Of the many economic theories that have been presented over the years, the Keynesian theory/model seems to have caused the most controversy. This model, created by British economist John Maynard Keynes, was an attempt to better understand the origins of the Great Depression by demonstrating how economies, when in depression/recession, are best remedied through increased government intervention and expenditures while simultaneously lowering the tax burden on the working class.[1] In Keynes’ mind, the value of all money and goods had been rendered virtually worthless since the market had lost all trust in the debt/credit structure of world markets. Or as Keynes himself put it:
The immediate causes of the world financial panic—for that is what it is—are obvious. They are to be found in a catastrophic fall in the money value, not only of commodities, but of practically every kind of asset. The 'margins,' as we call them, upon confidence in the maintenance of which the debt and credit structure of the modern world depends, have 'run off.' In many countries the assets of the banks are no longer equal, conservatively valued, to their liabilities to their depositors. Debtors of all kinds find that their securities are no longer the equal of their debts. Few governments still have revenues sufficient to cover the fixed money charges for which they have made themselves liable.[2]
In Keynes’ estimation, the key to restoring trust in world markets was for government to take a more active role in “stimulating” the economy, especially since it had done little to prevent the depression in the first place. The government had a duty to ensure that workers had jobs, even in tough economic circumstances, and to not ensure employment was “capitalism’s greatest cause of inefficiency and human suffering.”[3] In addition, Keynes argued that it was inappropriate and irresponsible to blame workers for the Great Depression, since the blame (in Keynes’ mind) rested squarely on the inefficiency of governments to prevent the crisis in the first place. As Keynes himself stated:
It is not very plausible to assert that unemployment in the United States in 1932 was due either to labour obstinately refusing to accept a reduction of money-wages or to its obstinately demanding a real wage beyond what the productivity of the economic machine was capable of furnishing...Labour is not more truculent in the depression than in the boom—far from it. Nor is its physical productivity less. These facts from experience are a prima facie ground for questioning the adequacy of the classical analysis.[4]
For Keynes, the answer was simple. First, the government needed to spend more money and create more of a “presence” in the struggling economy, and second, cut taxes to relive pressure on the working class.[5]
In the United States, Keynes’ economic theory was met with
mixed reviews. President Hoover, who clearly
elected to take a different approach to solving the crisis, did not put much
stock into government intervention in the American economy. President Roosevelt, however, had a different
perspective. While he too fell short of
embracing all of Keynes’ ideas, Roosevelt was a proponent of greater government
intervention that took an active role in shaping and assisting the downtrodden
economy. Roosevelt’s “New Deal” certainly
drew on many of Keynes’ ideas for greater government presence, but FDR never
did accept Keynes’ second suggestion, which was to cut taxes.[6]
In retrospect, it is easy to pass judgement on Keynes’ economic
theory with the advantage of hindsight.
One can easily find evidence to both support and to criticize Keynes’
views and opinions. As stated earlier,
such has been the case with much of the history surrounding the origins of the
Great Depression. But Keynes’ views and
suggestions should not be judged from the vantagepoint of 21st
century economists and historians.
Instead, it should be seen in the light of 1930s post-depression
experience, based on what was known to the people, at the time, living in the
moment. Seen from that angle, John
Maynard Keynes’ economic perspective was extremely valuable, for it placed
importance on government giving immediate assistance to the working class.
[1] Jahan,
Sarwat, Ahmed Saber Mahmud, and Chris Papageorgiou. "What is Keynesian
Economics?: Finance and Development." Finance & Development, vol. 51,
no. 3 (September, 2014): Pp.53-54,
http://ezproxy.liberty.edu/login?qurl=https%3A%2F%2Fwww.proquest.com%2Fdocview%2F1561748797%3Faccountid%3D12085.
[2]
John Maynard Keynes, “The World's Economic Outlook” The Atlantic (May,
1932). https://www.theatlantic.com/magazine/archive/1932/05/the-worlds-economic-outlook/307879/
[3] KAUFMAN,
BRUCE E. "Wage Theory, New Deal Labor Policy and the Great Depression:
Were Government and Unions to Blame?" Industrial and Labor
Relations Review vol, 65, no. 3 (2012): Pp. 504. http://www.jstor.org/stable/24368882.
[4]
John Maynard Keynes, The General Theory of Employment, Interest, and Money
By John Maynard Keynes (February, 1936).
International Relations and Security Network: Primary Sources. Pp.
13-14. https://www.files.ethz.ch/isn/125515/1366_KeynesTheoryofEmployment.pdf
[5] Aspromourgos,
Tony. “Keynes’s General Theory After 75
Years” Economic Record, vol. 88, no. s1 (June, 2012). Pp. 149-157.
[6] John
Maynard Keynes to President Franklin D. Roosevelt, December 16, 1933. http://la.utexas.edu/users/hcleaver/368/368KeynesOpenLetFDRtable.pdf
No comments:
Post a Comment