Keynes Seminar 11 February 2009 Geoff Tily Government Economic Service Keynes, Policy and The General Theory © PKSG 2009.

Keynes SeminarKeynes Seminar11 February 200911 February 2009

Geoff TilyGeoff TilyGovernment Economic ServiceGovernment Economic Service

Keynes, Policy and The General TheoryKeynes, Policy and The General Theorywww.postkeynesian.netwww.postkeynesian.net © © PKSG 2009PKSG 2009

Keynes, Keynes, Policy and Policy and The The General TheoryGeneral Theory

StructureStructure

Monetary policy backdrop: the Monetary policy backdrop: the gold standardgold standard

Public expenditure: historyPublic expenditure: history TheoryTheory OutcomeOutcome ImplicationsImplications Further readingFurther reading

1. Monetary policy 1. Monetary policy backdrop: the gold backdrop: the gold

standardstandard

If we restore the gold standard, are we to return also to the pre-war conceptions of bank rate, allowing the tides of gold to play what tricks they like with the internal price level, and abandoning the attempt to moderate the disastrous influence of the credit cycle on the stability of prices and employment?

In truth, the gold standard is already a barbarous relic.

A Tract on Monetary Reform, 1923, pp. 137-8

The Gold Standard, 1922-The Gold Standard, 1922-19351935

Keynes’s Project:Keynes’s Project:

Indeed it is difficult not to be impressed by the consistency of his main strategic objectives: the full employment of resources; the achievement of balance of payments for all countries by methods that would not be inconsistent with full employment; as a means to this, a system of exchange rates that would combine the short-term virtues of fixity and predictability with the long-term virtues of flexibility; and, as a means to full employment, low interest rates.

(Keynes’s obituary in the Keynes’s obituary in the Economic JournalEconomic Journal , Robinson 1947, p. 45)

The confusion lay in the futile attempt to ignore the existence of bank money and consequently the inter-relationships of money and bank credit, and to make representative money behave exactly as though it were commodity money. (p. 15)

A Treatise on MoneyA Treatise on Money, 1930, 1930

The failure of theoryThe failure of theory

Outcome: Outcome: unemployment ratesunemployment rates

Bank rate, 1920 -1950Bank rate, 1920 -1950

Post-gold policies, 1932Post-gold policies, 1932

February, first rate cut to 5% February, first rate cut to 5% from 6%from 6%

April, Exchange Equalisation April, Exchange Equalisation Account instigatedAccount instigated

June, conversion operation June, conversion operation announced, embargo on announced, embargo on overseas loans and final rate cut overseas loans and final rate cut to 2 %to 2 %

Action on Action on other other rates:rates:

quantitativquantitativ

e easinge easing

Outcome? Outcome? unemployment ratesunemployment rates

Off Gold, September 1931

Off Gold, April 1933

2. Public Expenditure: 2. Public Expenditure: HistoryHistory

Consistent themesConsistent themes

Spending multiplying itselfSpending multiplying itself Spending paying for itselfSpending paying for itself Necessity of the use of (cheap) creditNecessity of the use of (cheap) credit LeakagesLeakages Solvable by geometric progressionSolvable by geometric progression

Chronology (1)Chronology (1) March 1929, March 1929, Liberal ManifestoLiberal Manifesto May 1929, May 1929, Can Lloyd George Do ItCan Lloyd George Do It?? 30 May 1929, 30 May 1929, General ElectionGeneral Election [October 1929, Wall Street Crash][October 1929, Wall Street Crash] 5 November 1929, CX appoints Macmillan 5 November 1929, CX appoints Macmillan

Committee on Finance and IndustryCommittee on Finance and Industry 22 January 1930, PM announces Economic 22 January 1930, PM announces Economic

Advisory CouncilAdvisory Council February & March 1930, Keynes’s five February & March 1930, Keynes’s five

sessions at Committee, explores ‘sessions at Committee, explores ‘Treasury view’Treasury view’

… … we are ready with schemes of work we are ready with schemes of work which we can put immediately into which we can put immediately into operation … . These plans will not operation … . These plans will not add one penny to national or local add one penny to national or local taxationtaxation..

