Brad has a good post up on an old (in blog-years) post by David Glasner on Hayek, Cassel/Hawtrey, and Keynes. If you recall, at the time I cheered on David's insistence that the Roberts/Papola effort was bringing down the quality of the discussion, but I also defended Keynes a little, which is something that Brad does in this new post. Allow me to jump in again on Keynes's side. Glasner previously wrote:
"Instead, it was Keynes who was credited with figuring out how to end the Great Depression, even though there was almost nothing in the General Theory about the gold standard and a 30% deflation as the cause of the Great Depression, despite his having vilified Churchill in 1925 for rejoining the gold standard at the prewar parity when that decision was expected to cause a mere 10% deflation."
I think that just as it's quite wrong to read the General Theory as a policy manual (it doesn't even get into policy in any detail until the conclusion, and even then it stays quite vague), it's also wrong to read it as an explanation of the cause of the depression. We need to read it as an economic treatise, meant to revise his earlier book on money, and we need to remember that that it was published half a decade after the world really started collapsing, but a decade after unemployment started being a real problem in the UK. It's not a policy analysis, and it's not a work of economic history. I think both of these things come out quite clearly when reading the General Theory, but since it's so closely associated with the depression, it's easy to forget sometimes.
The other thing I'd note is that it's simply not true that Keynes was ignoring what was going on at what Glasner calls the Insane Bank of France. Keynes wrote an open letter to the French Minister of Finance in January, 1926, stressing precisely the problem that Glasner highlights here. In 1928 he wrote another piece to Poincare, the French President, praising some progress. Both of these are published in Essays in Persuasion (1931). Of course, a lot of the insanity of the Insane Bank of France happened after 1928, and it would be nice to have correspondence from then. I'm just not sure if Keynes wrote anything else. But he was clearly aware of (and publicly calling attention to) this whole development in France well before the Depression.
Finally, in the widely read essay The Great Slump of 1930, Keynes explicitly points to both France and the United States as the two culprits (on page 144 of Essays in Persuasion) - exactly the conclusion that everyone forgot after Friedman and Schwartz, and the conclusion which Glasner and Doug Irwin and others are now bringing attention back to.
And what policy recommendation does The Great Slump of 1930 emphatically end with? Monetary expansion. You know - that thing that Scott Sumner, Lars Christenson, and others who for some reason want to be the sole claimants to this mantle claim Keynesians don't support.
My suggestion - read the General Theory as an innovative treatise on macroeconomics and output determination. Go elsewhere to read Keynes on what was going on in the economy at the time, and for policy prescriptions, and even for monetary economics.
We rise and fall
1 hour ago