NATIONAL
nem REVIEW
A JOURNAL OF FACT AND OPINION:
Debris of the Summit
L. BRENT BOZELL + JAMES BURNHAM «+ FRANK S. MEYER
Stevenson: Twice-Burnt Offering
JOHN CHAMBERLAIN
Must Conservatives Reject Keynes?
No: ERNEST VAN DEN HAAG
Yes: HENRY HAZLITT
eal
Articles and Reviews by . . © Now. B. PARMENTEL JR.
‘HUGH KENNER * WILLMOORE KENDALL + RUSSELL KIRK
RALPH DE TOLEDANO + JOHN LEONARD + FRANK GANNON
NATIONAL: REVIEW
A JOURNAL OF FACT AND OPINION
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CONTENTS JUNE 4, 1960 VOL. VII, NO, 23
THE WEEK ........ anaanmag es ypeNanaas sees B48
ARTICLES
‘Adlai Stevenson: Twice-Burnt Offering
John Chamberlain 357
Hax, Fax, Jax, Pax ..........Noel E, Parmentel Jr, 360
Must Conservatives Repudiate Keynes?
Ernest Van Den Haag, Henry Hazlitt 361
DEPARTMENTS
For the Record ..
National Trends
The Third World War
Principles and Heresies
To the Editor .
BOOKS, ARTS, MANNERS
Cult of the New vo...
The Objectionable Society .
History as Topsy ...
No Room for the Top
Unreconstructed Individual
L, Brent Bozell 354
sseee James Burnham 356
.ooFrank S, Meyer 365
sivees OB
....Hugh Kenner 368
.. Russell Kirk 367
-Willmoore Kendall 368
..+..Frank Gannon 368
....John Leonard 370
Berlioz we «+++/Ralph de Toledano 371
Books in Brief . seneee dvenaees veceee B72
VERSE
Uncowed ....sseeeeee seeee teeneaeereene » WK, 363
Preview of The Liberal Hour .....John Chamberlain 367
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For the Record
Will Nehru replace now tarnished Macmillan
in backstage liaison between the Kremlin
and the White House? Washington diplomatic
sources believe it's in the cards... . East
German refugee flow doubled since Summit
breakdown. . . . Usually well-informed Ger-
man news magazine Der Spiegel claims Ameri~
can U-2s had mapped virtually "every square
centimeter of the USSR" by the time of the
Powers mission. . . . Worker now finds CIA
chief Allen Dulles, like his friend Konrad
Adenauer, a fascist at heart. The reason=
ing: in the twenties Dulles was associated
with Schroeder Bank interests which fi-
nanced Ruhr industrialists who in turn fi-
nanced the Nazi party, etc.
Did Jack Kennedy make a deal with Southern
wing of his party? According to persistent
rumors, Kennedy promised that if elected
he will choose his Attorney General——who
handles Civil Rights enforcement—from a
list of candidates submitted by Southern
Democrats. ...Abust, the Jacob Javits for
Vice President trial balloon. ... GOP party
pros startled by grassroots talk (surely a
joke, say the pros uneasily) of a Goldwater-
Rockefeller ticket. ... Jackie Robinson, in
New York Post columns, no less, indicates he
may vote for Nixon in November after Nixon
has been "freed" from "conservative, go-slow
policies of the present occupant of the
White House."
Americans will pay for government this
year more than they will spend on'all food,
clothing, medical care and religious activ-
ities combined. . . » Under, Housing Act,
federal government will finance one sorority
and eleven fraternity houses for the Uni-
versity of Arizona. . . . South Korea now
asking U.S. to pay cost of Korean government
crisis as part State Department operation.
Robert Morris, who lost his primary battle
against Senator Clifford Case in New Jersey
several weeks ago, appointed President of
the University of Dallas. ... Federal Judge
Bryan refuses to dismiss the final income-
tax evasion charge against the Rev. Adam
Clayton Powell Jr., despite heated argument
by defense counsel Edward Bennett Williams
that case was legally defective through
"meddling" by a magazine editor in Powell's
indictment. . . . Comment of sardonic New
York Daily News columnist Robert Sylvester
on Khrushchev's press conference perform-
ance: "Who does he think he is, Jack Paar?"
June 4, 1960 347
Must Conservatives Repudiate Keynes?