Chronology (1)Chronology (1) March 1929, Liberal ManifestoMarch 1929, Liberal Manifesto May 1929, Can Lloyd George Do It?May 1929, Can Lloyd George Do It? 30 May 1929, General Election30 May 1929, General Election [October 1929, Wall Street Crash][October 1929, Wall Street Crash] 5 November 1929, CX appoints Macmillan 5 November 1929, CX appoints Macmillan

Committee on Finance and IndustryCommittee on Finance and Industry 22 January 1930, PM announces Economic 22 January 1930, PM announces Economic

Advisory CouncilAdvisory Council February & March 1930, Keynes’s five February & March 1930, Keynes’s five

sessions at Committee, explores ‘Treasury sessions at Committee, explores ‘Treasury view’view’

That a demand for a suit of clothes That a demand for a suit of clothes implies a demand for cloth; that a implies a demand for cloth; that a demand for cloth implies a demand demand for cloth implies a demand for yarns and tops, and so for wool; for yarns and tops, and so for wool; that the services of farmers, that the services of farmers, merchants, engineers, miners, merchants, engineers, miners, transport workers, clerks are all transport workers, clerks are all involved – this is the involved – this is the ABCABC of of economic science. (economic science. (CWCW IX, pp. 106-6) IX, pp. 106-6)

Chronology (1)Chronology (1) March 1929, Liberal ManifestoMarch 1929, Liberal Manifesto May 1929, Can Lloyd George Do It?May 1929, Can Lloyd George Do It? 30 May 1929, General Election30 May 1929, General Election [October 1929, Wall Street Crash][October 1929, Wall Street Crash] 5 November 1929, CX appoints Macmillan 5 November 1929, CX appoints Macmillan

Committee on Finance and IndustryCommittee on Finance and Industry 22 January 1930, PM announces Economic 22 January 1930, PM announces Economic

Advisory CouncilAdvisory Council February & March 1930, Keynes’s five February & March 1930, Keynes’s five

sessions at Committee, explores ‘Treasury sessions at Committee, explores ‘Treasury view’view’

Ramsey Ramsey MacDonaldMacDonald

Prime Prime MinisterMinister

1929 - 19311929 - 1931

Philip Philip SnowdenSnowden

ChancellorChancellor1929 - 19311929 - 1931

Chronology (1)Chronology (1) March 1929, Liberal ManifestoMarch 1929, Liberal Manifesto May 1929, Can Lloyd George Do It?May 1929, Can Lloyd George Do It? 30 May 1929, General Election30 May 1929, General Election [October 1929, Wall Street Crash][October 1929, Wall Street Crash] 5 November 1929, CX appoints Macmillan 5 November 1929, CX appoints Macmillan

Committee on Finance and IndustryCommittee on Finance and Industry 22 January 1930, PM announces Economic 22 January 1930, PM announces Economic

Advisory CouncilAdvisory Council February & March 1930, Keynes’s five February & March 1930, Keynes’s five

sessions at Committee, explores ‘Treasury sessions at Committee, explores ‘Treasury view’view’

Sir Richard Sir Richard V. N. V. N.

HopkinsHopkins

Permanent Permanent SecretarySecretary1942-19451942-1945

HMT view (1)HMT view (1)

… the decision taken by the Government at the end of 1925 to restrict grants for relief schemes was based mainly on the view that, the supply of capital in the country being limited, it was undesirable to divert any appreciable proportion of this supply from normal trade channels. (British Government to ILO, 1927, cited in Kahn 1931)

HMT view (2)HMT view (2)

It is the orthodox Treasury dogma, It is the orthodox Treasury dogma, steadfastly held, that whatever might steadfastly held, that whatever might be the political or social advantages, be the political or social advantages, very little additional employment and very little additional employment and no permanent additional no permanent additional employment, can, in fact, as a employment, can, in fact, as a general rule, be created by State general rule, be created by State borrowing and State borrowing and State expenditureexpenditure. . ((CWCW IX, pp. 115) IX, pp. 115)

