Original subtitles

Narrator: 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 great,

I can assure you that the cost of inaction

will be far greater.

Narrator: With the economy still struggling,

the American government is shelling out

three quarters of $1 trillion

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.

Narrator: 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.

Narrator: 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, we'll explore the stories

of the lives and world-changing thinking

of three men with dramatically polarised views.

Karl Marx, Friedrich Hayek, and tonight, Keynes.

They're the ones who taught us the awesome power of money.

The good that markets and capitalism could do,

but also, the enormous trouble they could bring.

Could these radical thinkers

help us understand the huge mess we're in?

Could their ideas help us get out of it?

Narrator: The quiet hills of Northwest England.

This is economics in action.

[engine revs]

These rally cars are 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

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.

But the sums hadn't been adding up.

This factory's 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 their 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.

Narrator: It might seem surprising,

a handout to a private company

when the government's so worried

about the mounting national debt -

now more than £1 trillion.

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 a 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.

Narrator: 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.

Narrator: Keynes is either an economic saviour,

or the man who led us all astray.

But 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.

Narrator: 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.

Narrator: It's a broadcast about economics.

How to share out the world's resources.

Meanwhile, British trade...

Narrator: 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.

Narrator: 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.

He had the ear of everyone who mattered.

Presidents and prime ministers

all listened to what he had to say.

Though it was only after his death

that everyone actually 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.

Narrator: 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 '70s.

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 judgement,

the best suite of ideas

about how to think about capitalism

that there's been.

And if you think that counts, then, he counts.

Narrator: 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 where tinged

by that rather indefinable concept - bohemian.

[up-tempo violin music]

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.

Narrator: 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.

[dramatic music]

[crowds shouting]

Narrator: 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,

by working for the British Treasury.

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 on 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.

Narrator: 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 with, out of nothing.

Narrator: 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.

The key point was that he didn't think

the Treaty of Versailles was just 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.

It wasn't going to buy goods from Britain

and help Britain recover from the war.

That's something he kept coming back to

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.

When Keynes warned that the Versailles Treaty

would bring a catastrophe here, even his admirers

might have thought he was exaggerating.

They didn't think that for long.

Just 14 years after the Treaty of Versailles,

Hitler came to power...

- [speaking German]

..and World War II wasn't far away.

[speaking German]

Narrator: 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.

He thought it was unbelievably short-sighted.

He was right.

Narrator: So, what would Keynes make of Europe today?

Well, once again, he might see strong countries

dictating economic terms to the weak.

But 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 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,

you know, 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?

- I think he would have said, "Let's make weak 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.

Narrator: 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.

But that's easier said than done.

Keynes came to believe that economies

were fundamentally unpredictable.

In fact, he noticed,

the times when the economy looked most predictable,

were usually the times

when things were about to go disastrously wrong.

[dramatic music]

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.

No return to Tory boom and bust.

Narrator: 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.

[peaceful music]

After resigning from the Treasury

after World War I, Keynes retreated

to the sanctuary of his old college,

Kings, 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 market.

He needed money and he thought speculation

was a good way to get it.

But it was also a great way to test his belief

that probability theory and statistics

could help 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, he'd make the deals.

The Cambridge academic David Chambers

has spent a lot of time

studying Keynes's investment strategies.

- 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,

you would be able to pick when was a 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.

Narrator: But none of Keynes's 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 judgement.

Narrator: Then he changed the way he invested,

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 he could reduce to a set of equations

or 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 at any moment in time...

..you know, you would defer to the crowd.

The crowd is moving in a certain direction,

and you think, "They must be right."

You know, "The crowd's buying.

"What are they buying? I must buy, too!"

"The crowd's selling, I must sell, too!"

And it's very animal. It's very herd.

Narrator: In normal times, any economic textbook,

now, or in Keynes's time,

tells you when something gets more expensive,

people buy less of it.

And when it's cheaper, they buy more.

But not when you get bubbles.

Then, Keynes realised,

a different side of human nature took over,

the side that says

when a house or share goes up in price,

you should buy more of it,

because it's going to go up some more.