To what extent was the John Maynard Keynes of the General
Theory merely an economic technician? To what extent are there,
in-built in his prescriptions, statist and inflationary tendencies
which all conservatives will presumptively reject? We ran [Novem-
ber 7, 1959] a piece by Mr. Henry Hazlitt on the failure of the
economics of Lord Keynes, Below we publish a piece by a well-
known. professor in the social sciences who insists that Keynes’
devices for effecting a general level of economic stability can be
endorsed by statists and anti-statists equally: that Keynesianism
is ideologically neutral. Mr. Hazlitt’s reply to Professor Van Den
Haag follows.
No, says
Conservatives often object to the eco-
nomics of Lord Keynes with more
heat than light. They feel that his
economic doctrines are outright so-
cialism, or will lead to it, or, at least,
to a vast extension of government
control and power over the economy.
‘Conservatives also fear that Key-
nesianism brings fiscal and ultimate-
ly political irresponsibility through
deficit financing, inflation, and the
handing out of political bribes by a
government which can obtain the
necessary money through increasing
the national debt. Now, I am opposed
to all these evils. Yet I favor the
basic Keynesian theory. In my opin-
ion, it does not lead to any of these
evils but helps to avoid them.
The association of Keynes’ eco-
nomics with political leftism—in this
country with the New Deal—is an
historical accident which helps to ex-
plain their reputation among con-
servatives, but does not justify it, The
theory itself is politically neutral and
applicable in both capitalist and_so-
cialist societies without changing the
institutions of either. Thus I see no
need to oppose it from a conservative
viewpoint, though Communists must
and do oppose it because Keynes’
theory shows clearly that depression
and inflation can be cured within the
capitalist system—whereas the Com-
munist dogma requires capitalism to
suffer and die from depression.
Let me turn to Lord Keynes’ doc-
trines (omitting a number of points
with which I disagree, but which are
ED,
ERNEST VAN DEN HAAG
of little
reader).
Economic depression is a major and
drawn-out reduction of aggregate
sales, production, prices, employment
and income—a massive non-utilization
of resources, the owners of which
would like to have them utilized to
earn income. Depression occurs when
total expenditure on goods and serv-
ices by consumers, business and gov-
ernment is insufficient to purchase
total output at current prices. The
lost sales, with or without lower
prices, cause lower production, em-
ployment and income, There are many
possible reasons for the insufficiency
of total expenditure which is the basic
characteristic of depression. They
vary, moreover, from depression to
depression, although in most cases
the portion of their income consumers
fail to spend—their intended savings
exceeds the amount businessmen
raise and invest successfully. If busi-
ness adds less money to total expen-
diture, via investment, than consum-
ers subtract, via saving, total expen-
diture is reduced and thus total
income. For income is but expendi-
ture viewed from the recipients’ side,
Some goods are not transformed into
income but frozen into inventories,
while people who would like to can-
not afford to buy them because of
lack of income. The inventories de-
value with falling prices. And this
leads to still less demand, lower
prices, less production and ultimately
less income. Once set in motion, the
process becomes cumulative and to
interest to the general
some extent self-propelling. For in~
stance, when prices fall or sales lack,
some businesses cannot go on produc-
ing for they are losing money. Busi-
ness and consumers postpone pur-
chases in hope or fear of further price
reductions; inventories accumulate
without being replenished, and new
investment declines—things get worse
before they get better.
Pulling out of Depression
No improvement is likely until ex-
penditure stops falling. This may
happen only when intended savings
no longer exceed investment expendi--
ture—when income is very low, that
is, after a long period in which fewer
people work than want to, and work
less, produce less and get less income
than they want, and even the reduced
output is hard to sell—though peo-
ple’s needs are less satisfied than ever.
Keynes may have been wrong in be-
lieving that a depression could go on
indefinitely, that an equilibrium (a
situation that has no endogenous ten-
dency to change) may be reached at
a very low level of income, employ-
ment and production, But even if this
is not the case, the process of decline
can be long drawn out, with baneful
effects.
Even if it were true, as Mr. Henry
Hazlitt thinks (NR, November 1,
1959), that unemployment could be
reduced by reducing the price of
labor (wage rates)—and. there is
much doubt on the feasibility and
usefulness of such a measure—the
process would be lengthy. The expec-
tation of reduced wage rates would
reduce hiring, production and sales,
as do all other expected price reduc-
tions in depression. One might as well
recommend death as a remedy for
illness. Moreover, wage rates could be
reduced indefinitely without reducing
unemployment if marginal value pro-
ductivity falls with them, as may be
the case if prices fall—just as, in in-
flation. wage rates can be increased
indefinitely if prices are. Both proc-
esses are undesirable, It seems for-
tunate that the. wage rate decrease is
unfeasible as well.