Chronology (2)Chronology (2) September 1930, Richard Kahn circulates primitive September 1930, Richard Kahn circulates primitive

analysis of multiplier to EAC sub-Committee, the analysis of multiplier to EAC sub-Committee, the Committee of EconomistsCommittee of Economists

October 1930, October 1930, A Treatise on Money A Treatise on Money publishedpublished March 1931, ‘Proposals for a Revenue Tariff’March 1931, ‘Proposals for a Revenue Tariff’ May 1931, May 1931, Macmillan ReportMacmillan Report publishedpublished June 1931, Kahn’s article published in the June 1931, Kahn’s article published in the

Economic JournalEconomic Journal July 1931 European banking crisis July 1931 European banking crisis 31 July 1931, May Committee Report published 31 July 1931, May Committee Report published 24 August, National Government formed under 24 August, National Government formed under

MacDonald and elected in MacDonald and elected in NovemberNovember

It is important, we are told, not to overlook the beneficial repercussions that will result from the expenditure of the newly-employed men's wages. But little is done to evaluate these repercussions in concrete terms. The main purpose, though not the only purpose, of this article is to outline the means by which this gap could be filled, …

It is, however, important to realise that the intelligent co-operation of the banking system is being taken for granted.

Cost of investment = saving on dole + increase in imports + increase in unspent profits. (‘Mr Meade’s relation’)

Chronology (2)Chronology (2) September 1930, Richard Kahn circulates primitive September 1930, Richard Kahn circulates primitive

analysis of multiplier to EAC sub-Committee, the analysis of multiplier to EAC sub-Committee, the Committee of EconomistsCommittee of Economists

October 1930, October 1930, A Treatise on Money A Treatise on Money publishedpublished March 1931, ‘Proposals for a Revenue Tariff’March 1931, ‘Proposals for a Revenue Tariff’ May 1931, May 1931, Macmillan ReportMacmillan Report publishedpublished June 1931, Kahn’s article published in the June 1931, Kahn’s article published in the

Economic JournalEconomic Journal July 1931 European banking crisis July 1931 European banking crisis 31 July 1931, May Committee Report published 31 July 1931, May Committee Report published 24 August, National Government formed under 24 August, National Government formed under

MacDonald and elected in NovemberMacDonald and elected in November

Neville Neville ChamberlaiChamberlai

nn

ChancellorChancellor1931 - 19371931 - 1937

Chronology (3)Chronology (3) 21 September 1931, off gold21 September 1931, off gold 1932 Budget, EEA etc 1932 Budget, EEA etc Follow up in Follow up in EJEJ, Warming and , Warming and KahnKahn (June 1932) (June 1932)

and also Giblin in Australiaand also Giblin in Australia 17 October 1932, signatory to letter supporting 17 October 1932, signatory to letter supporting

public works in public works in The TimesThe Times 4 March 1933, FDR takes office4 March 1933, FDR takes office 13-16 March 1933, 13-16 March 1933, The Means to ProsperityThe Means to Prosperity 20 April 1933, US off gold20 April 1933, US off gold June & July 1933, World Economic ConferenceJune & July 1933, World Economic Conference 31 December 1933, Keynes’s open 31 December 1933, Keynes’s open letterletter

… … savings are always and savings are always and necessarily equal to investment: that necessarily equal to investment: that is a mere truism, … Whatever the is a mere truism, … Whatever the level of investment, funds are always level of investment, funds are always available to pay for itavailable to pay for it. .

