Keynes Economy Quotes

How long will it be necessary to pay City men so entirely out of proportion to what other servants of society commonly receive for performing social services not less useful or difficult?

I’m heartened by our dissatisfaction, because dissatisfaction is a world away from indifference. The widespread nostalgia, the yearning for a past that never really was, suggests that we still have ideals, even if we have buried them alive. True progress begins with something no knowledge economy can produce: wisdom about what it means to live well. We have to do what great thinkers like John Stuart Mill, Bertrand Russell, and John Maynard Keynes were already advocating 100 years ago: to “value ends above means and prefer the good to the useful.

John Maynard Keynes, wrote the following: “The love of money as a possession … will be recognized for what it is, a somewhat disgusting morbidity, one of those semi-criminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental disease.

With the breakdown of money economy the practice of international barter is becoming prevalent.

A monetary economy, we shall find, is essentially one in which changing views about the future are capable of influencing the quantity of employment and not merely its direction.

Keynes declared capitalism the best system ever devised to achieve a civilized economic society. But he recognized in it two major faults—“its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes.

The missing step in the standard Keynesian theory [is] the explicit consideration of capitalist finance within a cyclical and speculative context . . . finance sets the pace for the economy. As recovery approaches full employment . . . soothsayers will proclaim that the business cycle has been banished [and] debts can be taken on . . . But in truth neither the boom, nor the debt deflation… and certainly not a recovery can go on forever. Each state nurtures forces that lead to its own destruction. So

True progress begins with something no knowledge economy can produce: wisdom about what it means to live well. We have to do what great thinkers like John Stuart Mill, Bertrand Russell, and John Maynard Keynes were already advocating 100 years ago: to “value ends above means and prefer the good to the useful.” We have to direct our minds to the future. To stop consuming our own discontent through polls and the relentlessly bad news media. To consider alternatives and form new collectives. To transcend this confining zeitgeist and recognize our shared idealism.

El estudio de la economía no parece exigir ningún don especializado de un orden excepcionalmente superior. ¿No es una disciplina muy fácil comparada con las ramas superiores de la filosofía o la ciencia pura?. Una disciplina fácil de la que muy pocos sobresalen. La paradoja tal vez tenga su explicación en que el economista experto debe poseer una rara combinación de dones. Debe ser en cierta medida matemático, historiador, estadista, filosofo. Debe comprender los símbolos y hablar en palabras. Debe contemplar lo particular desde la óptica de lo general y considerar en un mismo razonamiento lo abstracto y lo concreto. Debe estudiar el presente pensando en el futuro. Ningún aspecto de la naturaleza del hombre o de sus instituciones debe quedarse al margen de su consideración. Debe ser simultáneamente decidido y desinteresado; tan distante e incorruptible como un artista y, sin embargo a veces tan cerca del suelo como un político

In Keynes’s time, physicists were first grappling with the concept of quantum mechanics, which, among other things, imagined a cosmos governed by two entirely different sets of physical laws: one for very small particles, like protons and electrons, and another for everything else. Perhaps sensing that the boring study of economics needed a fresh shot in the arm, Keynes proposed a similar world view in which one set of economic laws came in to play at the micro level (concerning the realm of individuals and families) and another set at the macro level (concerning nations and governments).

Economists who simply advised leaving the economy alone, governments whose first instincts, apart from protecting the gold standard by deflationary policies, was to stick to financial orthodoxy, balance budgets and cut costs, were visibly not making the situation better. Indeed, as the depression continued, it was argued with considerable force not least by J.M. Keynes who consequently became the most influential economist of the next forty years - that they were making the depression worse. Those of us who lived through the years of the Great Slump still find it almost impossible to understand how the orthodoxies of the pure free market, then so obviously discredited, once again came to preside over a global period of depression in the late 1980s and 1990s, which, once again, they were equally unable to understand or to deal with. Still, this strange phenomenon should remind us of the major characteristic of history which it exemplifies: the incredible shortness of memory of both the theorists and practitioners of economics. It also provides a vivid illustration of society's need for historians, who are the professional remembrancers of what their fellow-citizens wish to forget.