June 4, 1960 361
irtigate land for it may lead to inun-
dation; nor should we drain swamps
for it may lead to aridity. And if we
should not try to remedy depression
for fear of inflation, we should not try
to remedy inflation either for it may
lead to depression. This is obviously
absurd. In the attempt to keep spend-
ing at the correct level—no more and
no less than needed to purchase total
output when all or nearly all re-
sources are being used, at current
prices—we may sometimes have to
reduce spending; at other times we
may have to increase it, There is no
yeason to believe that we cannot in-
crease or decrease spending by the
right amount. After all, we will notice
changes in employment, production,
‘prices, ete. and accordingly reduce
or augment the increase or decrease
of expenditure.
More Government Controls?
Does increasing the rate of expen-
diture of the economy—and thus de-
mand, production and, income—in-
volve an extension of government
controls? Far from it. The means by
which the level of total spending is
influenced have been used since the
beginnings of the free enterprise sys-
tem. The government has always
spent money, created money and
taxed. Interest rates have always
helped control spending. In the past,
these instruments of economic policy
have not always been used so as to
bring about the desired long-run ef-
fects, Undue weight was given, say
to the effect of interest rates on gov-
ernment financing which is surely less
important than the effect on the econ-
omy as a whole—on business finan-
cing, for instance. Similarly, taxation,
in addition to being a way of giving
money to the government, has the
important effect of decreasing the in-
come available to the taxed; which in
inflation is desirable and in depres-
sion is not. These effects occur re-
gardless of whether we are conscious
of them. But by realizing the fore-
seeable effects of our action, we may
act so as to bring about the desired
and avoid the undesired effects. This,
too, is hardly a novelty, Indeed, in
inflation the government has always
resorted to the instruments which
Lord Keynes proposes should be used
for analogous though opposite pur-
poses in depression. Conservatives
have usually applauded the anti-in-
flationary use of these instruments.
Why do they oppose their anti-de-
pressive use?
Surely not because they like de-
pression, though perhaps they are
more aware of the danger of inflation.
Yet the political dangers of depres-
sion can hardly be overestimated.
Without the depression of the 1930s,
there would have been neither a
Roosevelt nor a Hitler. Probably no
Second World War—not to speak of
the present threat of a third one, De-
pression impairs loyalty to both de-
mocracy and capitalism as much, if
not more, than inflation,
Surely the objection that the pro-
posed remedies against depression
constitute socialism is absurd. They
do not involve nationalization; or any
form of government economic activ-
ity or control, not now pursued (such
as taxing or spending or regulating
the issuance of money) and, on the
contrary, by lightening the tax bur-
den, they stimulate private enter-
prise. Contrary to what is believed
by some, public works—genuine or
poondoggles—are not required to
remedy depression.
What is needed in depression is
additional spending, additional pur-
chases to sell what we are capable
of producing and willing to consume.
The government can spend directly
by purchasing goods and services.
But this is neither necessary nor par~
ticularly helpful. Additional private
spending is much more to the point.
This can be brought about by the
government taking less income away
from prospective spenders—business
and consumers—through reduced
taxation, and even by giving them
money (e.g., higher pensions). There
is no need for an increase in govern~
ment activity--public works or serv~-
ices.
Subsidies to particular economic
groups such as farmers should be
avoided, for in addition to increasing
spending, they make the group more
Uncowed
A skeptic on the Right I never saw,
I never hope to see one;
But I can tell you this, Hurrah!
T’d rather see than be one.
WK.
attractive than it would otherwise be,
and thus unnecessarily distort the
patterns of production. If subsidies
are given, they should be received
by non-economic groupings, such as
veterans, the old, or the young—
groups that cannot be joined for the
sake of the subsidy. For similar rea-
sons, subsidies should always be in
money, never in kind; nor should we
ever undertake public works for the
sake of employment. Public works
should be undertaken when needed—
not to employ people. For people can
be employed by increasing the rate of
private spending; and they then are
led to produce what consumers want,
rather than unwanted post office fres-
eoes. And a subsidy in kind unneces-
sarily deprives the recipient of choice
and favors the producers of the par-
ticular commodity he is receiving.
Juggling the Budget
Where is the money for additional
spending in depression to come from?
