Sunday, July 6, 2014

Quick thoughts on "How to Pay for the War"

Sorry for the slow posting - here's something that might be interesting though. I've recently been leafing through a first edition of Keynes's "How to Pay for the War" (1940) that Evan picked up for me at a U Chicago library book sale. It's a really fascinating read and an often overlooked gem I think - I will have to read it properly once I'm done with Piketty. This, along with the Treatise on Money, for some reason does not get reprinted as often as Keynes's other books and so the treatment from people is often more casual. But I like it a lot for a couple reasons:

1. First it highlights quite explicitly the mission that is animating Keynes pretty much from the beginning, which is how a free society works in the modern economy. He sees one group of people who embrace a free society that pretend there is nothing really different about a modern economy (what he refers to elsewhere as "laissez faire", and then he sees another group that understands there is something different but addresses it by abandoning the free society (communists and fascists). He thinks that neither are a viable option. This understanding of his role is there throughout his life, but it comes out very clearly in How to Pay for the War.

2. The General Theory is detailed on investment theory but not as detailed on consumption theory - particularly the microfoundations of consumption theory. This is what gets developed in the 50s and 60s and this is really the foundation of New Keynesian economics. In How to Pay for the War Keynes seems to really deal a lot more with micro consumption behavior, which is understandable since he's talking about intertemporal public finance and tax issues.

3. He is talking about slowing growth and fighting inflation. A lot of people act like Kenyes forgot to address this, sometimes based on nothing more than a well circulated Hayek Youtube video claiming he forgot it.

4. He talks about expectations for post-war slumps, and as anyone that knows about his exchange at the Fed in '43 I believe (maybe '42) he is not pessimistic about it like Samuelson was at the time.

5. He carries over critiques of price controls and rationing that echo insights into consumer theory that he was making as far back as Economic Consequences of the Peace.

There are so many common threads here that just leafing through it makes me want to read his major works again (and in some cases for the first time), and take notes/outlines of it all to do something with... who knows.

1 comment:

  1. As someone who has read How to Pay for the War as part of a school project...I have to say that all five of your points are correct. However, in The General Theory, J.M. Keynes does use the words "true inflation" that can occur under certain conditions. Furthermore, in the third installment of Lord Skidelsky's biography of the legendary British economist, Lord Skidelsky makes an interesting argument that How to Pay for the War was basically taking the principles found in The General Theory for the purposes of engaging in World War II. However, I am somewhat surprised that you didn't mention "compulsory savings" in these bullet points, Daniel Kuehn.


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