Friday, March 2, 2012

From "The Great Slump of 1930"

"It is beyond the scope of this essay to indicate lines of future policy. But no one can take the first step except the central banking authorities of the chief creditor countries; nor can any one Central Bank do enough acting in isolation. Resolute action by the Federal Reserve Banks of the United States, the Bank of France, and the Bank of England might do much more than most people, mistaking symptoms or aggravating circumstances for the disease itself, will readily believe. In every way the most effective remedy would be that the Central Banks of these three great creditor nations should join together in a bold scheme to restore confidence to the international long-term loan market; which would serve to revive enterprise and activity everywhere, and to restore prices and profits, so that in due course the wheels of the world's commerce would go round again. And even if France, hugging the supposed security of gold, prefers to stand aside from the adventure of creating new wealth, I am convinced that Great Britain and the United States, like-minded and acting together, could start the machine again within a reasonable time; if, that is to say, they were energised by a confident conviction as to what was wrong. For it is chiefly the lack of this conviction which to-day is paralysing the hands of authority on both sides of the Channel and of the Atlantic."

That line "the wheel of commerce" is borrowed (and slightly paraphrased) from Adam Smith of course. Before Smith, similar language was used by the mercantilist Daniel Defoe. Talking about "wheels of commerce" and "wheels of circulation" wasn't the only contribution Defoe made to economic lingo... the most famous, of course, being Robinson Crusoe! Now, it wasn't Defoe that gave it its modern usage by economists. That had to wait for macroeconomists who were conceiving of a simple economic model where the same agent invests and consumes.

Defoe also had another line that Adam Smith later used (who knows if he "got it" from Defoe). Anyone know which one? Gavin Kennedy has written about it before.

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