Masters Of Money | Part 1 | John Maynard Keynes

This vast solar power plant being built in the remote Arizona desert is part of the biggest economic rescue effort in history. While the cost of action will be greater, I can assure you that the cost of inaction will be far greater. With the economy still struggling, the American government is shelling out three quarters of a trillion dollars to try to haul the country out of trouble. And in Britain, billions are being spent to accelerate growth, even by a government determined to cut borrowing. Is this really the right road to take? After the crash in 2008, the world seemed to be running out of cash. But rather than cut back, governments spent huge amounts of money they didn't have. Why on earth would they do that? It all goes back to the extraordinary ideas of this man, the British economist John Maynard Keynes. Quite simply, he changed the world. I think it is true that he's one of the great figures of the 20th century, and in many ways of the 21st century. Keynes thought capitalism was brilliant, but left to its own devices, it could also go seriously wrong. It was up to governments to step in to get the economy back on track. He was the archetypal man in Whitehall, Westminster or Cambridge who thought he knew best. Keynes has never been more relevant or controversial than he is today, because for the first time since the 1930s, the problems he was grappling with then, bank failures, international crises, the possibility of a long economic slump, we're facing too. In this series, I'll tell you about the lives and thoughts of three extraordinary men with radically different views. Friedrich Hayek and tonight, Keynes. They all saw that taming the growing power of money was the crucial challenge for the modern world. All three were intellectual giants whose ideas have been a hidden force shaping world events, changing the lives of every one of us. But I think they have something special to tell us right now, because they, more than anyone, taught us the awesome power of money, the good that markets and capitalism could do, and the enormous trouble they could cause. I think they'd know exactly what we've been going through. I want to know, can they help us find a way out? The quiet hills of north-west England. For me, a chance to experience economics in action. I'm getting to try out rally cars competing in the Tour of Cumbria. The sponsors, Pirelli, are getting a slice of the government's £2.4 billion fund to help regional growth and employment. They want to show me what the company's really all about. Pirelli's one of the world's biggest tyre makers. It's been manufacturing in Britain for almost a century. It wants to develop some of its top ranges and beef up research and development. Brilliant, absolutely brilliant. But the sums haven't been adding up. This factory is one of Carlisle's biggest employers. There are about 750 workers here producing 10,000 tyres a day. Not so long ago, people worried the company would shift production overseas to cut costs. A £2 million government grant has persuaded Pirelli to invest in Britain instead. When we have a major investment, the confidence in people to spend the wages is increased and the local economy benefits. And it's not only Pirelli employees. We have hundreds of suppliers and contractors who depend on this factory and they benefit also when Pirelli increases its spend and also they recycle that money into the local economy. It might seem surprising, a handout to a private company, when the government's so worried about them mounting national debt, now more than a trillion pounds. But Keynes was quite clear. There are times when we need to step in to make capitalism work for us, even when that means spending money we don't have. What Keynes said was that it was possible for government to come in and make markets work better. So one way that it's often put is that Keynes saved capitalism from the capitalists. Though for Keynes' critics, it's mistakes by governments that really cause the trouble. When we find instances of economies being seriously knocked out of equilibrium, it's generally been as a result of government policy mistakes. But Keynes didn't really make a convincing case that even when an economy was knocked out of equilibrium, that government action could do better than allowing the economy to essentially mend itself. So Keynes was either an economic saviour or the man who led us all astray. But there's no argument that he changed our world and the way we think about it. He was at the centre of the debate 80 years ago and he's back there again today. A great weight is lifted from us. This is the only known film of Keynes speaking. There's no danger of the exchange falling too far. There's no danger of a serious rise in the cost of living. It's a broadcast about economics, how to share out the world's resources. But for Keynes, this was no dry science. It was about changing the world for the better. I think if we're looking at Britons who made a real difference in the 20th century, the most obvious name would be Winston Churchill. John Maynard Keynes is really not far behind. Keynes spent years in this house in London, developing ideas that helped shape some of the most important events of the past century. Helping to save capitalism from the Great Depression. Funding the war against the Nazis. And building a new post-war economic order that helped pave the way for decades of growth and rising prosperity. What's really extraordinary about Keynes from a modern perspective was his access. Despite being so