John Maynard Keynes is known to have frequently changed his opinion on free trade and protection. There have been two contrasting interpretations of Keynes’s thought on the external economic policy, with one considering him essentially a free trader and the other finding him a protectionist. This article elucidates an original coherent explanation for Keynes’s ambiguous thinking on Britain’s external economic policy by observing the contradictory coexistence of economic nationalism and pacifist free-trade ideology among the New Liberals (left-leaning Liberals), of whom he was one. Since the 19th century, Britain had a peculiar political tradition in that the proposal of a protectionist policy almost entirely came from the political right, whereas the political left monolithically supported unconditional free trade under the influence of Richard Cobden’s idealistic internationalism. New Liberals, such as J.A. Hobson and Keynes, were sympathetic to the vision of a balanced national economy in which the manufacturing, rather than the financial sector, played a central role. In this sense, New Liberals had much in common with the historical economists, such as William Cunningham and William Ashley, who supported the Conservative Party’s protectionist campaign. Both Hobson’s theory of underconsumption and Keynes’s theory of effective demand emphasized the importance of domestic, rather than foreign markets. This meant that the New Liberals’ economic thinking was essentially more congruent with a protectionist policy to safeguard domestic manufacturing industries than free trade. Nevertheless, the New Liberals found it extremely difficult to support a protectionist policy because of protectionism’s strong association with right-wing politics in Britain and its incommensurability with their belief in a pacifist free-trade ideology. This dilemma formed the backdrop of Keynes’s allegedly inconsistent attitudes on the external economic policy of his time. JEL classification numbers: B10, B20, B27.