The individualist insists that drastic depressions are the result of credit inflation; (not excessive savings, as the Keynesians would have it) which at all times in history has been caused by direct government action or by government influence. As for aggravated unemployment, the individualist insists that it is exclusively the result of government intervention through inflation, wage rigidities, burdensome taxes, and restrictions on trade and production such as price controls and tariffs. The inflation that comes inevitably with government pump-priming soon catches up with the laborer, wipes away any real increase in his wages, discourages private investment, and sets off a new deflationary spiral which can in turn only be counteracted by more coercive and paternalistic government policies. And so it is that the "long run" is very soon a-coming, and the harmful effects of government intervention are far more durable than those that are sustained by encouraging the unhampered free market to work out its own destiny.

Some heterodox economists today argue that growth will fall if finance becomes too big relative to the rest of the economy (industry) because real profits come from the production of new goods and services rather than from simple transfers of money earned from those goods and services.40 To ‘rebalance’ the economy, the argument runs, we must allow genuine profits from production to win over rents–which, as we can see here, is exactly the argument Ricardo made 200 years ago, and John Maynard Keynes was to make 100 years later.41

The Bretton Woods saga unfurled at a unique crossroads in modern history. An ascendant anticolonial superpower, the United States, used its economic leverage over an insolvent allied imperial power, Great Britain, to set the terms by which the latter would cede its dwindling dominion over the rules and norms of foreign trade and finance. Britain cooperated because the overriding aim of survival seemed to dictate the course. The monetary architecture that Harry White designed, and powered through an international gathering of dollar-starved allies, ultimately fell, its critics agree, of its own contradictions.

But if America recalls for a moment what Europe has meant to her and still means to her, what Europe, the mother of art and of knowledge, in spite of everything, still is and still will be, will she not reject these counsels of indifference and isolation, and interest herself in what may prove decisive issues for the progress and civilization of all mankind?

Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. ... in the field of economic and political philosophy there are not many who are influenced by new theories after they are twenty-five or thirty years of age, so that the ideas which civil servants and politicians and even agitators apply to current events are not likely to be the newest.

Instead of using their vastly increased material and technical resources to build a wonder-city, they built slums; and they thought it right and advisable to build slums because slums, on the test of private enterprise, "paid", whereas the wonder-city would, they thought, have been an act of foolish extravagance, which would, in the imbecile idiom of the financial fashion, have "mortgaged the future"; though how the construction to-day of great and glorious works can impoverish the future, no man can see until his mind is beset by false analogies from an irrelevant accountancy.

The second, and related, question was why would an increase in money supply not stimulate spending, returning the economy to full employment? Keynes’s reply was that in a slump the demand for liquidity – emergency money – was so high that further injections of money would simply be absorbed in idle cash balances as a claim on generalised future purchasing power without any impact on current spending. The economy would be stuck in a ‘liquidity trap’. The argument was set out in Chapters 13 and 14 of The General Theory. They are among the more difficult and obscure parts of the book. It

Keynes argued that when short-term and long-term interest rates had reached their respective lower bounds, further increases in the money supply would just be absorbed by the hoarding of money and would not lead to lower interest rates and higher spending. Once caught in this liquidity trap, the economy could persist in a depressed state indefinitely. Since economies were likely to find themselves in such conditions only infrequently, Hicks described Keynes’s theory as special rather than general, and relevant only to depression conditions. And this has remained the textbook interpretation of Keynes ever since. Its main implication is that in a liquidity trap monetary policy is impotent, whereas fiscal policy is powerful because additional government expenditure is quickly translated into higher output.

KEYNESIAN ECONOMICS AND STIMULUS Keynesian economics is based on the notion that unemployment arises when total or aggregate demand in an economy falls short of the economy’s ability to supply goods and services. When products go unsold, jobs are lost. Aggregate demand, in turn, comes from two sources: the private sector (which is the majority) and the government. At times, aggregate demand is too buoyant—goods fly off the shelves and labor is in great demand—and we get rising inflation. At other times, aggregate demand is inadequate—goods are hard to sell and jobs are hard to find. In those cases, Keynes argued in the 1930s, governments can boost employment by cutting interest rates (what we now call looser monetary policy), raising their own spending, or cutting people’s taxes (what we now call looser fiscal policy). By the same logic, when there is too much demand, governments can fight actual or incipient inflation by raising interest rates (tightening monetary policy), increasing taxes, or reducing its own spending (thus tightening fiscal policy). That’s part of standard Keynesian economics, too, although Keynes, writing during the Great Depression, did not emphasize it. Setting aside the underlying theory, the central Keynesian policy idea is that the government can—and, Keynes argued, should—act as a kind of balance wheel, stimulating aggregate demand when it’s too weak and restraining aggregate demand when it’s too strong. For decades, American economists took for granted that most of that job should and would be done by monetary policy. Fiscal policy, they thought, was too slow, too cumbersome, and too political. And in the months after the Lehman Brothers failure, the Federal Reserve did, indeed, pull out all the stops—while fiscal policy did nothing. But what happens when, as was more or less the case by December 2008, the central bank has done almost everything it can, and yet the economy is still sinking? That’s why eyes started turning toward Congress and the president—that is, toward fiscal stimulus—after the 2008 election.