unconventional in his life and especially in his views, he had the ear of anyone who mattered. Presidents and prime ministers all listened to what he had to say. But it was only after his death that everyone started taking his advice. I applied to university in 1965 and the whole intellectual climate of the time, not just in terms of economics but politics, was driven by the idea that Keynes had solved the economic problem. By the late 1960s, Keynes' ideas were built into the fabric of pretty much every Western economy. But he didn't seem to have an answer to the high inflation of the 1970s. After that, Keynesian fine-tuning was out and free market ideas gradually took over. But when the world got into serious bother in 2008, Keynes was back. It's ideas that mobilise the world on right and left, good and bad. And Keynes was the author of, in my judgment, the best suite of ideas about how to think about capitalism that there's been. And if you think that counts, then he counts. So what are these great ideas that have dominated our economic landscape for so long and where exactly did they come from? Keynes was born at the height of the British Empire in 1883 to middle-class parents who sent him to Eton and Cambridge. So far, so conventional. But at university he fell in with a very unconventional crowd, the Bloomsbury set. As a young man, he spent a lot of time here at their country retreat, Charleston in Sussex. It was a kind of commune for artists and writers and the one economist. They did see themselves as very different. To an extent, they were tinged by that rather indefinable concept, bohemian. They were very ahead of their time. They were pioneers about sexual behaviour. They were pioneers on the political front. They were pioneers in many aesthetic fields, in writing and in the arts. The Bloomsbury group allowed him to step outside of the box and to think the unthinkable. And that breadth of intellect that he had allowed him to leap off cliffs with the confidence that there was no bottom. Keynes immersed himself in the cultural world all his life, collecting paintings, fine books, even founding the Arts Theatre here in Cambridge. Perhaps it's no coincidence that a man with such wide-ranging interests should have the vision to develop a radically new approach to economics, Keynesianism, shorthand today for government efforts to control the economy. Keynes was born nearly 130 years ago into a confident age. Science had been marching forward in medicine and engineering, every year extending what was humanly possible. But there was one domain where science had barely begun, economics, the world of money and markets. If we could tame capitalism, we could really shape our destiny. Keynes fundamentally believed that. But he also understood, maybe better than some of his followers, just how difficult that was going to be. Greek fury at the austerity they feel has been imposed on them by their European neighbours. For Keynes, this might feel a bit familiar. He saw at first hand the disaster that can come from stronger countries dictating economic terms to the weak. That helped him form his first big idea. In an interconnected world, when you beggar your neighbour, you might well beggar yourself. It was an idea forged by the horrors of World War I. True to his Bloomsbury values, Keynes didn't want to fight in the war. But he was willing to use his economic brilliance to help finance it. Keynes' job at the Treasury was to help channel loans from America to other countries in the alliance. His time here brought home to him how integrated the global economy had become. Isolation just wasn't an option. The economic fate of entire populations might come to depend on events hundreds, even thousands of miles away. Once the war was over, Keynes could see how hatred of the defeated Germans might lead the victors to make a terrible mistake. At the end of the First World War, there was a great deal of, obviously, public hostility towards Germany. I mean, it had been a disastrous war, both obviously in terms of lives and casualties, but economically too. I think there was quite a strong feeling that Germany must be made to pay. At the Palace of Versailles, where the peace treaty was signed, British Prime Minister Lloyd George and his French and American allies relished their victory. Keynes was a member of the British delegation here, but against his advice, Germany was ordered to pay everyone's bills for the damage and suffering caused by the war. How could Germany afford to repay that debt? You need an economy that is running to produce money, to produce wealth, and then you can repay. You cannot repay without of nothing. Keynes was so outraged that he resigned from the Treasury and retreated to his room in Charleston to write his first major book, The Economic Consequences of the Peace. Brilliantly written, it became a bestseller, though some said, with his sympathy for the Germans, he should be awarded an Iron Cross. He says, if we aim deliberately at the impoverishment of Central Europe, vengeance, I dare predict, will not limp. The key point for me is he didn't just think it was immoral, the treaty, or unfair. He thought it was stupid. He thought a desperate Germany wasn't going to keep the peace in Europe and it certainly wasn't going to contribute to prosperity, wasn't going to buy goods from Britain and help Britain recover from the war. Something he kept coming back to, one way or another, throughout his life. We're all in it together. The Versailles Treaty brought one of the great powers of Europe to its knees. As Keynes