Chronology (3)Chronology (3) 21 September 1931, off gold21 September 1931, off gold 1932 Budget, EEA etc 1932 Budget, EEA etc Follow up in Follow up in EJEJ, Warming and Kahn (June 1932) , Warming and Kahn (June 1932)

and also Giblin in Australiaand also Giblin in Australia 17 October 1932, signatory to letter supporting 17 October 1932, signatory to letter supporting

public works in public works in The TimesThe Times 4 March 1933, FDR takes office4 March 1933, FDR takes office 13-16 March 1933, 13-16 March 1933, The Means to ProsperityThe Means to Prosperity 20 April 1933, US off gold20 April 1933, US off gold June & July 1933, World Economic ConferenceJune & July 1933, World Economic Conference 31 December 1933, Keynes’s open letter31 December 1933, Keynes’s open letter

… … to create wealth will increase the to create wealth will increase the national income and that a large national income and that a large proportion of any increase in the proportion of any increase in the national income will accrue to an national income will accrue to an Exchequer, amongst whose largest Exchequer, amongst whose largest outgoings is the payment of incomes to outgoings is the payment of incomes to those who are unemployed and whose those who are unemployed and whose receipts are a proportion of the incomes receipts are a proportion of the incomes of those who are occupiedof those who are occupied.. (CW IX, p. (CW IX, p. 338)338)

Chronology (3)Chronology (3) 21 September 1931, off gold21 September 1931, off gold 1932 Budget, EEA etc 1932 Budget, EEA etc Follow up in Follow up in EJEJ, Warming and Kahn (June 1932) , Warming and Kahn (June 1932)

and also Giblin in Australiaand also Giblin in Australia 17 October 1932, signatory to letter supporting 17 October 1932, signatory to letter supporting

public works in public works in The TimesThe Times 4 March 1933, FDR takes office4 March 1933, FDR takes office 13-16 March 1933, 13-16 March 1933, The Means to ProsperityThe Means to Prosperity 20 April 1933, US off gold20 April 1933, US off gold June & July 1933, World Economic ConferenceJune & July 1933, World Economic Conference 31 December 1933, Keynes’s open letter31 December 1933, Keynes’s open letter

Dear Mr President,Dear Mr President,

You have made yourself the trustee for those in every You have made yourself the trustee for those in every country who seek to mend the evils of our condition by country who seek to mend the evils of our condition by reasoned experiment within the framework of the reasoned experiment within the framework of the existing social system. existing social system. ……In the field of domestic policy, I put in the forefront, for In the field of domestic policy, I put in the forefront, for the reasons given above, a large volume of loan the reasons given above, a large volume of loan expenditure under government auspices. …expenditure under government auspices. …Your obedient servant, Your obedient servant, J. M. KEYNESJ. M. KEYNES

(New York Times, 31 December 1933, (New York Times, 31 December 1933, CWCW IX, pp. 289- IX, pp. 289-297)297)

3. Theory3. Theory

Multiplier, prices, financing, Multiplier, prices, financing, saving, government saving, government

borrowing, trade and borrowing, trade and estimationestimation

No.No.C

Y

… I know for certain that the multiplier is not always 2

It should not be difficult to compile a chart of the marginal propensity to consume at each stage of a trade cycle from the statistics (if they were available) of aggregate income and aggregate investment at successive dates.

Multiplier in the Multiplier in the GT GT (1)(1)

Law of consumption:Law of consumption:

The fundamental psychological law, upon The fundamental psychological law, upon which we are entitled to depend with great which we are entitled to depend with great confidence both confidence both a prioria priori from our from our knowledge of human nature and from the knowledge of human nature and from the detailed facts of experience, is that men detailed facts of experience, is that men are disposed, as a rule and on the average, are disposed, as a rule and on the average, to increase their consumption as their to increase their consumption as their income increases, but not by as much as income increases, but not by as much as the increase in their income. (CW VII, p. 96)the increase in their income. (CW VII, p. 96)

Multiplier in the Multiplier in the GT GT (2)(2) Derived via MPC and NA identity (in closed Derived via MPC and NA identity (in closed

economy) economy)