John Maynard Keynes made the most audacious proposal that has ever reached the bargaining table of a major international conference: to create an International Currency Union (ICU), a single currency (which he even named – the bancor) for the whole capitalist world, with its own international central bank and matching institutions.

John Maynard Keynes made the most audacious proposal that has ever reached the bargaining table of a major international conference: to create an International Currency Union (ICU), a single currency (which he even named – the bancor) for the whole capitalist world, with its own international central bank and matching institutions. Keynes’ proposal was not as impudent as it seemed. In fact, it has withstood the test of time quite well. In a recent BBC interview, Dominique Strauss-Kahn, the IMF’s then managing director, called for a return to Keynes’ original idea as the only solution to the troubles of the post-2008 world economy.

If an equilibrium was invariably elusive in the real world, Hayek argued, then the a priori assumptions that theoretical economists make about the operation of an economy, or a market, tending toward an equilibrium would always fall short. An equilibrium can be predicted only if the intentions of each of the participants is known, and that is impossible both in theory and in practice.

Neither Fascist Italy nor Spain adopted eugenics as an ideology central to their form of government the way the National Socialist did. However, socialist and progressive nations such as Canada, Sweden, Denmark, Finland, and Norway did adopt and implement eugenics. This is because eugenics is the safety valve of a centrally planned economy. Central planners like John Maynard Keynes fear a population that is not as meticulously planned as the economy. They fear the unproductive sectors out-breeding the productive sectors of the population. This is also why Keynes was a lobbyist for the British eugenics movement both before and after The Holocaust.

More than 80 years ago, John Maynard Keynes explained why market economies often have persistent unemployment and taught us how government could maintain the economy at or near full employment.

What is raised by printing notes is just as much taken from the public as is a beer-duty or an income-tax. What the Government spends the public pays for. There is no such thing as an uncovered deficit.

There was frequently a moral lesson lurking just below the surface in Hayek’s accounts, usually having to do with Keynes’s overweening self- confidence and the dangers of hubris. His retelling of their final conversation is illustrative. Hayek had asked Keynes whether he was at all concerned about the uses to which his disciples were putting his theories, and in particular, whether a theory that had made sense in “the age of plenty” of the 1930s might not stimulate inflation as the economy neared full employment. Keynes assured Hayek that were his theories ever to become harmful, he could turn public opinion against them like that, and snapped his fingers. Unfortunately, as Hayek concluded, “six weeks later he was dead”.

The Great Society’s civil rights agenda did help spread the gains of the roaring economy more equally. The black poverty rate dropped to 32.2 percent, a dramatic improvement from the rate of 55 percent that had prevailed when Galbraith had published The Affluent Society. But the statistical chasm between black and white poverty remained an unresolved crisis in American democracy. The black poverty rate would not drop below 30 percent until 1995. It is 21.8 percent today, compared to 8.8 percent among white households.