predicted, the German economy descended into chaos. Their debts were so impossibly large, they ended up printing the money to pay the bills, which quickly led to hyperinflation and a thoroughly worthless currency. Hyperinflation didn't just destroy the economy, it destroyed the fabric of German society, people's hopes too. There are stories about people taking out all of their savings to buy a single postage stamp for a suicide letter. When Keynes warned that the Versailles Treaty would bring a catastrophe here, even his admirers might have thought he was exaggerating, but they didn't think that for long. Just 14 years after the Treaty of Versailles, Hitler came to power. World War II wasn't far away. As Keynes had predicted, the price of getting economic relations wrong was calamity. Keynes foresaw that the reparations were too onerous, would have to be adjusted, and that actually you were laying the seeds of the next European conflagration. It was unbelievably short-sighted, and he was right. So what would Keynes make of Europe today? Well, once again, he might see strong countries dictating economic terms to the weak, though this time it's strong countries like Germany itself insisting that crisis-ridden nations like Greece sign up to tough budget cuts in exchange for emergency loans. The newspapers show the depth of ill will that's built up as a result of the crisis. You've got the Germans talking about the Greeks as no-good scroungers, but in Greece, well, there's no more taboo anymore about comparing German leaders to Nazis. Though Keynes might say they were harking back to the wrong war, the tough conditions being imposed on Greece might remind him, ironically, of the deal imposed on Germany at Versailles. The dominant thinking in Europe at the moment is exactly repeating the mistakes, I believe, certainly as far as Greece is concerned, as was made at the end of the First World War. There comes a point, if you visit upon countries, things they can never deliver, it will end in tears. If you look at what's happening in the Eurozone today, riots on the streets of Greece, general strikes in Spain, general strikes in Portugal, you can say, well, aren't we just failing to learn the lessons of history here? If Keynes could join me in Berlin today, he'd surely appreciate the complexity of the crisis in the Eurozone. And he'd understand why ordinary Germans feel it's time for Greece to pay its own way. But he also understood that imposing too much austerity could be self-defeating. I think he would have said, let's make Greece strong so then they can repay their debt. As long as the debtor pays, the creditor is happy. But as soon as the debtor gets into difficulties, and if he's a very important debtor, the creditor has also problems because he won't get his money back. Faced with the crisis affecting the people of Europe today, Keynes would undoubtedly have come up with some solutions. In fact, years after the Treaty of Versailles, he'd unveil a plan for countries to work better together. But first, there was a more basic question. How to steer the economy itself. To tame the economy, to make it work for us. Keynes realised you first had to understand how it worked. And the tool for doing that, economics, was still young in the 1920s, but it had grand ambitions. People hoped you'd be able to predict the movement of economies like you could predict the movement of the planets. Keynes was drawn to that idea as well. But he came to the conclusion economies weren't like planets. They were more like people. You never really knew what they were going to do next. In fact, he noticed the times when economies looked most predictable were usually the times when things were about to go disastrously wrong. It certainly felt like that in 2008, when the global financial system imploded after one of the longest booms in history. Many claim now to have seen it coming. But at the time, many more behaved as if the good times would go on and on. Don't return to Tory boom and bust. Being too sure about the economic future was another mistake that Keynes had warned about 80 years ago. Because he'd made the same mistake himself. After resigning from the Treasury after World War I, Keynes retreated to the sanctuary of his old college, King's in Cambridge. He was a lecturer and later a bursar, looking after the college's finances. He had a special interest in probability theory, a branch of mathematics that tries to predict the future from the evidence of the past. When he wasn't writing or studying, Keynes was often betting on the financial markets. He needed money and he thought speculation was a good way to guess it. But it was also a great way for him to test his belief that probability theory and statistics could help you predict the way markets were going to move. He had very mixed results. In his early years as an investor, Keynes sat in bed every morning poring over reams of statistics about currencies, shares, bonds and commodities, when he was sure he'd worked out which way the market would move. Given this economic knowledge that he had, this great thirst that he had for numbers and statistics, he believed, I think, that he could define, delineate the business cycle. And as a consequence of that, he would be able to pick when was the right time to be in the stock market, to own shares, when was the right time to come out of the stock market into, say, bonds, government bonds in particular, or alternatively cash. But none of Keynes' elaborate calculations pointed out the disaster just around the corner. Wall Street, before the crash in 