C C //YY = = cc , where 0 < , where 0 < c c < 1< 1

YY = = CC + + II

YY = = 1 1 II 1 - 1 - cc

Note equivalence to summing sequence:Note equivalence to summing sequence:1 + c + c1 + c + c22 + … = 1 / (1 – c) + … = 1 / (1 – c)

Keynes on prices (Ch20, Keynes on prices (Ch20, §IV,V)§IV,V)::Hence, in general, supply price will increase as output Hence, in general, supply price will increase as output from a given equipment is increased. Thus increasing from a given equipment is increased. Thus increasing output will be associated with rising prices, apart from output will be associated with rising prices, apart from any change in the wage-unit. any change in the wage-unit.

It is probable that the general level of prices will not rise It is probable that the general level of prices will not rise very much as output increases, so long as there are very much as output increases, so long as there are available efficient unemployed resources of every type. available efficient unemployed resources of every type. But as soon as output has increased sufficiently to begin But as soon as output has increased sufficiently to begin to reach the “bottlenecks”, there is likely to be a sharp to reach the “bottlenecks”, there is likely to be a sharp rise in the prices of certain commodities. rise in the prices of certain commodities.

When a further increase in the quantity of effective When a further increase in the quantity of effective demand produces no further increase in output and demand produces no further increase in output and entirely spends itself on an increase in the cost-unit fully entirely spends itself on an increase in the cost-unit fully proportionate to the increase in effective demand, we proportionate to the increase in effective demand, we have reached a condition which might be appropriately have reached a condition which might be appropriately designated as one of true inflation. designated as one of true inflation.

Financing of spendingFinancing of spending

New money: banks to create credit New money: banks to create credit Do so at very low interestDo so at very low interest Created savings can then flow into Created savings can then flow into

bonds, which repays banksbonds, which repays banks

+ΔM -ΔM

+ΔB

liabilities liabilities

Saving: crowding outSaving: crowding out

Because income increases, Because income increases, eventually saving is generated to eventually saving is generated to exactly same extent of original exactly same extent of original expenditure, i.e. no crowding outexpenditure, i.e. no crowding out

Keynes worked through the NA Keynes worked through the NA algebra:algebra:

Process analysisProcess analysis Really, it’s a monetary phenomenonReally, it’s a monetary phenomenon

Or ‘process’ analysisOr ‘process’ analysis

1

1 - C

C

Cr (1-C)

C2

spend

save

C –C2 = C (1-C)

(1-C)(1+C+C2+ …

= (1-C) / (1-C) = 1

Saving: crowding outSaving: crowding out

Because income increases, Because income increases, eventually saving is generated to eventually saving is generated to exactly same extent of original exactly same extent of original expenditure, i.e. no crowding outexpenditure, i.e. no crowding out

Keynes worked through the NA Keynes worked through the NA algebra:algebra:

Process analysisProcess analysis Really, it’s a monetary phenomenonReally, it’s a monetary phenomenon

Government financesGovernment finances

Gain of tax on Gain of tax on multiplied multiplied income income (income, CT and VAT)(income, CT and VAT)– Eg if average rate of tax = 50%, Eg if average rate of tax = 50%,

multiplier =2 multiplier =2 Saving on doleSaving on dole

TradeTrade Leakage to overseasLeakage to overseas

Amended formulaAmended formulaYY = = 1 1 II

1 – 1 – c c ++ m m

NB savings still created, but overseas. BoP NB savings still created, but overseas. BoP arithmetic has them returningarithmetic has them returning

Remain to be convinced that this leakage is Remain to be convinced that this leakage is greatly more significant than in Keynes’s greatly more significant than in Keynes’s timetime

Other implicationsOther implications

No account taken of beneficial No account taken of beneficial outcomes outside the original outcomes outside the original multiplier process as confidence multiplier process as confidence restored and firms’ cashflow recoversrestored and firms’ cashflow recovers

Estimating the multiplierEstimating the multiplier No official statistics in 1930No official statistics in 1930 Colin Clark’s figuresColin Clark’s figures, , National Income 1924-National Income 1924-