Obviously not from taxation, for that
would decrease the spending of the
taxpayers as much or nearly as much
as it would increase the spending of
those to whom the tax money is
channeled, Similarly, in inflation the
money raised by additional taxation
should not be spent by the govern-
ment—for that would increasé gov-
ernment spending as much as it de-
creases private spending, In inflation
the government should take in more
money than it spends—creating a
budgetary surplus. In depression the
government should take in less
money than it spends—creating a
budgetary deficit. In inflation the
government, in effect, should take
money out of circulation; in depres-
sion it should add money to circula-
tion. Technically, that is not hard to
do, and, though not as deliberately
as might be desired, it has always
been done.
Some fear that the Keynesian anti-
depression prescription will be fol-
lowed because of its obvious appeal,
but not the less attractive anti-infla~
tion prescription. Hence, we might
‘be in permanent wild inflation. The
evidence—-Germany, France, Eng-
land, the United States, Ttaly—gives
little support to that fear, Moreover,
if people want to pursue an inflation-
ary policy, nothing can stop them.
But people’s inclination to do so will
June 4, 1960 363
Conservatives often object vo the soonomlos
of Lord Keynes with more heat then light. They
feel that hie edonomia doetrines are outright
eocialiam, oy will lead to it, or, ab lesst, to
a vast extension of government control and
power over the economy, Conservatives also
fear that Keynesianiem bringa fiseal and
ultimately political leresponslbility through
deficit financing, inflation, and the handing
out of political bribes by a government which
cen obtain the necessary money through dnoresging
the national debt. Now, I aw opposed to all
these | evilo. Yet I favor the basic Koynesten
« dn my opinion, 44 does not lead bo
any of these ovile bub helpe to avoid them.
The assovlation of Keynes’ economies with
political leftlam-o9ln thia countyy with the New
Deal-ole o higtowles] acoldent which helps to
explain thely reputation among conservatives,
but does not ritghieniel it. 9 Rebhonweeas
Pa
= Qow
Che theory itself ls politically neutral and
applicable in both capitalists and soolalist
societies without changing the inetitubions
of either. hua I seo no need to oppose it
from e conservative viewpoint, though communiete
must and do oppose it because Keynes' theory
shows clearly that depression and inflation oan
be ouved within the capitalist syaten--whereas
the communist dogma requires capitalienh to
euffer and die fron depresaion?*
Let me turn to Lord Keynes' dootrines
(omitting a mumber of pointe with which I
diseagves, but whieh are of little interest bo
the general reader).
Heonomle depresaion is a major and drawn
out reduction of aggregate sules, production,
prices, employment and incomee-9 massive non~
utlligation of resources, the ownera of which
would like to have them utilised to earn Income.
Depression sequrs when total expenditure on
goods and services by consumers, businesa and
governnent is ineuffielent to purchase total
output eat durvent prises, The lost sales,
with ov without Lower prices, cause lower
production, employment and income. There are
* See Alfred Oxenfeld and Ernest van den Haag
“Unemployment in Planned and Capitalist
Hoonomies", THE QUARTERLY JOURWAL OF BCONOMICS,
Peoruary 1954,
wBAw
many possible weasons for the insuffielency of
total expenditure which 1a the basic characteristic
of depression. They vary, moreover, from |
depression to depression, although in mostoases
the pertion of thedy income consumers fail to
apend-u—thele intended gavinga--exeeeda the
Tf bueiness adda leas money to tovel expenditure,
via investment, than consumers subtract via
saving, total expenditure is
be
reduced end thug total income. For income is
but expenditure viewsd from the recmlplonta'
side, Some goods are nob tranoformed into
dnoowe bub foosen into deeb inventories,
while people who would like to cannot afford 7h- inventories
to buy them because of lack of Ancome. (iad deralue wee
thie leads te s0121 less demand, fekiing prices, fp ng °
lees production ond ultimately lese income.