1929, looked a lot like the tail end of our market boom. Investors could see no end to the good times. Armed with the very latest mathematical models, they thought they had everything covered. Then the bubble burst. World markets collapsed and Keynes lost money, along with millions of others paving the way for the Great Depression. His confidence in predicting the future was gone. He would have bitterly reproached himself for not foreseeing the Great Depression, but he came to the view that the future is not like that, that anybody who happens to predict it right is likely to be doing so on the basis of luck rather than judgment. Keynes' speculating days weren't quite over. Years later, he thought he might have to store hundreds of tonnes of wheat in King's College Chapel after a commodity trade went wrong. But he did change the way he invested and became a wealthy man. He'd learned lessons about the way economies work that we still struggle with today. That you can never get rid of uncertainty and that economies are made up of people, not numbers. More than anyone, Keynes wanted economics to be respected as a modern science, but he knew it was never going to be a science you could reduce to a set of equations, iron predictions, because economists were always going to have one extra thing to deal with, human nature. If you don't know about the future and you're trying to get a fix on what's taking place any moment in time, you would defer to the crowd. If the crowd is moving in a certain direction, then they must be right. You know, the crowd's buying. Why are they buying? I must buy too. The crowd's selling. I must sell too. It's very animal. It's very herd. This idea of herd psychology helped Keynes make sense of the economic bubble that blew up in the years before the great crash of 1929. It can also do a pretty good job explaining our own great financial crash in 2008. In normal times, any economic textbook, now or in Keynes' time, would say if the price of something goes up, people buy less of it. If the price goes down, they buy more. That's how markets work, except, Keynes realised, when you have bubbles, then a different side of human nature takes over. It's the side that says, oh, house prices are going up, shares are going up. I should buy more because the price is going to go up again, which, of course, it does. It becomes a self-fulfilling spiral. Prices go up and up and up and up. Eventually, the bubble will burst. It always does. In the years before 2008, did we forget what Keynes had taught us about herd psychology, bubbles, and the uncertainty of economic life? Did the bankers, investors, politicians, and the rest of us simply get too confident in thinking the good times would go on forever? I think, inasmuch as people actually sat down and thought about what were the risks, what are the uncertainties, then, quite clearly, a large number of people were manifestly found wanting. And, of course, if you don't know what you're doing, it's not surprising that you end up being smashed to bits, and that's precisely what happened. Keynes' big ideas, that countries shouldn't beggar their neighbours, that markets were unpredictable, all came out of his own experience. And now the Great Depression produced his most important idea yet and added real urgency to his need to tame the economy. What he realised was economies might sink and then not automatically float back up. Looking around the Western economies today, that does sound a bit familiar. In the early 30s, the outside world was deep in gloom, with dole queues lengthening and factories closing everywhere. But Keynes' life was blissful. By now, he was famous and he'd shocked even his avant-garde Bloomsbury friends by marrying a Russian ballerina. Up till then, he'd been gay. Art, books, love affairs. For Keynes, this is what life was all about. But he understood, probably more keenly than his Bloomsbury friends with their inherited wealth, that money kept the whole thing afloat. You couldn't have a civilised society without a well-functioning economy. When he was back in the real world on Monday morning, he could see the British economy wasn't working at all. Britain had been in a slump for years. Classical economists said that if workers would just agree to wage cuts, businessmen would invest again, create jobs and the economy would revive. But Keynes disagreed. He thought the way to recovery was being blocked by pessimism or low animal spirits. The big insight of Keynes behind all of this was that a market economy is not self-stabilising. And when you get very big changes in animal spirits, in sentiment, where people who are producing to sell in the future suddenly worry that, actually, maybe there won't be the demand in the future, so they stop producing. To get out of that low output trap can be very difficult. Keynes' realisation that an economy could stay sunk indefinitely was a radical break with conventional thinking. A classical approach said the economy would get better, we just had to give it time. But looking around, it seemed obvious to Keynes that it wasn't getting any better and it seemed blindingly obvious why it wasn't. Every time someone lost their jobs and joined the dole queue, well, they had less money to spend, so that would mean fewer goods were bought, probably mean more job losses. You could get caught in a downward spiral with no obvious way out. Now, it seems equally obvious to us today, but back then, it was all very new. Keynes thought the low animal spirits in the business world were now infecting everyone. In a radio broadcast in 