3131, published in 1932, published in 1932 Kahn: 2Kahn: 2 MTPMTP: 2, but safer 1 ½, even safer 1 1/3 : 2, but safer 1 ½, even safer 1 1/3 ““[in the US] the multiplier seems to have been less than 3 and [in the US] the multiplier seems to have been less than 3 and

probably fairly stable in the neighbourhood of 2.5. This probably fairly stable in the neighbourhood of 2.5. This suggests a marginal propensity to consume not exceeding 60 suggests a marginal propensity to consume not exceeding 60 to 70 per cent. – a figure quite plausible for the boom, but to 70 per cent. – a figure quite plausible for the boom, but surprisingly, and, in my judgment, improbably low for the surprisingly, and, in my judgment, improbably low for the slump” (slump” (GTGT, p. 128)., p. 128).

For 1929-37 as 1.532 and for 1934-37 as For 1929-37 as 1.532 and for 1934-37 as 2.0822.082 (Colin Clark’s estimates) (Colin Clark’s estimates)

Marginal propensitiesMarginal propensities

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

1949 1952 1955 1958 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006

C

M

trend

trend

MultiplierMultiplier

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

1949 1952 1955 1958 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006

Obama’s multipliersObama’s multipliers ‘‘The job impact of the American recovery The job impact of the American recovery

and reinvestment plan’and reinvestment plan’http://otrans.3cdn.net/45593e8ecbd339d074_l3m6bt1te.pdfhttp://otrans.3cdn.net/45593e8ecbd339d074_l3m6bt1te.pdf

FTFT 23/1 23/1 ““Christina Christina RomerRomer, chairman of the CEA, estimates , chairman of the CEA, estimates a multiplier of 1.5”a multiplier of 1.5”BarroBarro “with partial crowding out the multiplier will “with partial crowding out the multiplier will be a lot less than one”be a lot less than one”RogoffRogoff “Academic economists are far more “Academic economists are far more uncertain about the impact of the fiscal stimulus uncertain about the impact of the fiscal stimulus than Wall Street … The range of estimates is very than Wall Street … The range of estimates is very wide. But given the situation we’re in it is certainly wide. But given the situation we’re in it is certainly worth trying”worth trying”

Marginal propensities, Marginal propensities, USUS

-1

-0.5

0

0.5

1

1.5

2

1930 1934 1938 1942 1946 1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006

C

M

Multiplier, USMultiplier, US

-6

-4

-2

0

2

4

6

1930 1934 1938 1942 1946 1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006

4. Outcome4. Outcome

UK GDP(E)UK GDP(E)Level: Change:

C G M Y C G M Y£ million

1928 3939 425 1325 44061929 3983 435 1359 4492 44 10 34 861930 3932 443 1185 4443 -51 8 -174 -491931 3805 443 989 4063 -127 0 -196 -3801932 3683 431 823 3913 -122 -12 -166 -1501933 3696 430 784 3920 13 -1 -39 71934 3802 446 845 4170 106 16 61 2501935 3935 483 898 4280 133 37 53 1101936 4080 536 976 4540 145 53 78 2601937 4289 617 1159 4910 209 81 183 3701938 4392 749 1062 5170 103 132 -97 2601939 4539 1179 1190 5470 147 430 128 300

Unemployment

0

2

4

6

8

10

12

14

16

18

1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939

GDP growth, volume

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937

Real outcomesReal outcomes

Debt, % GDPDebt, % GDP

0.0

50.0

100.0

150.0

200.0

250.0

300.0

1858 1866 1874 1882 1890 1898 1906 1914 1922 1930 1938 1946 1954 1962 1970 1978 1986 1994 2002

1933

1940

1946

1975

Action on Action on other other rates:rates:

quantitativquantitativ

e easinge easing

FDR spendingFDR spending Eg Works Progress Administration, 1932-Eg Works Progress Administration, 1932-19451945