Once set in mation, the process becomes
oumuletive and to soma extent self~propellings
Yor instance, when prices fall or anles leak,
sone businesses cannot go on producing for they
ane Losing,” Basiness end gongumers postpone
purchases in hope ov fear of further price
reduotionay inventories sceunulate without being
replenished and new investment declines
things geek WORses, before they get beter,
No improvenent 1e likely until expendi bure
stops falling. Thie may happen only when
intended savings no longer exosed Lovestnent
expenditure--when income is very low, thet Le,
after a long period in which fewar people work
then want to, and work legs, produge less and
get lesa income then they want end even the
reduced output ie hard to sell-«though people's
needs ave lesa satisfied then ever. Keynes may
have been wrong in believing thet a depression
could go on indefinitely, thet an equilibrium & site tron. that has
mey be reaohed ab a very low level of income, he Crdeg enti-as
employment and production. But oven if this 4s bidewey te
not the case, the process of decline can be long thadye
woo
dvawn out, with baneful effects, [oven af it
were true aa Mr. Henry Heglitt thinks (N.R.,
11/7/59) that unemployment could be reduced
by reducing the prise of labor, (wage ratede=
and there is much doubt om the feasibility
and usefulness of such a measurew=the process
would be lengthy. The expectation of reduced
wage raves would veduee Atving, produotion and.
sales, a¢ do all other expected price
reductions in depression. One might as well
vecommend death ag a remedy for illness.
Moreover, wage rates could be reduced
indefinitely without reducing unemployment if
narginal value productivity falle with them,
ae may be the case af prices fallewjuat ae in
inflation, wage rates oan be inoreased indefinitely
if prises are. Both provesses are undesinable.
It seema fortunate that the wage rate deorense
ie unfeasible ea well. jPefore we look for ator
and more effective remedies, it will be
instructive to glance at inflation, which da
many waya le the reverse of depression,
In depresaion, total expenditure is
inaufficient to buy tobval, outpud at current
_-priges when resources ave fully utilised. Hence,
output is reduced} In inflation, total
expenditure exceeds the amount needed to buy
the total output available at current prices.
Hence, in inflation, prices ave bid up and rise
and output at first is inoreased, But if all
ool ow
resources ave slready ut ined, higher prices
cannot be matched by riejng production.
Undesirable effects on income diletribution
and the genere). pattern of economic activity
ave ascodlated with both inflation and depression
~wthough they differ. Depression involves
hypo~agtivity, inflation hyper-sctivity, often
in the wrong direction. Inflation, eesdees 44.
depreselon, distorts production patterns, bub
depression leads to prompt decreases of least nol ad fost
production, while inflation does not\,* Depression
favors oreditora, infletion debtors. The
cumulative effeot of depression, however, vonds
to damage everybody. And the cumulative effeat
of infletion, too, vende to weaken the fabric
of the economy although the damage le net quite
80 obvious to most. One reason ia that
depragaion means less money income for almost
Shun
everyone; whereas, inflabion means more money
dneome for almost everyone~-and people do not
discover immediately or give proper weight to
the discovery that the doliers they receive
are worth less thon before.
Tt is perhaps because of ite illusory
benefits and the hidden nature of the damage
chernaveriatia of infletion-~as well as the
fact that iv apecifieally harme those providing
for the future, and favora debtors~«that
moraliste heve always preached against infietion.
Inflation hee alwaya been feared, booty those
concerned with acalal eatabliity and favoned by
debtor groups such as fermere; and today by
labor unions which theive in inflation though
workers do noty and finally, of course, by
politioians, who hope to get votes by promising
nore expenditures pnd eee taxeg. Nona of
these groupe verbaligetavors inflation~-snynore
then ain. They Juet tend to favor whet leads
to 4t and vo oppose the reduotion of expenditure
that ia required to stop it.
On the other hand, the punishment depreasion
mates out to almost everybody, and particularly
to the improvident, does seam te give sone
satisfaction to the more gloomy economic
moralistss
al 4
Gee
qt
Since inflation ita an excess of total
expendivuve, it dan be vemedied only by reducing
total expenditure or, at least, by stopping any
dnevease of iv. Tbh would be better if the
dinoreased expenditure could be matched simply
py increasing production. But if production
hos reached ite maximum already, this cannot be
done and expenditure must be stopped from rising
4f the price level is to a#babiliae.