1931, he made a dramatic call for action. The slump in trade and employment are as bad as the worst which have ever occurred. Activity and enterprise, both individually and nationally, must be the cure. Today, Keynes' followers have made similar calls. Years after the start of the recession, the economy's still struggling to get back to where it was. You don't have to be Keynes to see animal spirits are low. Whether his ideas can revive them is another question. Keynes' insight that countries could just get stuck was probably his most important contribution to economic thinking, but he didn't just want to understand economies, he wanted to make them work better. He had plenty of advice for getting out of a slump, but the most controversial was that governments should spend money they haven't got. To my mind, the biggest argument in politics today is over whether countries have done too much of that since the crisis hit, or not enough. Keynes might have died almost seven decades ago, but out here in the Arizona desert, his big idea for getting the economy moving again lives on. At Gila Bend, they're building the biggest solar power plant of its kind in the world. The site covers over three and a half square miles. Nearly a million mirrors will capture enough energy to provide 70,000 American homes with clean power. But for the people in this remote region, and for John Maynard Keynes, probably the most important thing this plant will produce is employment. Between my wife and I, we probably spent two years out of work. Thank God, not at the same time. But we took some very significant hits. The company that sources our manpower tells me they receive 300 resumes per day. There's a lot of people looking for work, and the people who have jobs out here feel very lucky to have their jobs. In effect, this plant is part of a vast Keynesian experiment. In the wake of the crash, the US government stumped up three quarters of a trillion dollars for projects like this one to create jobs and growth. In normal times, say the people who run this site, they would have raised a billion and a half dollars to get things going from commercial banks. But these aren't normal times. Because of that downturn, we had to look for alternative sources of financing. And of course, in this context, the federal loan guarantee program here in the US has helped it out a lot. In fact, without that kind of public programs, this plant could have never been a reality. Now we're used to governments using their cash to try to bring the economy to life in hostile environments where private money's drying up. But back in Keynes' day, it was a much more controversial idea. In the 1930s, Keynes spent weekdays at his home here in London's Bloomsbury district. He wrote countless articles and pamphlets explaining how something could and should be done to tackle this Great Depression. In normal times, Keynes thought monetary policy was the best way to help the economy. You cut interest rates to encourage people to borrow and spend more and companies to invest. But when animal spirits were really low, that might not be enough. Companies might not see the point of making new investments. People might not want to borrow no matter how cheap it was. That's when Keynes thought government did need to make up the gap with more public spending. Keynes suggested the government should hire people to demolish South London and then rebuild it. He wasn't serious, but he was making a serious point. If the government borrowed to create jobs, people would spend more, confidence would rise and the economy would recover. If you picked the right moment, he insisted the extra spending would pay for itself by producing higher tax revenues. Well, of course, he did have enormous trouble trying to persuade the Treasury, the so-called Treasury view, that you should borrow at the bottom of a business cycle. But in economic terms, what you need is more demand in the economy and you can do that in the ways that Keynes suggested. Naive Keynesian prescriptions of simply responding to depressions and recessions by raising the budget deficits as if this had no effect on other economic, no adverse effect on other economic variables, I really think are very dangerous policy prescriptions. In the 30s, Keynes found that most British politicians had a similar view. High borrowing was dangerous. He thought he might have a more receptive audience in America. After all, he was now a celebrity on both sides of the Atlantic and the economic situation in America was desperate. Gross national product was down to almost 70%. You had unemployment nationally at 25%. In places like Chicago and Detroit, unemployment was up to 50%, over half the population unemployed. President Hoover's solution to the Great Depression had been spending cuts and tax rises. He'd made an argument we've heard others make more recently. Balancing the country's books would create confidence and encourage investment. Didn't happen, never has happened. When you cut back government spending in a situation such as a recession or depression, demand goes down, unemployment goes up, and it's a vicious circle. Confidence isn't restored when unemployment goes up, and when business goes down, confidence is eroded. Hoover's successor, Franklin Delano Roosevelt, had a different approach. Again, echoing arguments made today, he thought the government should spend its way out of trouble. This nation is asking for action, and action now. When Keynes arrived in America in 1934, there's no evidence that he persuaded the US government to adopt Keynesianism. They