Keynes Was Right, The More Evil Of The Two

I am no fan of John Maynard Keynes. But this isn’t to say that there is nothing worthwhile about Keynes’ work. Indeed, it is a logical fallacy that one can’t object to his conclusions while at the same time admiring some of the ways with which he arrived at them. There is a lot about what Keynes thought, and wrote, which survives historical scrutiny.

This is one big reason why more than A General Theory forms the basis for what modern Economics has become. But we also must realize that Keynes’ contributions were not strictly scientific. There was politics at root in his views. This is the general ideology which has largely been recombined for modern use, good and ill.

In 1931, while a fellow at King’s College, Cambridge, Keynes wrote and pulled together his Essays In Persuasion. The Great Crash had only recently struck and by that year the follies of recovery had faded into more horrific reality. Many around the world had expected 1929-30 to go as the economic interruption ten years earlier had; a deep depression followed by no lasting effects, the world quickly returning to normal.

When describing class effects of inflation in the prewar (the first one) period in his essay on the changes in the value of money (Social Consequences, 1923), he wrote, “the depression of 1921-22 did not reverse or even greatly diminish the relative advantage gained by the working classes over the middle class during the previous years”. A decade later, however, everyone could see that this was different. The Great Depression hadn’t yet been called that, by then there was no doubt the world had stumbled upon a very different case.

This was massive instability of the type never before witnessed, or even theorized. In some ways, maybe nobody should’ve been surprised. The latter 19th century was bursting with innovation and technology, the world as it was already erased, rebuilt, and erased again. On a more fundamental level, Keynes was trying to argue that progress itself was a key element fomenting volatility.

In the realm of economics, these would chiefly divide among the two most visible extremes: inflation and deflation. He spoke of these not in the modern conception but as to how each would influence affairs among a more fixed world. Monetary regimes had been built up to attempt stable prices only to see them wrecked by extreme bouts of one or the other. The Great Depression was simply the greatest outbreak.

What he was arguing was that both were wrong and evil. But they weren’t equivalently so. The one was far more destructive.

We see, therefore, that rising prices and falling prices each have their characteristic disadvantage. The Inflation which causes the former means Injustice to individuals and to classes—particularly to rentiers; and is therefore unfavourable to saving. The Deflation which causes falling prices means Impoverishment to labour and to enterprise by leading entrepreneurs to restrict production, in their endeavour to avoid loss to themselves; and is therefore disastrous to employment.

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Gary Anderson 5 months ago Contributor's comment

The Fed thinks disinflation is no big deal, that wage inflation is the big evil of our time. I don't know how they arrived at this absurdity, but they have.