There ave various ways of decreasing
expenditure: business expenditure oan be curbed
by increseing the interest rates charged by the
Pederal Reserve banks; government spending can
be decreased directly (for instance, the government
could do withowb the 6 billion deller farm subaldy
which raises farm prices and encourages ferners
to produce unsaleable quantities and things);
soneuner and business expenditure can be deoreased
by inereaging taxes while holding government
expenditure stable. Wage expenditure and
consequent’ coat and price increases can be
mininiged by a firmer government stend ageinet
monopolistic praetioes net only on the product
but also on the labor market. :
ALL these measures are technically quite
effective bub politically herd.* Yet, where
* Moxeover, each measure has some undesirable
aide effects: e.g. lnoreases in interest rates
depress the bond market and may impair desirable
duveatments, end thus slow down the rate of economia
growth; tex inoreagses also may have the latter
effeet although probably seles taxes do nov and
enti-monopoly measures might help all around ag
effeotive.
wifu
governnenta have dared garry them out decisively,
they heve been rewarded not only by a prosperous
and stable economy, but also by political zapect
(Germany, Prance, Ivaly, Englend are iasbances
of governments whieh have slaply--though in
some cases after long heaitatlon--followed
edonomle textbook presoriptions and been quite
successful).
Depression is, by and large, the converse
of inflation: spending less than the amount needed
to purchase current (not to speek of maximum)
output at current prices. If the remedy againet
inflation is to decrease spending, the remedy
against depression ia o inorease it.
The means available ave the sane as those
available to dontwol infletion. Gince the evil
ie opposite, they must be used in the opposite
diveotion. Business expenditure can be facilitated
by decreasing interest rates; government spending
oan be inoveased directly, for inetanse, by
increasing pensions; the expenditures of business
snd consumers can be inoreased by reducing taxes
while keeping government expenditures stable.
Before discussing the Keynesion approach
further, let me oiress that it is meant to
counter and cure major swings of business activity
and prices. Minor fluctuations occur oll the
time and are beat countered by the adjuatmenta
of Federal Reserve policy which have been undertaken
sinee the beginning of central banking. A person's
ohh JoA
changes from buoyant to more pensive moods do
not sali for the measures suitable for manic»
depressive gycles; on, to change metaphors,
a competent physielan does not preseirbe
penicillin for a dold, though be may use it
should the cold become pneumonia.
The vemedies required to cure depresaion,
like those needed for inflation, encounter
diffieulties of a political rather than technical
oxder, Many people feel] that the attempt bo remedy
Bee
depression may lend ua in inflation. By this
logio we should never irrigate lend for it may
Load to inundstion,; nor should wo drain swanpe
for it may lead to aridness, And if we should
not bry to remedy depression fox Lear of
deflation, we should not try to remedy inflation
either for ib may lwad to depression. This is
obviously absurd. In the ettempt to keep
spending at the corvect levele-no more and no
‘Less than needed to purchase total output when
all or nearly #11 resources are being used, ab
current pricea--we may sometimes heve to reduce
spending; ab other times we may heve to lnoresse
Lt. There ia no veason to believe thet we cannot
increase or decrease apending by the right amount.
After all, we will notice changes In employment,
production, prices, ove. and accordingly reduce
or augnent the increase or decrease of expenditure.
sicomnnammgpeennn deren! Mase helisasy
Does increasing the vate of expenditure of
the eaonomy~«and thus demand production and
inoome--invelve an extension. of government controls?
Par from it. The means by which the level of
total spending ie influenced have been used since
the beginnings of the free enterprise system.
The governnent has always spent money, oveatad
money and vexed. Interest rates have always
helped control spending, Tn the past, these
inestrumenta of economic policy have aot alwaya
been used so as to bring
= Quo
about the desixed jong vun effects. Undue weight was
given, oectrtitecwa, to the effect of interest rates on
government financing which is eurely lesa Important thon
the effect on the economy as a vhole--on businens
finaneing, for dastence. Similarly, taxation, in
addition to being a way of giving money to the government,
hee the duportant effact af decreasing the incone
available to the taxed; which in Infietion ie desixable
and in deprassion ie not. These effects occur
regardious of whether we are conscious of them, Bat by
vealizing the foreseeable effecns of our action, wa may
act ao as to bring sbout the desired and aveid the
wmdesived affects, This, too, is hardly a novelty. indeod,
in inflation the government hae alwaya resorted to the
tastrumeuts vhich Lord Keynes proposes ahould ba used for
avalogous though opposite purposes in depression.
Conservatives have weually applauded the anti-inflationary
uae of these inetruments. Why do they oppose thele
antivdeprasaive uaet
Surely not because they Like dopregaion, ough perhaps
they are more aware of the danger of inflation, ‘etundky, Jot
the political dangera of deprerston cau hardly be overestimated.