were doing it anyway. Keynes had his one and only meeting with President Roosevelt. By all accounts, it didn't go very well. Keynes thought the president was no economist. The president thought Keynes was a bit too clever for his own good, but they did agree on the most important thing. This was no time for government to sit on its hands. It was time for a historic experiment. The New Deal, a vast programme of government-funded projects to put armies of jobless to work. Ever since, it's been the celebrated example of a Keynesian effort to boost flagging economies. And there's no more iconic project of that era than this one. Hoover Dam. Built across the Colorado River, bordering Nevada and Arizona, it was the biggest construction project in the world. I would call it a Keynesian project, absolutely. The government stepped in with money, built a deficit, and out of that came Hoover Dam, which gave thousands, tens of thousands of people a new life, money to spend. Armies of workers from across America tunneled for five years through mile upon mile of mountain rock to build what was in effect a vast power generator, providing electricity for huge swathes of the country. It primed the economy. A $165 million investment which produced billions in growth, economic growth. Just eight miles away is Boulder City, built to house the workers building the dam. All these houses along these avenues are what we now call dingbat houses. They were the homes built for the workers. They were put up to last through the construction of the dam, very quickly built. But because people stayed, which they didn't anticipate people would do, families still live in them. Roger Schoaf runs the town's hotel. He thinks Boulder City shows how in a depression, extra government spending can trigger private spending and investment too, adding to the economic benefits. It's what Keynes called the multiplier. By the end of the second year, they lived in a town, a full town, fully operating town with retail stores and restaurants and medical facilities and recreational facilities. It happened in less than two years. Critics of Keynesian spending plans often say the benefits of fleeting and the costs permanent. But Boulder City took root and thrived. Those who still live here say if it hadn't been for the New Deal, this would still be desert. Hoover Dam might have helped the local area, but it's actually a myth that the New Deal ended the Great Depression. It took a world war and all the extra government spending that went with that finally to bring the economy out of the doldrums. You might wonder whether a world war was really the best test of Keynes' arguments, but ever since then, so-called Keynesian policies have been what governments do when faced with emergencies. And the crisis of 2008 was the biggest emergency anyone had seen for a long time. When the global financial system crashed, the world faced the real possibility of another Great Depression. Governments had been preaching the free market for years. But faced with this economic disaster, they reached again for the old Keynesian levers. It was a classic Keynesian response. When individuals stopped spending money and when businesses stopped spending money, if the government also stopped spending money at the same time, then what happens? The economy basically crashes. The aim was to boost confidence, or animal spirits, by making it easier to borrow, invest and spend. Interest rates were slashed to just half of 1%, the lowest on record. We're all now in uncharted territory. Then when interest rates couldn't go much lower, the Bank of England started pumping billions of pounds directly into the economy. It's literally creating £75 billion in the next few months to get money moving around the economy again. Even VAT was temporarily cut. It'll make goods and services cheaper, and by encouraging spending, it will help stimulate growth. In 2009, with the global economy still tottering, leaders gathered in London to endorse a Keynesian rescue plan for the entire world. This is the day that the world came together to fight back against the global recession. I find it very hard to explain the collapse in world trade of over 15% in six months, between the end of 2008 and beginning of spring 2009, in terms of anything other than an extraordinary collapse of animal spirits or confidence. Now, some of that was turned around in 2009, but by no means all. Even that great rescue plan of 2009 wasn't quite what it seemed. For all Gordon Brown's talk, Britain's own stimulus plan was actually one of the smallest, because our government was already borrowing more than any other advanced economy. So even a Keynesian prime minister like Gordon Brown didn't think we could borrow a lot more. His successor thinks we should borrow much less. We now have a prime minister who, on one fundamental point, appears to disagree with Keynes. Some of the normal things that governments can do to deal with a normal recession, like borrowing to cut taxes or increasing spending, these things won't work because they lead to more debt, which would make the crisis worse. The only way out of a debt crisis is to deal with your debts. I suspect that Keynes probably wouldn't have used exactly the prime minister's formulation. I think that Keynes would have accepted at some point that you have to head back towards a more balanced budget, particularly if you don't want to stack debts onto future generations. To me, the remarkable thing is that countries like the UK that have a choice are voluntarily putting themselves through austerity. And