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George Bernard Shaw (left) and John Maynard Keynes (right),
at the Fitzwilliam Museum, Cambridge, U.K., 1936
A brief essay on Keynes's Tract on Monetary
Reform --perhaps his single best book.
Reflections by Alec Cairncross on Keynes, from The Economist.
The Atlantic has an electronic copy of an article by Keynes on "The World Economic Outlook" that it published in 1932 at: http://www2.theatlantic.com/atlantic/atlweb/flashbks/budget/Keynesf.htm
[T]he government must keep its hands off and let the slump liquidate itself. Mr. Mellon had only one formula: "Liquidate labor, liquidate stocks, liquidate the farmes, liquidate real estate." He insisted that, when the people get an inflation brainstorm, the only way to get it out of their blood is to let it collapse. He held that even a panic was not altogether a bad thing. He said: "It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people"...
At great length, Mr. Mellon recounted... his recollection of the great depression of the [eighteen] seventies that had followed the Civil War.... He told of the tens of thousands of farms that had been foreclosed; of railroads that had almost wholly gone into the hands of the [bankruptcy] receivers; of the few banks that had come through unscathed; of many men who were jobless and mobs that roamed the streets. He told me that his father had gone to England during that time and had cut short his visit when he received word that the orders for steel were pouring toward the closed furnaces; by the time he got back, confidence was growing on every hand; suddenly the panic had ended, and in twelve months the whole system was again working at fall speed.
"Liquidationism" was a very powerful current of thought arguing against any government action to alleviate the Great Depression in the early 1930s.
It seems an extraordinary imbecility that this wonderful outburst of
productive energy [over 1924-1929] should be the prelude to impoverishment
and depression. Some austere and puritanical souls regard it both as an
inevitable and a desirable nemesis on so much overexpansion, as they call
it; a nemesis on man's speculative spirit. It would, they feel, be a victory
for the mammon of unrighteousness if so much prosperity was not subsequently
balanced by universal bankruptcy. We need, they say, what they politely
call a 'prolonged liquidation' to put us right. The liquidation, they tell
us, is not yet complete. But in time it will be. And when sufficient time
has elapsed for the completion of the liquidation, all will be well with
I do not take this view. I find the explanation of the current business losses, of the reduction in output, and of the unemployment which necessarily ensues on this not in the high level of investment which was proceeding up to the spring of 1929, but in the subsequent cessation of this investment. I see no hope of a recovery except in a revival of the high level of investment. And I do not understand how universal bankruptcy can do any good or bring us nearer to prosperity... [p. 349].
While some part of the investment which was going on in the world at large was doubtless ill judged and unfruitful, there can, I think, be no doubt that the world was enormously enriched by the constructions of the quinquennium from 1925 to 1929; its wealth increased in these five years by as much as in any other ten or twenty years of its history... [p. 347].
Doubtless, as was inevitable in a period of such rapid changes, the rate of growth of some individual commodities [over 1924-1929] could not always be in just the appropriate relation to that of others. But, on the whole, I see little sign of any serious want of balance such as is alleged by some authorities. The rates of growth [of different sectors]seem to me, looking back, to have been in as good a balance as one could have expected them to be. A few more quinquennia of equal activity might, indeed, have brought us near to the economic Eldorado where all our reasonable economic needs would be satisfied... [pp. 347-48].
Go to Brad De Long's Home Page
Associate Professor of Economics Brad De
Long, 601 Evans
University of California at Berkeley; Berkeley, CA 94720-3880
(510) 643-4027 phone (510) 642-6615 fax