In my latest reading of The New American Economy: The Failure of Reaganomics and a New Way Forward, Bruce Bartlett talks about John Maynard Keynes.
One
misconception that Bartlett corrects is that Keynes was pro-inflation,
for Bartlett notes that Keynes acknowledged dangers in both extreme
inflation and also extreme deflation, supporting stable money instead.
Keynes knew of the disastrous hyper-inflation in pre-World War II
Germany, as Germany printed a lot of money to pay off its huge war debts
under the Treaty of Versailles, resulting in hyper-inflation.
Keynes did support the U.S. government combating deflation through a loose monetary policy, however. Deflation
was a problem during the Great Depression for a variety of
reasons----it made debts more of an oppressive burden (Bartlett quoted
someone who likened it to having to pay $1.60 plus interest for every
dollar that you borrowed), and it resulted in lower wages and people
getting laid off as businesses sought to adjust to extremely low
prices.
Keynes preferred a policy of readjusting
currency to the government setting prices and wages, for he thought
that "the social cost of [the latter] policy was so great that it would
threaten the maintenance of liberal democracy, leading to an
authoritarian state such as that in the Soviet Union"
(Bartlett's words on page 48). Although Keynes supported government
spending to stimulate the economy, he was later an admirer of F.A.
Hayek's Road to Serfdom, which criticized the "growth of
government...partly as the result of the widespread adoption of
Keynesian economic theories" (Bartlett's words on page 57). Keynes
wrote to Hayek that he was "in a deeply moved agreement" with The Road to Serfdom (Keynes' words).
According to Bartlett, Keynes' desire for government stimulus was realized with World War II. This
point intrigued me because of the conservative argument I have heard
that the New Deal did not get the U.S. out of the Great Depression, but
World War II did. But, even if that point were granted, World War II
arguably got us out of the Depression through Keynesian
means----government spending stimulating the economy.
There is much about Keynes that I do not know, but I have gained respect for him through my reading of this book and the last book that I read, Pat Buchanan's The Great Betrayal,
which narrates that Keynes shifted from being a free-trader to being a
protectionist, even though he was renowned in a society that largely
regarded free trade as an orthodoxy. I used to dislike Keynes
because I knew that elements of liberal economic policy came from him,
but he was actually quite open-minded and receptive even to views that
could be characterized as conservative (i.e., Hayek's).