almost certainly, we know what will happen. The economy will get weaker. Unemployment will go up. And there will be an enormous amount of unnecessary suffering. This argument will run and run on both sides of the Atlantic. In Arizona, the massive spending programme that built this solar power plant and let thousands clock on for new jobs hasn't been a miracle cure for the US economy. Maybe the medicine didn't work because the dose was too small. Or maybe the mountain of debt weighing on most Western economies means the Keynesian route to recovery is simply shut off. We are in a stratosphere today that we just have not seen before. And maybe it's fine. But no other countries very rarely have seen these kind of debt levels, public, private and other measures. They're risks. By the 1940s, Keynes was riding high. His theatre here in Cambridge was thriving. He was back in the treasury helping finance the Second World War. And his books were being hailed as masterpieces. But he had one last big idea to pursue. The profound implications for the world then and now. Keynes' ideas for fixing broken economies had now been tested. But towards the end of World War II, he got a chance to leave his mark on the entire global economy. In a more integrated world, he was more convinced than ever that countries needed institutions to force them together, make them cooperate. The catastrophe after World War I could never happen again. The single most important trip to America that Keynes ever took was in 1944, to the exclusive resort of Bretton Woods in New Hampshire. He was joining delegates from over 40 different countries, all charged with laying the foundations of a new post-war global economy. They wanted to rebuild the system, you know, not just from the war, but from the Great Depression. The financial system had just been destroyed. The economic chaos of the 20s and 30s was largely responsible for the war, Keynes believed. Countries had all focused on charting their own path without very much thought for what was going on around them. The world had paid a terrible price for that failure to cooperate. There was a real determination among officials, both in London and in Washington, that we couldn't do this again, that we had to fix the world's economy, that we couldn't go back to the kind of economic crisis we'd had before because we couldn't afford another world war. As representatives from across the world gathered here at Mount Washington Hotel, elsewhere there was still ferocious fighting. But once the war was over, Keynes knew for the world economy to prosper, countries would need to work together much more closely. Only two delegations at the conference really counted, Keynes' British team and the Americans. Both agreed that there should be controls to prevent currencies fluctuating too wildly against each other. They agreed, too, that institutions that later became the World Bank and International Monetary Fund should be there to foster trade and growth in poorer economies. Well, the big gain from it was the recognition that countries need to work together to resolve their macroeconomic problems. It's just not enough to pretend that you can do it as an island. You may be an island geographically, but you're not economically. But on one crucial issue, Keynes failed. The Americans were adamant that rich exporting countries like them shouldn't have to spend more and export less to balance world trade. It was weak countries with big trade deficits that had to shape up. If everyone at Bretton Woods had accepted Keynes' logic that it takes all sides to keep the global economy in balance, the world today might be in a lot better shape. This old East German television tower is a symbol of reunified Germany. But these days, feelings of European unity are in short supply. Ministers here in Berlin want struggling eurozone countries to impose tough measures to get their economies into shape. The stronger countries have been willing to help by offering massive loans, but I don't think Keynes would have thought that was enough. Keynes thought for the global economy to work, it had to be a two-way street. So the weak countries that had run up a lot of debt with the rest of the world, they did have to become more competitive, learn to pay their way. But the rich exporters, well, they had to do their bit as well, spending more on other countries' goods and exporting less, becoming a bit less competitive. That's a bit of Keynesian advice that doesn't go down well here in Germany at all. If you say Germany should export less to become less competitive, the popular rulebook, that's mad. Why getting as weak when others are already weak? And certainly that's the wrong conclusion. There are signs of movement on Germany's side of the street. Domestic car sales have been going up. But exports are still a central plank of the country's economic policies. And car exports are up by almost a third in the past two years. German consumers have been spending more lately, but not enough to provide much of a selling opportunity for struggling countries like Greece. That's a very popular approach to tell German private houses, please spend more. Don't be so greedy with your money. But I think that's wrong because people look at their income and they say, I can't afford simply. And that's true. I mean, we have had very weak wage increases during the past years. And that's the point where you have to have higher wages. And these higher wages will certainly spend, and then German consumption will certainly be much stronger than it was in the past. And that