“No permanent additional employment can be created by State expenditure”

A review of the following book was put up on the Societies for the History of Economics online discussion thread:

Robert W. Dimand and Harald Hagemann, editors, The Elgar Companion to John Maynard Keynes. Cheltenham, UK: Edward Elgar, 2019. xxi + 648 pp. $250 (hardcover). ISBN: 978-1-84720-008-2.

Reviewed for EH.Net by Bradley W. Bateman, Randolph College.

To get the flavour of the review, this was its first line:

Rarely does one read a reference work for pleasure. After all, would you take the Encyclopedia Britannica or the New Palgrave to the beach for your holiday? Not likely. And yet, there are reference books that one not only depends on, but enjoys. These might be surveys of the literature such as G.C. Peden’s little gem, Keynes, the Treasury, and British Economic Policy (1988); or they might be traditional multi-volume works like the Dictionary of National Biography. A good reference work can take many forms; but when you find a well-written and authoritative work that can help you in your research, you turn to it regularly and, yes, can even come to enjoy it.

I therefore wrote a note to put my own perspective forward.

I hear all the time that Keynesian economics has been transcended, that it is a thing of the past, but the evidence, both from the way our textbooks are written and in the way policy is conducted across the world, is that the very core of macro theory and policy remains Y=C+I+G. I am in no doubt that this collection is indeed a valuable collection in that it consolidates a great deal of writing on Keynesian economics and its history into a single volume. Yet the issue for me remains, that economists continue to trundle down this Keynesian path without the slightest evidence that it accurately explains how economies work, or that there has ever been a single instance where a Keynesian fiscal expansion has actually succeeded in bringing an economy out of recession and restoring full employment. You might have hoped that the failure of every stimulus in the world to succeed following the GFC might have created some kind of learning experience, but so far there is little evidence that economists are even beginning to rethink these macro models. Since the bibliography includes G.C. Peden, I will add in my favourite quotation from his writings, and leave it at that. And what this quote shows is that it’s not as if pubic spending didn’t have a constituency before Keynes, and yet, when it was tried, it turns out that the “Treasury View” was absolutely correct, as it has been every time a “fiscal stimulus” has been tried. Winston Churchill was the British Chancellor of the Exchequer and this is from his Budget Speech in May 1929, from well before the stock market crash in October.

“Churchill pointed to recent government expenditure on public works such as housing, roads, telephones, electricity supply, and agricultural development, and concluded that, although expenditure for these purposes had been justified:

‘For the purposes of curing unemployment the results have certainly been disappointing. They are, in fact, so meagre as to lend considerable colour to the orthodox Treasury doctrine which has been steadfastly held that, whatever might be the political or social advantages, very little additional employment and no permanent additional employment can in fact and as a general rule be created by State borrowing and State expenditure.’” (Peden 1996: 69-70)

I just wonder whether this volume has an entry on Critics of Keynesian Economics. I doubt that it does, but in any case it would undoubtedly and unfortunately have to be a very short entry.

So far no rejoinder to my response, but will let you know if there ever is.

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