In the long term,” wrote the English economist John Maynard Keynes, “we are all dead.” The Scottish Enlightenment learned a different lesson from the changes brought by union with England. Its greatest thinkers, such as Adam Smith and David Hume, understood that change constantly involves trade-offs, and that short-term costs are often compensated by long-term benefits. “Over time,” “on balance,” “on the whole”—these are favorite sentiments, if not expressions, of the eighteenth-century enlightened Scot. More than any other, they capture the complex nature of modern society. And the proof came with the Act of Union. Here was a treaty, a legislative act inspired not by some great political vision or careful calculation of the needs of the future, or even by patriotism. Most if not all of those who signed it were thinking about urgent and immediate circumstances; they were in fact thinking largely about themselves, often in the most venal terms. Yet this act—which in the short term destroyed an independent kingdom, created huge political uncertainties both north and south, and sent Scotland’s economy into a tailspin—turned out, in the long term, to be the making of modern Scotland Nor did Scots have to wait that long. Already by the 1720s, as the smoke and tumult of the Fifteen was clearing, there were signs of momentous changes in the economy. Grain exports more than doubled, as Scottish agriculture recovered from the horrors of the Lean Years and learned to become more commercial in its outlook. Lowland farmers would be faced now not with starvation, but with falling prices due to grain surpluses. Glasgow merchants entered the Atlantic trade with English colonies in America, which had always been closed to them before. By 1725 they were taking more than 15 percent of the tobacco trade. Inside of two decades, they would be running it. A wide range of goods, not just tobacco but also molasses, sugar, cotton, and tea, flooded into Scotland. Finished goods, particularly linen textiles and cotton products, began to flood out, despite the excise tax. William Mackintosh of Borlum saw even in 1729 that Scotland’s landed gentry were living better than they ever had, “more handsomely now in dress, table, and house furniture.” Glasgow, the first hub of Scotland’s transatlantic trade, would soon be joined by Ayr, Greenock, Paisley, Aberdeen, and Edinburgh. By the 1730s the Scottish economy had turned the corner. By 1755 the value of Scottish exports had more than doubled. And it was due almost entirely to the effect of overseas trade, “the golden ball” as Andrew Fletcher had contemptuously called it, which the Union of 1707 had opened.

In his important book, How to Pay for the War, John Maynard Keynes explained what Kennedy later understood: Coming up with the money is the easy part. The real challenge lies in managing your available resources—labor, equipment, technology, natural resources, and so on—so that inflation does not accelerate. If Kennedy had used the wrong lens, America might never have gone to the moon. If Keynes had used the wrong lens, the British war effort may very well have been too little too late.

The concept of secular stagnation originally goes back to followers of John Maynard Keynes, who discussed the perspectives of ‘mature economies’ in the context of the Great Depression of the 1930s.4 Authors such as Alvin Hansen, Josef Steindl and Michal Kalecki5 assumed that economic growth in industrial societies would gradually come to a halt. They saw the reasons for this in demographic developments, the exhaustion of natural resources, a slowdown in technical progress, a lack of readiness for risky entrepreneurial initiatives, political frictions, and not least a factor that Keynes described in his General Theory of Employment, Interest, and Money as the ‘marginal efficiency of capital’.

What seemed to have captured the public imagination was the outline of the world economy that Keynes was able to draw.

As time goes on, I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes.” Forget what the economy is doing; just find well-managed companies, buy some shares, and don’t try to be too clever. And if that approach sounds familiar, it’s most famously associated with Warren Buffett, the world’s richest investor—and a man who loves to quote John Maynard Keynes.

Prior to The General Theory, economics was almost exclusively concerned with scarcity and efficiency. The very word for the productive output of society—economy—was a metaphor for making do with less. The root cause of human suffering was understood to be a shortage of resources to meet human needs. Social reformers might protest the extravagances of the rich, but poverty and squalor were driven not

He predicted that actual monetary policy would shrink from the attempt to restore equilibrium by this method. Interest rates would be kept high enough to attract foreign funds to London; but not pushed so high as to break trade-union resistance to a reduction in the money-wage per worker employed. The result would be a low-employment economy. So it proved. Despite the defeat of the General Strike in 1926, employers made little effort to reduce money-wages, which remained steady for the rest of the 1920s although the price level sagged. Keynes was the first to realize and state clearly that an overvalued currency would be a weak, not a strong, currency.

A Treatise on Money, published in 1930, is an excellent example of Keynes’s passion for generalization. In essence, Keynes built an exceedingly complicated conceptual apparatus to show how an economy on the gold standard could, under certain conditions, fall into a low-employment trap. If the monetary authority was prevented from lowering the long-term interest rate to a level consonant with investors’ expectations, and if domestic costs of production prevented the achievement of an export surplus equal to what people wished to lend abroad, the result would be an ‘excess’ of saving over investment, a sagging price level, and a ‘jammed’ economy. This was Britain’s fate in the 1920s.

Like all economists, Keynes expected British employment to recover to ‘normal’ (as measured by pre-war standards) when prices ‘settled down’ in 1922. But unemployment remained obstinately stuck at above 10%. It was its failure to come down much below this rate for the rest of the 1920s which alerted Keynes to the possibility that the employment costs of a savage deflation might be more than ‘transitional’, with the economy remaining ‘jammed’ in a low-employment trap.

