“I foresee the worst depression since the Great Depression right around the corner”

I am grateful again for the moderator at the Societies for the History of Economics discussion thread for putting up another review of The Price of Peace, the book subtitled, “Money, Democracy and the Life of John Maynard Keynes. This review is from The New York Times. More of the usual mythology.

Carter’s explications of macroeconomic theory are so seamlessly woven into his narrative that they’re almost imperceptible; you only notice how substantive they are once you get to his chapter on Keynes’s notoriously dense 1936 book, “The General Theory of Employment, Interest and Money,” and realize that you’re riveted by a passage on fluctuations in liquidity preference because you somehow know exactly what it is that Carter is talking about.

“The General Theory” aside, the rough outline of the Keynes story is that nobody with any power listened to his visionary proposals before the crisis of the Depression hit; after that, almost everyone did. Keynes’s ideas were radical, Carter writes, but he was staunchly anti-revolutionary: Having been traumatized by World War I, Keynes was at pains to persuade some of his Marxist students at Cambridge that a more just and equitable society didn’t have to come at the point of a gun. An activist government and deficit spending could alleviate suffering and spur growth, he reasoned, and the world eventually obliged. As much as Franklin Roosevelt didn’t like running a deficit, his New Deal offered one version of how Keynesianism worked; World War II offered another.

Of course, Harry Truman offered a third version. At the end of World War II, Truman immediately sacked all of the millions who had been in the armed forces and closed virtually the entire armaments industry, thus creating the largest mass of unemployed people in history. At the same time, and immediately the war was over, he balanced the budget, eliminating the largest deficit as a proportion of GDP in history. And the result: the largest and most sustained period of growth in history. I might contrast The Price of Peace and its review with this: The Politics of Fear, whose sub-title is, “For economist Robert Higgs, Covid-19 is just the latest emergency justifying expanded government power”. Lots there to ponder, and it should all be read, but will merely quote this:

“I foresee the worst depression since the Great Depression right around the corner. That alone would be enough to bring forth a host of bad government policies with long-lasting consequences. Many such policies have already been adopted. But much more awaits us along these lines.”

And there is no doubt that the reviewer sees “The Price of Peace” as relevant to bringing our economies out of the present lockdown. This is from her opening para:

Zachary D. Carter’s outstanding new intellectual biography of John Maynard Keynes, offers a resonant guide to our current moment, even if he finished writing it in the time before Covid-19.

There have been so many breakages in our structure of production in the past few months there is nothing that might not yet happen, and there is no telling how bad it might get. We are so far beyond anything that Keynes ever wrote about or dealt with that calling up his name is a total irrelevance. Does it no longer ever occur to most economists to leave things to the market to sort themselves out?

2 thoughts on ““I foresee the worst depression since the Great Depression right around the corner”

  1. Pingback: “I foresee the worst depression since the Great Depression right around the corner” - The Rabbit Hole

  2. We are all consumers, some producers, less so policy makers. The mechanism aligned closest to consumers is most plausible to get what we want. That means policy making is the worst option.

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