Keynes in the Age of Geoeconomics
By Matthew Parish
Wednesday 16 September 2026
If Friedrich von Hayek were unexpectedly transported into the economic world of the 2020s, he would probably regard much of what he saw with apprehension. Governments subsidise strategic industries, restrict exports, screen foreign investment, reorganise supply chains, manipulate tariffs and increasingly treat international commerce as an instrument of national power. The spontaneous international economic order that Hayek admired is being subordinated to political objectives, and the dividing line between economic policy and national security is becoming steadily harder to discern.
John Maynard Keynes might have reacted rather differently. He would recognise the world, because in important respects he had already lived through it. His adult life encompassed the collapse of the first great age of globalisation, the First World War, Versailles, inflation, the Great Depression, protectionism, economic nationalism, the rise of totalitarian states and the Second World War. He watched an international economic system that had once appeared permanent disintegrate under geopolitical pressure, and then, during the final years of his life, helped to design another. For that reason, Keynes would probably find contemporary discussions about “geoeconomics” curiously familiar. The vocabulary is new, but the underlying problem is not.
The fundamental question is whether economics can ever exist independently of politics. Keynes’s mature answer was that it cannot, and that understanding provides an illuminating counterpoint to Hayek when considering the increasingly geopolitical character of the contemporary world economy.
The first globalisation
The world before 1914 was extraordinarily internationalised. Capital moved across borders on a vast scale, Britain invested throughout the world, goods circulated through an expanding international trading system, migration was comparatively unrestricted and the gold standard linked currencies together. London stood at the centre of a financial network whose geographical reach would not look entirely unfamiliar to a modern investment banker.
Keynes famously described this vanished civilisation in The Economic Consequences of the Peace. A prosperous Londoner could order products from around the world, invest his wealth abroad and travel internationally with remarkably little interference. The arrangement appeared normal and essentially permanent to those who inhabited it, just as globalisation appeared irreversible to much of the Western political and economic establishment during the 1990s and early twenty-first century.
Then politics destroyed it. The assassination of an Austrian Archduke in Sarajevo initiated a chain of events that brought the international economic order crashing down. Governments imposed controls, trade routes were interrupted, assets were seized, currencies became instruments of national policy and international lending became entangled with war debts and reparations. The political relationships between countries proved more powerful than the commercial relationships between their citizens.
Keynes thereby learned a lesson that distinguishes him sharply from simplistic versions of economic liberalism. Economic interdependence does not abolish geopolitics; sometimes geopolitics abolishes economic interdependence. That insight would make him unusually well equipped to understand the twenty-first century.
Keynes the economic nationalist
There is a forgotten Keynes who would sound startlingly contemporary. In 1933 he published an essay entitled National Self-Sufficiency, in which he explained that he had been raised to regard free trade almost as a moral doctrine but that his position had changed. He had become willing to contemplate greater national economic autonomy where excessive international dependence prevented governments from pursuing legitimate domestic objectives.
This was not an argument for complete autarky. Keynes understood perfectly well that attempts at national self-sufficiency could become economically irrational and politically poisonous. Nevertheless he was prepared to accept some loss of economic efficiency in exchange for greater freedom of political action. Substitute the contemporary expression “strategic autonomy” for “national self-sufficiency”, and parts of the argument would fit comfortably into a European Commission policy paper.
The contemporary European Union worries about dependence upon Russian energy, Chinese manufacturing, American technology and foreign-controlled supply chains. The United States worries about Chinese semiconductors, telecommunications equipment, critical minerals and advanced manufacturing. China worries about American financial infrastructure, semiconductor technology and maritime vulnerability. Russia worries about Western technology, finance and industrial components, while India seeks sufficient independence from all these competing economic systems to preserve her own room for manoeuvre.
All are asking variations upon the same Keynesian question: how much economic efficiency should a country sacrifice in order to preserve her freedom of action?