In 1939, Keynes had doubted whether ‘capitalistic democracy’ would ever be willing to make the ‘grand experiment’ which would prove his theory. In war the experiment was made, and the theory worked. The economy was run at full capacity with only very moderate inflation.

In The General Theory, money still retains its power to disturb the real economy. But its disturbing power arises from its function as a store of value rather than as a means of exchange. This had the further consequence of calling into question the reliability of monetary policy as an instrument of economic management.

His life spanned not just the collapse of British power, but the growing enfeeblement of the British economy. It spanned the passage from certainty to uncertainty, from the perfumed garden of his youth to the jungle of his mature years, where monsters prowled.

In retrospect, The General Theory would set the intellectual agenda for Friedman’s entire career, but when it appeared, he barely noticed. As Keynes’s ideas were making landfall in American universities, Friedman offered a course through the Columbia University extension school that was a throwback to the early 1930s. Focused on individual demand curves, individual marginal utility, and individual economic decision-making, Friedman’s course, Structure of Neo-classical Economics, made no mention of business cycles, national income, or current economic conditions. Drawing on the approach pioneered by Knight and Simons, it placed the question of “how free enterprise system solves economic problem” front and center.45 At the same time, Friedman did offer an implicit critique of the fiscal revolution, particularly Hansen’s concept of secular stagnation. Picking up a theme from Knight, Friedman told his class, “Once wants are satisfied, new wants are going to be formed; the process of want formation is part of the basic drive.”46 There were two critical implications. First was that perpetual wanting would keep economies always in motion: “Impossibility of completely satisfying all wants. If the greatest want is the desire for new wants … the notion of satiety is silly.” It was more than a philosophical point. Not only was it impossible for the economy to stagnate, but it would be impossible to design a government program that would adequately satisfy wants, which tended to continually increase. Friedman drew out the second implication in another comment. “Attitude toward all policies will be affected by our ideas concerning wants,” he argued.47 In a letter to Arthur Burns, he was more direct. Reflecting on a road trip to visit Rose’s family, he wrote, “The whole West, particularly California, and more particularly Southern California, gives you the feeling that the frontier is not yet gone and makes you feel like telling the stagnationites to come out and take a look.”48 Although he worked for the New Deal, Friedman was not a New Dealer. Nor was he a Keynesian. He thoroughly rejected the ideas that would most profoundly shape economics in the years ahead.

It was a strike against the edifice of policy and politics coming to rest upon Keynesian concepts of savings and consumption. Years later, Friedman spelled out the ultimate implications. Dorothy and Rose’s paper fed into a much larger body of research, the permanent income hypothesis, that “removes completely one of the pillars of the ‘secular stagnation’ thesis.” It also had implications for the Keynesian proposition that there was “no automatic force in a monetary economy to assure the existence of a full-employment equilibrium.”9 On the surface, Dorothy and Rose had published a basic research report. Considered in the bigger picture, their conclusions spoke to the politically charged question of consumption. Was the paper deliberately framed as an attack upon Keynes?10 Both women were dedicated empiricists, and the problem in the data was compelling. At the same time, the solution they came up with dovetailed nicely with each woman’s intellectual inclinations. The paper’s emphasis on relative income reflected the traditional approach of consumption research that Dorothy knew well. Dorothy’s long tenure in reformist D.C. agencies suggests that like most consumption economists, she was probably sympathetic to New Deal social spending. By contrast, although Rose has left little trace of her thinking in this period, she was among the most loyal of Frank Knight’s students. His teachings would have primed her to be skeptical of both the New Deal and the Keynesian concepts that were newly popular among economists.

Kanjorski claims to be repeating an account of events given to him by US Treasury Secretary Henry Paulson and Fed Reserve chairman Ben Bernanke: On Thursday [18 September], at 11 a.m. the Federal Reserve noticed a tremendous draw-down of money-market accounts in the US; [money] to the tune of $550 billion was being drawn out in the matter of an hour or two. The Treasury opened up its window to help and pumped a $105 billion in the system and quickly realized that they could not stem the tide. We were having an electronic run on the banks. They decided to close the operation, close down the money accounts and announce a guarantee of $250,000 per account so there wouldn’t be further panic out there. If they had not done that, their estimation is that by 2 p.m. that afternoon $5.5 trillion would have been drawn out of the money-market system of the US; [this] would have collapsed the entire economy of the US, and within 24 hours the world economy would have collapsed. It would have been the end of our economic system and our political system as we know it.10

--he, indeed, who gave fewest pledges to Fortune, has yet suffered her heaviest visitations.

