Keynes acknowledged [that] the disintegration of late Victorian Europe was the defining experience of his lifetime. Indeed, the essence of his contributions to economic theory was his insistence upon uncertainty: in contrast to the confident nostrums of classical and neoclassical economics, Keynes would insist upon the essential unpredictability of human affairs. If there was a lesson to be drawn from depression, fascism, and war, it was this: uncertainty—elevated to the level of insecurity and collective fear—was the corrosive force that had threatened and might again threaten the liberal world.
Thus Keynes sought an increased role for the social security state, including but not confined to countercyclical economic intervention. [Friedrich] Hayek proposed the opposite. In his 1944 classic, The Road to Serfdom, he wrote:
No description in general terms can give an adequate idea of the similarity of much of current English political literature to the works which destroyed the belief in Western civilization in Germany, and created the state of mind in which naziism could become successful.
In other words, Hayek explicitly projected a fascist outcome should Labour win power in England. And indeed, Labour did win. But it went on to implement policies many of which were directly identified with Keynes. For the next three decades, Great Britain (like much of the Western world) was governed in the light of Keynes's concerns.
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It was social democracy that bound the middle classes to liberal institutions in the wake of World War II. They received in many cases the same welfare assistance and services as the poor: free education, cheap or free medical treatment, public pensions, and the like. In consequence, the European middle class found itself by the 1960s with far greater disposable incomes than ever before, with so many of life's necessities prepaid in tax. And thus the very class that had been so exposed to fear and insecurity in the interwar years was now tightly woven into the postwar democratic consensus.
By the late 1970s, however, such considerations were increasingly neglected. Starting with the tax and employment reforms of the Thatcher-Reagan years, and followed in short order by deregulation of the financial sector, inequality has once again become an issue in Western society. After notably diminishing from the 1910s through the 1960s, the inequality index has steadily grown over the course of the past three decades.
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For the foreseeable future we shall be as economically insecure as we are culturally uncertain. We are assuredly less confident of our collective purposes, our environmental well-being, or our personal safety than at any time since World War II. We have no idea what sort of world our children will inherit, but we can no longer delude ourselves into supposing that it must resemble our own in reassuring ways.
We must revisit the ways in which our grandparents' generation responded to comparable challenges and threats. Social democracy in Europe, the New Deal, and the Great Society here in the US were explicit responses to the insecurities and inequities of the age. Few in the West are old enough to know just what it means to watch our world collapse. We find it hard to conceive of a complete breakdown of liberal institutions, an utter disintegration of the democratic consensus. But it was just such a breakdown that elicited the Keynes–Hayek debate and from which the Keynesian consensus and the social democratic compromise were born: the consensus and the compromise in which we grew up and whose appeal has been obscured by its very success.