Efficiency is not everything
Hayek’s instinct would be to ask what governments know. Keynes’s instinct would be to ask what governments are trying to achieve, and the distinction is fundamental to understanding the disagreement between them.
Suppose manufacturing a sophisticated semiconductor in Taiwan costs $100 while producing an equivalent semiconductor domestically in the United States costs $130. Conventional economic analysis suggests purchasing the Taiwanese semiconductor. Resources have been saved, consumers benefit and the $30 difference can be employed productively elsewhere.
Now suppose the semiconductor is indispensable to military aircraft, telecommunications networks or artificial intelligence systems, and suppose access to Taiwanese production could be interrupted by blockade, war or some other geopolitical crisis. The additional $30 begins to look different. It may not represent inefficiency at all; it may represent an insurance premium.
This is fundamentally Keynesian reasoning because Keynes resisted the proposition that the immediate financial return from an activity necessarily constituted the correct measure of its social value. A factory may be inefficient in conventional terms yet valuable in strategic ones. An ammunition plant maintained during peacetime may operate below capacity, an electricity grid with substantial redundancy may cost more than a perfectly optimised one and maintaining several suppliers for critical components may be more expensive than purchasing everything from the cheapest producer. Yet redundancy is precisely what makes complicated systems resilient, and the cheapest bridge is not necessarily the bridge upon which one wishes to be standing when the bombs begin to fall.
Ukraine and the realities of war
Wartime Ukraine provides perhaps the clearest contemporary demonstration of the limitations of purely economic reasoning. Ukraine requires ammunition, drones, electricity, telecommunications, transport infrastructure and industrial capacity, and whether these things can be purchased at the lowest possible price on an unrestricted world market is secondary to the question of whether they will actually be available when she requires them.
A country fighting for her survival cannot permit comparative advantage to determine every aspect of her productive structure. If a Ukrainian drone can be manufactured domestically for €600 while a theoretically equivalent foreign drone can be purchased for €500, the additional €100 may purchase far more than the aircraft itself. It may support domestic technical knowledge, repair capacity, employment, supply-chain experience, rapid battlefield modification and productive infrastructure that remains under Ukrainian control during an emergency.
The factory itself therefore has strategic value, and Keynes would have understood this immediately. War was one of the experiences that destroyed the intellectual world of nineteenth-century economic liberalism from which he emerged, because war demonstrates with unusual brutality that economic resources are embedded within political institutions and that their geographical location matters.
The semiconductor factory and the pyramid
There is nevertheless a famous caricature of Keynes that ought to be discarded. He is sometimes represented as believing that governments should spend money indiscriminately because virtually any expenditure creates employment: dig holes and fill them in again, build pyramids or undertake similarly pointless activities, because the mere circulation of money will restore prosperity.
His actual position was considerably more sophisticated. Keynes was principally concerned with circumstances in which an economy possessed unemployed resources because aggregate demand was insufficient. Under such conditions public expenditure could mobilise labour and capital that would otherwise remain idle. Contemporary industrial policy presents a different problem because governments are not merely attempting to stimulate aggregate demand; they are deliberately attempting to change what their economies produce.
The United States wants more semiconductor fabrication plants, artificial-intelligence infrastructure, defence manufacturing and domestic energy capacity. China wants technological independence, sophisticated manufacturing and control over strategically significant supply chains. European governments want batteries, defence industries, energy resilience and critical technologies. Ukraine wants an industrial base capable of sustaining her war effort. These ambitions extend far beyond conventional Keynesian demand management, but Keynes would probably have been sympathetic to many of them because he never accepted that investment decisions become socially optimal merely because private investors make them.
The state possesses objectives that the individual investor does not. The difficult question is whether those objectives are sufficiently important to justify overriding the price signals generated by markets.
Money is geopolitical infrastructure
Here Keynes might be even more radical than contemporary policymakers. Modern discussions of geoeconomics tend to concentrate upon physical goods: semiconductors, steel, batteries, oil, gas, rare earths, ships and weapons. Keynes would tell us to look at money as well, because financial architecture is itself geopolitical infrastructure.
