the 2008 financial crisis, advocating instead for policies that prioritize full employment and income equality.

Skidelsky calls for an expanded role for governments, not just in managing economic cycles but in addressing long-term challenges like climate change, automation, and inequality. He presents the idea that the future of economics must be about finding a balance between free markets and government control.

One of the key examples Skidelsky provides is the Universal Basic Income (UBI), a policy that could help address inequality and provide financial security in a world where automation and artificial intelligence are expected to displace many jobs. He argues that UBI could be a way to ensure that everyone benefits from technological advances, not just the wealthy.

Quote: “The future of economics lies in reclaiming the public good from the private interest.” This reflects Skidelsky’s belief in a more just and equitable economic system, where government intervention plays a central role.

In the conclusion of Money and Government: The Past and Future of Economics, Skidelsky outlines his vision for the future of economics, advocating for a new social contract between governments and citizens. He argues that the key challenge of the 21st century will be managing the tension between free markets and state intervention, and finding new ways to address global challenges like inequality and climate change.

Skidelsky also calls for a reevaluation of economic metrics, such as GDP, suggesting that governments should focus more on measures of well-being and happiness, rather than just economic growth. This is particularly important in a world where growth can often exacerbate environmental degradation and social inequality.

Money and Government has been praised for its comprehensive analysis of economic thought and its relevance to contemporary issues. In an era marked by increasing economic inequality, political instability, and environmental challenges, Skidelsky’s arguments for rethinking the role of government in managing the economy resonate with many readers.

The book’s call for a return to Keynesian principles and its critique of neoliberalism are particularly relevant in light of the COVID-19 pandemic, which has forced governments around the world to intervene in their economies on an unprecedented scale. Skidelsky’s work remains an essential read for anyone interested in the future of economics and the ongoing debate over the role of government in managing money and markets.