This is a guest post from Peter Sloman who is a lecturer in British politics at the University of Cambridge.

I read Simon Radford’s series of articles on liberal economics after the crash with a mixture of agreement and frustration, so I am grateful for the opportunity to respond with some historical reflections. Simon’s clarion-call for the Liberal Democrats to re-engage with economic theory is persuasive and well-timed: I could not agree more that,

"the opening up of economic debate post-2008 has given liberals an opportunity to unearth the liberal tradition in economics and assert its relevance, both for economics as a field, and for a voting public starving for a new progressive vision." 

Yet the notion that there is a single liberal tradition in economics is as problematic coming from Simon on the post-Keynesian left as it is coming from David Laws in The Orange Book. If liberalism is at root a political movement, seeking ‘to provide the greatest possible array of capabilities and opportunities to everyone’, we should not be surprised that British liberals have drawn on a wide range of theoretical perspectives. Rightly or wrongly, the Liberal Party has consistently sought to hold the ‘orthodoxy’ of (neo)classical economics and the heterodoxy of figures such as Henry George, J. A. Hobson, and John Maynard Keynes in a kind of creative tension.

I discussed this tension at length in my recent book on The Liberal Party and the Economy, but it is worth reflecting briefly on what it has meant for the party’s relationship with Keynesianism. Although the Liberal Democrats are justifiably proud of their links with Keynes – who was involved in the Liberal Industrial Inquiry during the 1920s and sat on the Liberal benches when he became a peer in 1942 – the party’s dominant tendency has been to domesticate his insights and play down his challenge to orthodox thinking. In the run-up to the 1929 election, for instance, David Lloyd George set Keynes’ plan for loan-financed public works in the context of the party’s existing discourse of ‘national development’, which allowed him to stress the supply-side benefits of investing in roads and other infrastructure. Likewise, after 1945 most Liberals followed Paul Samuelson (and also British Keynesians such as John Hicks, James Meade, and Roy Harrod) in interpreting Keynes’ teachings in terms of demand management through fiscal and monetary fine-tuning. Even in the 1970s and 1980s, when the Liberals (and the early SDP) resisted the rise of the monetarist New Right, the party’s Keynesianism was essentially conservative rather than radical – designed to keep the post-war settlement on the road with the help of prices and incomes policies. Set against this backdrop, the Liberal Democrats’ pragmatic decision to support a tough deficit-reduction strategy in 2010 does not look all that surprising.

Why has the party of Keynes and Beveridge been so cautious in the economic sphere? I think the explanation lies in three main factors. Firstly, it is important not to understate the extent to which classical economic doctrines became embedded in the party’s thinking during the nineteenth century. For all that liberalism was never reducible to market economics, Victorian and Edwardian Liberals tended to regard free trade and balanced budgets as basic canons of good government and to accept economists’ claims to ‘scientific’ expertise. (Indeed, Keynes himself said he was a Liberal partly because protectionism and socialism had ‘obvious scientific deficiencies’.) Market economics also fitted neatly with the party’s suspicion of arbitrary state power and its internationalist instincts. Though many Liberals valued free trade for ethical and political reasons, every restatement of the free trade case implicitly reaffirmed the value of specialization and trade and highlighted the possibility that government intervention could harm the welfare of the people. The ‘bastard Keynesianism’ of Samuelson and Hicks fitted more easily with this free-market inheritance than the radical Keynesianism of Joan Robinson and Piero Sraffa.  

Secondly, the political context in which the Liberals and Liberal Democrats have found themselves since the 1920s has also militated against economic radicalism. In a majoritarian system, it is intrinsically difficult for the third party to set the political weather; instead it tends to gravitate into the spaces left by others. This is particularly true for a centrist party whose electoral strategy relies partly on winning over ‘soft Tory’ voters in rural and suburban England. As a result, although the Liberals have often made a virtue of floating new ideas – from EEC membership to industrial democracy to Scottish and Welsh devolution – the party leadership has tended to stick close to the conventional wisdom on macroeconomic issues. Only at times of unusual political ferment, such as the Second World War and the ‘great reappraisal’ of the early 1960s, have Liberal activists succeeded in challenging this caution and propelling the party in a more radical direction.

Thirdly, there is the issue of personnel. With a handful of exceptions, those radical economists who came after Keynes have tended to gravitate towards Labour or stay out of party politics altogether, and very few of the leading figures on the left of the Liberal Party and Liberal Democrats have taken much interest in economic theory. From Megan Lloyd George and Jeremy Thorpe to David Steel and Charles Kennedy, many social liberals have focussed their energies on foreign policy, civil liberties, and constitutional reform whilst paying ritual obeisance to Keynes and Beveridge. As a result, the Liberal Democrats have come to rely heavily on a small group of economically literate MPs – such as Vince Cable, Chris Huhne, and David Laws – whose instincts may or may not be in line with those of the wider party. 

The good news is this is already changing. Social liberals have begun to re-engage with economics in the years since the financial crash – a shift reflected in the Social Liberal Forum’s Plan C – and the scale of the Liberal Democrats’ election defeat is likely to open up space for new ideas and policies. Under Tim Farron’s leadership, Simon and those who think like him can at least be sure of a hearing. Yet re-enacting the debate over the coalition’s ‘austerity’ policies is unlikely to reap political dividends in 2020. Rather, the Liberal Democrats need to combine a credible critique of George Osborne’s economic stewardship with realistic plans for promoting sustainable growth and solving the housing crisis. Labour’s left turn under Jeremy Corbyn presents an unexpected opportunity for Tim Farron and his colleagues. They will need to draw on the talents of the whole party in order to rise to the challenge.

Peter Sloman is a lecturer in British politics at the University of Cambridge and the author of The Liberal Party and the Economy, 1929-1964 (Oxford, 2015)

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