The global importance of the United States dollar gives the United States extraordinary power. Access to dollar clearing, Western banking systems, international capital markets and payment networks can determine whether countries and companies participate effectively in the global economy. The financial measures imposed upon Russia after her full-scale invasion of Ukraine illustrated the geopolitical significance of institutions that had previously appeared to many people to constitute merely the plumbing of global capitalism.
China’s determination to develop alternatives therefore makes strategic sense from her perspective. Keynes had already thought deeply about the political implications of international finance and had become concerned that unrestricted international capital movements could constrain domestic economic policy. He would consequently have understood immediately the weaponisation of financial networks, but he would also have perceived its danger.
A weapon is most useful before everyone develops protection against it. The more frequently the United States uses her influence over international financial infrastructure for geopolitical purposes, the greater the incentive for China, Russia and other countries to construct alternative systems. Economic power exercised today may therefore diminish economic power tomorrow, because the exercise of power creates incentives for other states to escape the institutions through which that power is exercised.
That is an intensely Keynesian paradox.
Keynes and China
China would fascinate Keynes because she represents neither conventional socialism nor liberal capitalism. He would probably reject the proposition that China’s economic success proves the superiority of central planning. Modern China became wealthy principally because she moved away from Maoist economic planning, introduced market incentives, encouraged forms of private enterprise and integrated herself deeply into international commerce.
Yet China is hardly a Hayekian economy either. Her government directs credit, subsidises strategic industries, maintains extensive influence over major enterprises, controls capital movements and consciously treats technological development as an instrument of national power. She represents a sophisticated form of state-directed capitalism in which markets are permitted substantial freedom but are ultimately expected to serve political objectives established by the Communist Party.
This presents Western governments with an uncomfortable problem. Imagine that one country subsidises an industry on an enormous scale while another insists that industrial location should be determined exclusively by market forces. Production may migrate towards the subsidising country, and once competitors elsewhere have disappeared the subsidy has achieved not merely an economic objective but a geopolitical one.
The free-market country may then discover that her adherence to economic orthodoxy has produced strategic dependence. Keynes would probably regard such an outcome not as principled liberalism but as an elementary failure to understand the relationship between economics and political power.
The return of industrial policy
Keynes might therefore be surprisingly comfortable with the revival of industrial policy. The expression was almost disreputable in much of the Western world during the decades following the Cold War, when governments were repeatedly told that they should not “pick winners”, capital markets should allocate investment and international trade should distribute production according to comparative advantage.
The results were enormously productive. They also produced extraordinary concentrations of industrial capacity. Semiconductor fabrication became geographically concentrated, Europe became heavily dependent upon Russian energy, China became central to vast portions of global manufacturing, pharmaceutical supply chains stretched across continents and just-in-time production eliminated expensive inventories.
Everything became wonderfully efficient until efficiency collided with politics. Pandemic disruption, intensifying rivalry between the United States and China and Russia’s invasion of Ukraine exposed vulnerabilities in systems designed predominantly around cost minimisation. Keynes might have suggested that the economists had optimised the wrong variable.
A national economy is not merely a machine for maximising consumption. It is also the material foundation of a political community, and under extreme circumstances the survival of that community depends upon what it can manufacture, repair, finance and transport for itself.
Keynes had already seen where this road leads
Yet this is where the argument becomes considerably more complicated, because Keynes had lived through the 1930s. He saw economic nationalism become poisonous, tariffs generate retaliation, currencies become instruments of competitive national policy and trading blocs harden around rival great powers. Germany pursued increasingly autarkic policies, Japan sought an economic empire in Asia and countries attempted to secure access to raw materials through political and eventually military power.
The international economy fragmented alongside the international political order. Keynes therefore knew something that contemporary enthusiasts for geoeconomics should remember: economic security can become economic nationalism, economic nationalism can intensify geopolitical rivalry and geopolitical rivalry can culminate in war.