Which of course, it does,

because everyone's thinking the same thing.

But 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.

Narrator: Keynes's big ideas

that countries shouldn't beggar their neighbours,

that markets are unpredictable,

all came out of his own experience.

Now, the arrival of the Great Depression

produced his most important idea yet,

and added real urgency to his need to tame the economy.

What he realised

was that economies might sink,

and then not automatically float back up.

[romantic instrumental music]

In the early '30s,

the outside world was deep in gloom,

with dole queues lengthening

and factories closing everywhere.

But Keynes's 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.

Narrator: Keynes's realisation that an economy

could stay sunk indefinitely

was a radical break with conventional thinking.

The 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 job

and joined the dole queue,

they had less money to spend.

So that meant fewer goods were being bought,

would probably mean more job losses.

You could get caught in a downward spiral

with no obvious way out.

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.

Narrator: 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 3.5 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...

..but we, uh...

..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.

Narrator: 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've raised the 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 a lot.

In fact, without that kind of public programs,

this plant would have never been a reality.

Narrator: 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's 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,

and people might not want to borrow,

no matter how low the interest rates are.

That's when Keynes thought government needed

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 deficit,

as if this had no effect on other economic,

no adverse effect on other economic variables,

I really think

are very dangerous policy prescriptions.

Narrator: 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%,

or over half the population, unemployed.

Narrator: 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.

Narrator: 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!

[applause]

Narrator: 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.

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.

Narrator: Armies of workers from across America

tunnelled for five years

through miles 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.

Narrator: 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.

Narrator: Roger Shoaff 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, you know, less than two years.

Narrator: Critics of Keynesian spending plans

often say the benefits are fleeting,

and the costs permanent.

But Boulder City took root and thrived.

Those who still live here say if 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's 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 stop spending money

and when businesses stop spending money,

if the government also stops spending money at the same time,

then what happens, the economy, basically, crashes.

Narrator: The aim was to boost confidence,

or animal spirits,

by making it easier to borrow, invest and spend.

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 '08

and beginning of spring '09,

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.

Narrator: Even that great rescue plan

of 2009

wasn't all that it seemed.

For all Gordon Brown's talk,

Britain's own stimulus package

was actually one of the smallest.

Because the government was already borrowing

more than any other advanced economy.

So even a...

..Keynesian Prime Minister like Gordon Brown,

didn't think Britain could borrow a lot more.

His successor believes in borrowing much less.

After Brown, Britain elected 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've 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 will know - we know what will happen.

The economy will get weaker,

unemployment will go up,

and there will be

an enormous amount of unnecessary suffering.

Narrator: 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 a risk.

Narrator: 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

with profound implications for the world, then and now.

Keynes's 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,

not just from the war, but from the Great Depression.

The financial system had just been destroyed.

Narrator: 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.

We had to fix the world's economy,

we couldn't go back

to the kind of economic crisis we'd had before

because we couldn't afford another world war.

Narrator: 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's 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 macro economic 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.

Narrator: 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's 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.

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 that for the global economy to work,

there had to be a two-way street.

So 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 had to do their bit, as well.

Prepare to spend more on other countries' goods,

and export less.

Become a bit less competitive.

That's a bit of Keynesian advice

that doesn't go down well in Germany at all.

- If you say Germany should export less

or become less competitive,

the popular view is that that's mad.

Why getting us weak, when others are already weak?

And certainly, that's the wrong conclusion.

Narrator: 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,

tell German private households, 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 you could certainly spend,

and then German consumption would certainly be much stronger

than it was in the past, and that will help us.

Narrator: 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's 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.

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.

Narrator: Keynes left an extraordinary legacy.

He didn't just transform economics -

changed the lives

of billions of people around the globe.

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's 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.

Narrator: 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 more 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.

Narrator: And what of Keynes's 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 '14-'18 and '39-'45,

were, on a slow-burn basis, unfolding in front of us again.

Narrator: Today, his admirers believe

perhaps the biggest thing

Keynes could do for us right now,

would be to remind us of the traits

that guided him all 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.

Narrator: 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.

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