"This is a nightmare, which will pass away with the morning. For the resources of nature and men’s devices are just as fertile and productive as they were. The rate of our progress towards solving the material problems of life is not less rapid. We are as capable as before of affording for everyone a high standard of life—high, I mean, compared with, say, twenty years ago—and will soon learn to afford a standard higher still. We were not previously deceived. But to-day we have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand. The result is that our possibilities of wealth may run to waste for a time—perhaps for a long time....
At this moment the slump is probably a little overdone for psychological reasons. A modest upward reaction, therefore, may be due at any time. But there cannot be a real recovery, in my judgment, until the ideas of lenders and the ideas of productive borrowers are brought together again; partly by lenders becoming ready to lend on easier terms and over a wider geographical field, partly by borrowers recovering their good spirits and so becoming readier to borrow.
Seldom in modern history has the gap between the two been so wide and so difficult to bridge. Unless we bend our wills and our intelligences, energized by a conviction that this diagnosis is right, to find a solution along these lines, then, if the diagnosis is right, the slump may pass over into a depression, accompanied by a sagging price-level, which might last for years, with untold damage to the material wealth and to the social stability of every country alike. Only if we seriously seek a solution, will the optimism of my opening sentences be confirmed—at least for the nearer future"
John Maynard Keynes 1930 from his Great Slump of 1930 essay
TW: The good news is unlike 1930 when the Hooverites ruled the roost and basically implemented policies which only exacerbated the problem, economists of all stripes have learned from GD 1.0. And while they may still differ in terms of exactly how to act, their is a general consensus to act and act aggressively to stimulate the economies worldwide without devolving into protectionist shells.
2 comments:
Two aspects of this essay by Keynes seem highly relevant today.
I. Keynes stressed the threat which the slump posed to ‘the social stability of every country alike’.
‘… a series of bankruptcies, defaults, and repudiations which would shake the capitalist order to its foundations … would be a fertile soil for agitation, seditions, and revolution. It is so already in many quarters of the world.’
The only place where I know this aspect of this essay of Keynes and his other writings has been discussed is in Donald Markwell’s book called ‘Economic Paths to War and Peace - John Maynard Keynes and International Relations’ (around pages 172-173).
II. Keynes ended by stressing the necessity of the monetary authorities of the big economic powers acting together.
‘…nor can any one central bank do enough acting in isolation. … the most effectibe remedy would be that the central banks of these three great creditor nations [the United States, France, and England] should join together in a bold scheme to restore confidence to the international long-term loan market; which would serve to revive enterprise and activity everywhere, and to restore prices and profits, so that in due course the wheels of the world’s commerce would go round again.’
As Markwell’s book also shows, this necessity of international economic action is one of the key lessons from Keynes’s thinking, at least from the aftermath of the First World War on.
Does anybody else think these two points from Keynes are of the utmost importance to our current global meltdown?
thx for the post
I think everyone is surprised to be dusting off Keynes and so much other circa 1929-1930's history for reference points which seem unfortunately to have significant relevance.
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