John Maynard Keynes, the great British economist, died in 1946. But his ghost lives on. When economies around the world contracted sharply in late 2008 and early 2009, government officials started seeing visions of the 1930s and turned

John Maynard Keynes, the great British economist, died in 1946. But his ghost lives on. When economies around the world contracted sharply in late 2008 and early 2009, government officials started seeing visions of the 1930s and turned immediately to the teachings of Lord Keynes.

The variables which were apt for management by central authorities were interest rates and taxation, which he proposed that governments should adjust in order to stimulate investment and to seek full employment. However, he said little of emergency public works, and nothing about fiscal methods of demand management. He did not recommend increasing the government’s current expenditure by running a budget deficit to meet a deficiency of demand. He gave no encouragement to profligate finance ministers. He urged that additional government expenditure should be on capital account and financed from a separate capital budget while so far as possible the regular budget should be kept in balance. He suggested that full employment might be maintained by redistribution of income. If wealth was more equitably dispersed in the population, effective demand would be stimulated and would thus help capital growth. As the scarcity of capital diminished, investors would be rewarded less. He never believed that state planning would eliminate economic instability. He saw national economies as inherently wobbling: they were susceptible to rational management, but with irrational elements.73

The central argument, which seemed revolutionary to classical economists, was that the economy had no natural tendency towards full employment.

Neither politicians nor civil servants at the conference had experience in managing economic affairs beyond their own borders. The pre-war international trade system had been developed by private capitalists. State intervention had been limited to adjusting trade barriers, protesting at breached contracts, giving diplomatic support to concession-hunters. There was no governmental expertise in international interventions when businesses or economies were failing. It is therefore not surprising that the victorious nations thought only in terms of seizing booty or of placating voters.

Pre-analytic vision. Worldview. Paradigm. Frame. These are cousin concepts. What matters more than the one you choose to use is to realise that you have one in the first place, because then you have the power to question and change it. In economics, that’s an open invitation to look afresh at the mental models we employ in describing and understanding the economy. But it is no easy thing to do, as Keynes discovered. Coming up with his groundbreaking theory in the 1930s was, he admitted, ‘a struggle of escape from habitual modes of thought and expression . . . The difficulty lies not in the new ideas, but in the old ones which ramify, for those of us brought up as most of us have been, into every corner of our minds.

there is no single Keynesian way out of depression, so there is no single Keynesian system of political economy. Keynesianism can at best be a common element in very different systems of mixed economic life. In terms of economic policy it has only one proposition: that governments should make sure that aggregate demand is sufficient to maintain a full-employment level of activity. By what mix of politics, policy and institutional innovation this is to be done is a political-economy question. One thing of which we can be tolerably sure is that the next phase of political economy will see less reliance on export-led growth, a more restricted financial system, an expanded public sector, and a more modest role for economics as tutor of governments.

1. The chief root of monetary troubles is the scientific authority the Keynesians gave the superstition that increasing the quantity of money can ensure prosperity and full employment. 2. The superstition was fought successfully by economists for two centuries of stable prices during the age of modern industrialism and the gold standard. 3. Before then inflation largely dominated history. 4. Keynes’s (macro-economic) error was to suppose that labour demand and supply can be equated (and unemployment avoided) by managing total demand. Employment depends on demand in each sector of the economy. Managing total demand by expanding money supply created only temporary and therefore unstable employment. 5. A “lost generation” of economists who have learned nothing else continues to offer the quack “full employment” remedy and to win short-term popularity for it. 6. No government, national or international, that wants to remain in office can be expected to limit the quantity of money better than a gold standard or any other (semi-) automatic system because in practice it succumbs to sectional pressures for additional cheap money and expenditure. 7. The gold standard, balanced budgets, fixed exchanges, enabled governments to resist sectional importunities. The removal of these “shackles” has enabled governments to act more irresponsibly. 8. The only hope for stable money and resistance to inflation is to protect money from politics by removing the power of government to require its citizens to use its money as the only legal tender. 9. Government would then not inflate its supply, because it would be forsaken for other currencies. 10. Inflation can therefore be stopped by introducing competition in currency. The notion that it is a proper function of government to issue the national currency is false. Citizens should be free to use and refuse any currencies they wish: politicians would then have to limit their quantities. Then inflation would be avoided.