– 644,000 miles of roads, 644,000 miles of roads, – 122,760 bridges, 122,760 bridges, – 38,800 schools, 38,800 schools, – 2,300,000 public toilets, 2,300,000 public toilets, – 8,000 swimming pools, etc8,000 swimming pools, etc

Peter Fearnon estimates that between January Peter Fearnon estimates that between January 1933 and December 1940 $21.1 billion was 1933 and December 1940 $21.1 billion was spent on public relief and federal works spent on public relief and federal works programmes programmes

3 per cent of total GDP over the same period3 per cent of total GDP over the same period– today: $420 billion a year in the US; £42 billion in UK today: $420 billion a year in the US; £42 billion in UK

Level: Change: Y G Y C I X M G1929 103.6 9.41930 91.2 10 -12.4 -7.3 -5.7 -1.5 -1.5 0.61931 76.5 9.9 -14.7 -9.4 -4.9 -1.5 -1.2 -0.11932 58.7 8.7 -17.8 -12 -4.6 -0.9 -1 -1.21933 56.4 8.7 -2.3 -2.8 0.4 0 0 01934 66 10.5 9.6 5.6 2 0.6 0.3 1.81935 73.3 10.9 7.3 4.4 3 0.2 0.8 0.41936 83.8 13.1 10.5 6.3 1.9 0.2 0.2 2.21937 91.9 12.8 8.1 4.6 3.6 1 0.8 -0.31938 86.1 13.8 -5.8 -2.5 -5.1 -0.2 -1.2 11939 92.2 14.8 6.1 2.9 2.2 0.2 0.3 11940 101.4 15 9.2 4.1 4.3 0.9 0.3 0.2

US GDP(E)US GDP(E)

5. Closing remarks5. Closing remarks

Implications of KeynesImplications of Keynes

Charles Kindleberger, Charles Kindleberger, The World in The World in Depression, 1929-39Depression, 1929-39: : "A nation can finance anything it can "A nation can finance anything it can

produce."produce."

Taking London as our example, we should demolish the majority of the Taking London as our example, we should demolish the majority of the existing buildings on the south bank of the river from County Hall to existing buildings on the south bank of the river from County Hall to Greenwich, and lay out these districts as the most magnificent, the most Greenwich, and lay out these districts as the most magnificent, the most commodious and healthy working-class quarter in the world. The space is at commodious and healthy working-class quarter in the world. The space is at present so ill used that an equal or larger population could be housed in present so ill used that an equal or larger population could be housed in modern comfort on half the area or less, leaving the rest of it to be devoted modern comfort on half the area or less, leaving the rest of it to be devoted to parks, squares and playgrounds, with lakes, pleasure gardens and to parks, squares and playgrounds, with lakes, pleasure gardens and boulevards, and every delight which skill and fancy can devise. Why should boulevards, and every delight which skill and fancy can devise. Why should not all London be the equal of St James’s Park and its surroundings? The not all London be the equal of St James’s Park and its surroundings? The river front might become one of the sights of the world with a range of river front might become one of the sights of the world with a range of terraces and buildings rising from the river. The schools of South London terraces and buildings rising from the river. The schools of South London should have the dignity of Universities with courts, colonnades and should have the dignity of Universities with courts, colonnades and fountains, libraries, galleries, dining-halls, cinemas and theatres for their fountains, libraries, galleries, dining-halls, cinemas and theatres for their own use. Into this scheme should be introduced the utmost variety. All our own use. Into this scheme should be introduced the utmost variety. All our architects and engineers and artists should have the opportunity to embody architects and engineers and artists should have the opportunity to embody the various imagination, not of peevish, stunted and disillusioned beings, the various imagination, not of peevish, stunted and disillusioned beings, but of peaceful and satisfied spirits who belong to a renaissance. but of peaceful and satisfied spirits who belong to a renaissance. (Keynes,(Keynes,The ListenerThe Listener, August 1936), August 1936)

Thanks to Graham Turner of GFC economics, and author of the Credit Crunch. Dated 6 January.