~~
Without the depression of the 1990's, there would nelther
have been a Roosevelt nor 4 Hitler. Probably no Second
Vorld Waxr-onot to speak of the present threat of a third
one. Depreselon impaize loyalty to both democracy and
eapltalion ag much, ££ net sora, than infletion,
surely the objection that thay(conatitute sockalisn is
abaurd, They de net invelyva nathonals: 3 0% any form
er Lowetro
of government. econonic activity not now pursued (euch ag
taxing ov spending or vagulating the igauance of money) and
on the contrary by Lightening the tax burden they atimdlate
private enterprise. Contrary to what ie believed by some,
public works-~ genuine ox booddegglas-“ara sot required to
remnady depression.
What is aeeded in depresaton le additional spending,
additional purchases to sell what we are cepable of producing
and willing to consume. The government cnn spend directly
by purchasing goods and servicers, But thie le neither
nenessaxry nor particularly helpful. Additional private
spending is such mowe to the point. This een be brought
about by the government taking Less income away from
prospective ependera--business and consumera--thxough reduced
texation, and even by giving them monny (e.g. higher pensions).
There is no need for an increase in government
activity-~public works or services.
wthe
Subsidies to particular economic groups such ae faxmere ahould
be avoided, for to addition to inoresaing apending, they make
the group more attractive than it would otharwiee be, and
thus wnnecesnarilytdistert the patterna of production. Tf
aubeidian axe given, thay should be racedved by non-economic
groupings, such aa veterans, the old, or the young--groupa
that cannot be joined for the sake of tha subeldy. For eimidar
veasons, subsidies should tilways ba in woney, never in kind;
nor should wa ever undertake publin works for the sake of
employment. Public works should be undertaken when neaded-«
nok to employ people. For people can be euployed by increasing
the vate of private spending; and they than ave led eo produce
what consumers vant, rather then unwanted post office frascoas.
And a aubeidy in kind unnecessarily deprives the reciplent of
choles and favore the producers of the parcieuler commodity he
ie wecelving.
Where is the money for additional spending in depresaion
to coms from? Obvieuwly nor a | Seetiats for that would
deckeasa palbien Spending) Of am es nar ae Lt would L, i A,
the. of thez2- tt an baa ae Inoneg 16 o anne leds
increase gevartoment spending,’ Sindlerty, in inflation the money
raised by additional taxation ehould not be spent by the
governmant--Zer that would inereage government spending ae much
aa it decveases pelvate spending. In tofletion the
government should take in mora money than it spends
oworaating a budgetary souplagirda depression the
government should take in lesa mongy then it apends
~ogreating a budgetary deficit. In inflation the
government, in effect, should take money out of
esixveoletion; in depression it should add monay to
eciveulation, Technically, that fa not hard te do, aud,
though not on A might be desired, it hae
aluays been done.
Some Cag?
4+ that the Rayneslan anti-depreseion
prescription will be followed beacause of its obvious
appeal but not the less attractive anti~iaflation
preseription. Hence, we might ba in pormanent wild
inflation. Tha evidence--Germany, Franca, Sugiand, the
United States, Italy--gives Little support to that fear.
Poxaover, if people want to pursue an inflationary policy,
nothing can stop them, But euveky peopla's inclination
to do ao will bo atrengthened by depressive phenomena
awd weakened if we avoid ox promptly remedy thase--which
ean be done withéut inflation,
Blow Leprosion
rebrewedd On 2
mib~
One final point: the remedy against
depression thab I'm advocating--norenaing
expenditure enough to parmit the sale of the
goods that would be produced if resources are
utiliaged to the extent desired by their owners
ums mot basically different frou what oecurs
when depression is cured spontaneously. (aly fer pane
the spontaneous cure may keep us waiting, )
xpenditure them increases because aqmeons
‘spends more~-e.g. buginegemen increase investment
~wand thud move is purchased and produced. The
money in either case is exeated by the banking
ayeten, which undex normal cincunstances
exreates 90% of all money spent through the act
of lending, l.¢. “monetising debt". Whether
vhe governnent initiates the process ox private
business makes little difference. In neither
cage ig 1b "automatic". And in either sage, if
too much money ie created, inflation occurs.
Hence, to be conaletent, thoae who oppose
inoreases of expenditure through newly created
money as inflationary would have to oppose any
transition from depreasion te prosperity. Sueh
a trensition always involves a slight rise in
priges which 1s necessary to etimilate
production. But 1b need not amount to infletion
oto a xise in the price level not needed for
oy correlated to a vise in production.