Wage flexibility may not cure an ailing economy, but simply make the rich richer and the poor poorer; you get an economy driven not by wages, but by assets and if those assets stay in the same hands, there is no dynamism and social mobility.

Institutions are the humanly devised constraints that structure human interaction. They are made up of formal constraints (rules, laws, constitutions), informal constraints (norms of behavior, conventions, and self imposed codes of conduct), and their enforcement characteristics. Together they define the incentive structure of societies and specifically economies.”[v]

Before Keynes, most people agreed with Adam Smith when he said, ‘What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom.’ And some people still do. David Cameron, the British prime minister, said in October 2011 that all Britons should try to pay off their credit card debts, without realizing that demand in the British economy would collapse if a sufficient number of people actually heeded his advice and reduced spending to pay off their debts. He simply did not understand that one person’s spending is another’s income – until he was forced by his advisors to withdraw the embarrassing remark.

The same rule of self-destructive financial calculation governs every walk of life. We destroy the beauty of the countryside because the un-appropriated splendors of nature have no economic value. We are capable of shutting off the sun and the stars because they do not pay a dividend.

Despite the myth of American mobility, for decades the more socialized economies of northern Europe have done a far better job of allowing people to rise above the station of their parents, while class lines in the US have hardened. The American dream has been alive in social democratic Scandinavia—alive, but not well. As we’ve seen, the pressures of the global market have breached even well-defended social compromises in Sweden and Denmark. The preface of this book introduced a notional argument between Karl Marx and Karl Polanyi. Critics of capitalism writing in the spirit of Marx have long insisted that capitalism is doomed by its own contradictions. Polanyi, with Keynes, believed that given the right democratic mobilization and the right policy interventions, a mixed economy could adapt and thrive. That hope was realized in the three decades after World War II. Conversely, Polanyi argued that if markets were not harnessed in a broad public interest, their excesses would destroy both market society and democracy. This is what happened in the 1920s and 1930s, and it has echoes now.

The economic theory propounded by John Maynard Keynes in the 1930s dwelled heavily on the role of governments vis-à-vis cycles. Keynesian economics focuses on the role of aggregate demand in determining the level of GDP, in contrast with earlier approaches that emphasized the role of the supply of goods. Keynes said governments should manage the economic cycle by influencing demand. This, in turn, could be accomplished through the use of fiscal tools, including deficits. Keynes urged governments to aid a weak economy by stimulating demand by running deficits. When a government’s outgo—its spending—exceeds its income—primarily from taxes—on balance it puts funds into the economy. This encourages buying and investing. Deficits are stimulative, and thus Keynes considered them helpful in dealing with a weak economy. On the other hand, when economies are strong, Keynes said governments should run surpluses, spending less than they take in. This removes funds from the economy, discouraging spending and investment. Surpluses are contractionary and thus an appropriate response to booms. However, the use of surpluses to cool a thriving economy is little seen these days. No one wants to be a wet blanket when the party is going strong. And spending less than you bring in attracts fewer votes than do generous spending programs. Thus surpluses have become as rare as buggy whips.

I see us free, therefore, to return to some of the most sure and certain principles of religion and traditional virtue—that avarice is a vice . . . and the love of money is detestable. . . . But beware! The time for all this is not yet. For at least another hundred years we must pretend to ourselves and to everyone that fair is foul and foul is fair; for foul is useful and fair is not. Avarice and usury and precaution must be our gods for a little longer still. For only they can lead us out of the tunnel of economic necessity into daylight. John Maynard Keynes,

mobilize citizens against elites, inspired democratic leaders, and a good dose of luck. These moments tend not to last. The institutions often turn out to be more fragile than they first appear, and they require continual renewal. In a basically capitalist economy, financial elites, even when constrained, retain an immense amount of residual power. That can be contained only by countervailing democratic power. The Bretton Woods era suggests that a more benign form of globalization is possible. But the postwar brand of globalization, balancing citizenship and market, above all required a politics. Today, a few thinkers could sit in a seminar room and design a thinner globalization and a stronger democratic national polity. Keynes and his generation did just that after World War II. But they had the political winds at their backs. Today’s architects of democratic capitalism face political headwinds. Though ideas do matter, they are no substitute for political movements.