will help us. Memories of hyperinflation are still raw in Germany. Few want to put their hard-won economic stability at risk for their weaker European neighbours. The divisions between countries at a global level are even clearer. Leaders pay lip service to Keynes' dream of a truly coordinated global economy where the strong work with the weak for the benefit of all. But there's little sign of them actually doing it. I think Keynes would look at our world, the troubles in the Eurozone, the banking crisis, say it was a pretty scary place without many of the checks and balances that he argued for at Bretton Woods. But he'd also say, he did say, that a really global economy was tremendously exciting, with huge potential to improve all of our lives. If governments could only work out how to put into practice that basic insight that he kept coming back to, we really are all in it together. Sure, it would be great to have better multinational institutions. And Keynes was a pioneer in that. He was a big believer. And I think in order to fix the international financial system, that would be very helpful. And maybe somebody with the sort of magnetism and gravitas and stature of Keynes could somehow catalyse that. But he is a rare person indeed. Keynes left an extraordinary legacy. He didn't just transform economics, changed the lives of billions of people around the globe. There aren't many people born in the 1880s whose name you hear as often as Keynes in current debates. His ideas that countries shouldn't beggar their neighbours, that economies were deeply unpredictable, could get stuck in slumps, have changed the way we think about the world. But what can Keynes actually do for us right now? Back in Cumbria, it's clear what Keynes has done for them. Government intervention will help keep Pirelli's tyre factory open and provide a lot of employment. In the political mainstream, there aren't many who challenge Keynes' basic message that you can't leave economies to drive themselves. Keynes was a very dominant force in the 20th century and my guess is he will remain a dominant force in the 21st century, which is why I think he will go down as one of the greatest economists the world has produced. 80 years ago, building this dam eased the Great Depression. With the government borrowing more cheaply than ever before, you might think the case for New Deal-type investments was equally strong today. But given the sheer volume of public debt, no one can promise that piling on more borrowing will be a miracle cure. What is thought of as a typical Keynesian solution to get more debt, borrow money, spend, spend, spend and cut taxes, that needs to be used more judiciously here because at the end of the day, you've got to get rid of this debt. This is a very long haul. I don't think anything just boosts your way and zooms your way out of this. There just is no magic bullet. And what of Keynes' final big idea, that countries are all in it together? Since Bretton Woods, the world has grudgingly accepted that we have to cooperate to prosper, but we're struggling to make it work in practice. He'd be worried. He'd be very worried. He'd have been very concerned about the growth of inequality worldwide He'd be very concerned that there was a return to beggar-my-neighbour policies. I have no doubt that he would be warning of regional war and all its dangers. He'd be very frightened that the circumstances that led to war in 1418 and 39-45 were on a slow burn basis unfolding in front of us again. Maybe the biggest thing Keynes could do for us now would be to remind us of the traits that guided him all of his life. Imagination and optimism. He came along and was willing to examine these profound problems in ways that no one had done before. His great legacy is that fundamental belief in humanity, that fundamental belief in the ability of government and of society to dedicate itself to helping those that are less fortunate and need our help. In 1946, Keynes suffered a fatal heart attack in his beloved Sussex Downs. Just 62, he left a legacy that changed the world. But he also left an enigma. He thought we should try to tame the power of money to make it work for us. But he also taught us that economies were fundamentally unpredictable. It's a contradiction we're still grappling with today. More than anyone, Keynes paved the way for activist government. He said you could and should make the world economy work better. And the generation that rebuilt the global economy after the war really were children of Keynes. But when you read him today, there's another equally powerful message that comes through about the great unpredictability, uncertainty of economic life. You should never think you've got it covered, that you've abolished boom and bust. That's the great paradox. The man who did most to make economists arrogant in their capacity to bend the world to their will also gave them, or should have given them, the best reasons for self-doubt. Next time on The Power of Money, Keynes' great adversary, Friedrich Hayek, who looked at the same facts and drew exactly the opposite view. The market needed to be set free and government should back off. The Open University has produced six one-minute animations to explain some of the key economic ideas that affect all of us. So if you want to learn how to spot an invisible hand or other secrets of economics, go to bbc.co.uk slash masters of money and follow the link to the Open University. Can chemicals make us irresistible to the opposite sex? James May reveals all you need to know about chemistry next on BBC HD.