His sympathy for national economic autonomy was consequently qualified. Keynes was not proposing a world of sealed national economies. He was searching for sufficient economic freedom of manoeuvre to permit democratic governments to pursue legitimate domestic objectives without being overwhelmed by international financial forces. There is an enormous difference between the two propositions.
The challenge is that political systems frequently find the distinction difficult to maintain. Once governments acquire the machinery of protection, subsidy and industrial direction for genuinely strategic purposes, industries that are not genuinely strategic have every incentive to demand the same privileges.
Bretton Woods and Keynes’s mature answer
By the end of his life Keynes had moved towards a more sophisticated solution. He did not choose autarky; he helped to construct Bretton Woods.
The system designed in 1944 attempted to reconcile international economic cooperation with national political autonomy. Exchange rates would be managed, international institutions would provide financial assistance, governments would retain substantial freedom to pursue domestic full employment and international capital movements could be constrained. At the same time, international commerce would be restored rather than suppressed.
This was neither nineteenth-century laissez-faire nor economic nationalism. It was managed internationalism, based upon the proposition that international economic openness would remain politically sustainable only if governments retained enough freedom to protect their populations from intolerable domestic economic consequences.
That may tell us more about what Keynes would think about contemporary geoeconomics than his flirtation with national self-sufficiency in the 1930s. His mature objective was not to choose between the nation and the international economy, but to construct institutions through which the two could coexist.
The false binary
Much contemporary discussion assumes that there are only two possibilities: globalisation or protectionism, free trade or industrial policy, markets or governments. Keynes would reject the simplicity of these alternatives because his entire intellectual career consisted of attempts to construct institutional arrangements between extremes.
Capitalism could be preserved while its instabilities were managed. International trade could flourish while governments retained domestic policy autonomy. Private investment could remain central while public investment compensated for its deficiencies. Currencies could participate in an international monetary system without resurrecting the rigidity of the classical gold standard.
The contemporary equivalent would be an international economy that remained substantially open while recognising certain categories of genuine strategic vulnerability. That means accepting some inefficiency, but it also means resisting the temptation to classify every politically influential industry as a matter of national security.
Food can be strategic. Energy can be strategic. Semiconductors can be strategic. Artificial intelligence can be strategic. Pharmaceuticals, shipping, telecommunications, banking, steel and critical minerals can all become strategic under particular circumstances. If the concept expands without limit, however, the word “strategic” ceases to distinguish anything at all.
At that point geoeconomics becomes protectionism wearing a military uniform.
The Keynesian test
A Keynesian approach to geoeconomics might therefore ask three broad questions. Is the economic dependence genuinely strategically dangerous? Can government intervention reduce that danger at a tolerable economic cost? Most importantly, will the intervention create greater geopolitical instability than the vulnerability it is intended to cure?
The third question is particularly important because strategic economic policy does not take place in isolation. Every measure changes the incentives of other countries. A semiconductor export control encourages technological independence elsewhere. A financial sanction encourages alternative payment systems. A tariff encourages retaliation. A subsidy encourages competing subsidies. A programme intended to improve national resilience may therefore initiate a sequence of responses that leaves the international economy collectively poorer and politically more divided.
Imagine that every great power decides she must control her own supply of energy, food, semiconductors, artificial intelligence, pharmaceuticals, telecommunications, steel, shipping, finance, critical minerals and military equipment. The world divides naturally into blocs. The United States gathers allies around her economic system, China constructs a competing sphere, Russia attempts to assemble another and India seeks to maintain sufficient relations with each to preserve her strategic autonomy.
Trade increasingly follows political alignment. Investment follows security relationships, technology standards diverge and payment systems separate. Eventually an economic Iron Curtain emerges before any political leader formally declares one.
At that point geoeconomics ceases to protect the international system. It becomes the mechanism through which the international system divides. Keynes had seen that process before, and he knew where it could lead.
Keynes and Hayek meet again
The most interesting conclusion is therefore that Keynes and Hayek might disagree less about contemporary geoeconomics than their followers imagine. Hayek would warn governments that they do not possess sufficient knowledge to plan complicated international supply chains, while Keynes would reply that governments must sometimes act despite imperfect knowledge because markets do not necessarily price national security correctly.
Hayek would warn that subsidies generate rent-seeking, political favouritism and industries whose survival depends upon government patronage. Keynes would readily acknowledge that badly designed interventions can become absurd. Keynes would point to strategic dependencies that leave countries dangerously vulnerable, while Hayek would recognise national defence as a legitimate function of the state.
Their disagreement would concern presumption and degree. Hayek would begin with the market and demand compelling evidence before departing from it, while Keynes would be more willing to ask what sort of economic structure a political community requires in order to pursue her legitimate collective purposes.
Both would probably be horrified by comprehensive autarky. Both might also be astonished by the confidence with which contemporary politicians imagine that they can redesign an economic system containing billions of people.
The need for a new Bretton Woods
Keynes’s ultimate prescription for our age would therefore probably not be deglobalisation. It would be another Bretton Woods.
The institutions created in 1944 addressed the central economic problems of their era: exchange-rate instability, balance-of-payments crises, inadequate international liquidity and the danger that domestic economic distress would destroy political support for international openness. Our problems are different, because the central challenge today is increasingly the management of strategic economic interdependence.
A modern equivalent might establish rules distinguishing legitimate security measures from disguised protectionism. Agreements might guarantee diversified access to critical minerals, while groups of allied countries could establish common regimes for strategically important semiconductor technologies. International institutions might help poorer countries diversify dangerously concentrated supply chains, and strategic reserves might be coordinated internationally rather than wastefully duplicated.
Artificial intelligence, energy infrastructure, advanced semiconductors and other critical technologies may eventually require international arrangements analogous in ambition, although not necessarily in institutional form, to the monetary structures Keynes helped to design. The objective would not be to prevent countries from pursuing economic security, but to prevent everyone pursuing economic security in ways that make everyone collectively less secure.
That is an extraordinarily Keynesian project.
The ghost at the conference table
Were Keynes sitting at a G7 meeting today, listening to ministers discussing friend-shoring, strategic autonomy, export controls, industrial subsidies and critical supply chains, he might find their vocabulary unfamiliar but their predicament entirely recognisable. They have rediscovered questions his generation confronted ninety years ago.
He would understand why European countries do not wish to construct their energy security upon dependence upon Russia. He would understand why the United States is concerned about geographical concentration in advanced semiconductor manufacturing, why Ukraine must develop her own defence-industrial capacity and why China seeks protection from American financial and technological leverage. Each concern reflects a legitimate truth that the most simplistic theories of globalisation overlooked: the location, ownership and political control of productive assets sometimes matter.
Yet Keynes would also remind contemporary policymakers what happened the last time the great powers systematically reorganised their economies around geopolitical rivalry. The purpose of economic policy cannot merely be to make a country powerful; it must also contribute towards making international coexistence possible. That distinction separates prudent geoeconomics from mercantilism.
Keynes spent much of his life learning it. The young Keynes inherited a world in which economic internationalism was treated almost as a natural law. The middle-aged Keynes watched that world collapse and experimented intellectually with greater national economic autonomy. The older Keynes then helped construct an international order intended to reconcile national sovereignty with economic interdependence.
That intellectual journey contains the enduring lesson. Globalisation without political safeguards is fragile, while national self-sufficiency without international cooperation is dangerous. Neither extreme provides an adequate answer to the collision between economics and geopolitics.
The problem is therefore not to choose between them, but to build durable institutions in the space between them. That was Keynes’s project at Bretton Woods. In an age of sanctions, semiconductor rivalries, strategic minerals, weaponised finance, artificial intelligence, fractured supply chains and renewed great-power competition, it may have become our project once again.
