Global Economic Intersection
Advertisement
  • Home
  • Economics
  • Finance
  • Politics
  • Investments
    • Invest in Amazon $250
  • Cryptocurrency
    • Best Bitcoin Accounts
    • Bitcoin Robot
      • Quantum AI
      • Bitcoin Era
      • Bitcoin Aussie System
      • Bitcoin Profit
      • Bitcoin Code
      • eKrona Cryptocurrency
      • Bitcoin Up
      • Bitcoin Prime
      • Yuan Pay Group
      • Immediate Profit
      • BitQH
      • Bitcoin Loophole
      • Crypto Boom
      • Bitcoin Treasure
      • Bitcoin Lucro
      • Bitcoin System
      • Oil Profit
      • The News Spy
      • Bitcoin Buyer
      • Bitcoin Inform
      • Immediate Edge
      • Bitcoin Evolution
      • Cryptohopper
      • Ethereum Trader
      • BitQL
      • Quantum Code
      • Bitcoin Revolution
      • British Trade Platform
      • British Bitcoin Profit
    • Bitcoin Reddit
    • Celebrities
      • Dr. Chris Brown Bitcoin
      • Teeka Tiwari Bitcoin
      • Russell Brand Bitcoin
      • Holly Willoughby Bitcoin
No Result
View All Result
  • Home
  • Economics
  • Finance
  • Politics
  • Investments
    • Invest in Amazon $250
  • Cryptocurrency
    • Best Bitcoin Accounts
    • Bitcoin Robot
      • Quantum AI
      • Bitcoin Era
      • Bitcoin Aussie System
      • Bitcoin Profit
      • Bitcoin Code
      • eKrona Cryptocurrency
      • Bitcoin Up
      • Bitcoin Prime
      • Yuan Pay Group
      • Immediate Profit
      • BitQH
      • Bitcoin Loophole
      • Crypto Boom
      • Bitcoin Treasure
      • Bitcoin Lucro
      • Bitcoin System
      • Oil Profit
      • The News Spy
      • Bitcoin Buyer
      • Bitcoin Inform
      • Immediate Edge
      • Bitcoin Evolution
      • Cryptohopper
      • Ethereum Trader
      • BitQL
      • Quantum Code
      • Bitcoin Revolution
      • British Trade Platform
      • British Bitcoin Profit
    • Bitcoin Reddit
    • Celebrities
      • Dr. Chris Brown Bitcoin
      • Teeka Tiwari Bitcoin
      • Russell Brand Bitcoin
      • Holly Willoughby Bitcoin
No Result
View All Result
Global Economic Intersection
No Result
View All Result

How Keynes Almost Prevented the Keynesian Revolution

admin by admin
October 2, 2015
in Uncategorized
0
0
SHARES
0
VIEWS
Share on FacebookShare on Twitter

by Mark Tovey,  mises.org

Appeared originally at Mises.org 15 August 2015

October 30, 1929. A brisk autumn’s day in Manhattan. The Savoy-Plaza Hotel’s thirty-three stories cast a long shadow over Central Park. At the base of the hotel a financier lies freshly fallen, motionless, while his last breath, wrenched from the lungs by force of impact, is now a red mist of gore in the air.

Sirens and uniforms. The suicide spot quickly becomes crowded by spectators, who form a vision-impairing ring-fence of backs, much to the annoyance of elbow-throwers at the periphery. Winston Churchill stands at his hotel window looking down on the mess. To nobody’s surprise, the police will find an empty wallet and five margin calls in the dead man’s pockets.1

Churchill’s curtains flutter shut, and we are left to wonder whether anyone — Churchill included — can yet see his clumsy, cigar-wielding hand in it all; whether anyone realizes that, had Churchill as Chancellor of the Exchequer only restored the gold standard at a lower exchange rate, as Keynes had recommended, the Wall Street Crash of 1929 could have been averted (or at least ameliorated).

Alas, by ignoring Keynes in 1925, Churchill triggered a calamity so severe that it not only inspired one man to kill himself beneath the British statesman’s very window but, more insidiously, also provided the impetus for the economics profession’s rejection of the “classical” axioms. As Keynes’s biographer Robert Skidelsky writes, Keynes “did not believe in the system of the ideas by which economists lived; he did not worship at the temple.” And while “in former times he would have been forced to recant, perhaps burnt at the stake, as it was … the exigencies of his times enabled him to force himself on his church.”

1925: Britain’s Return to the Gold Standard

The pound sterling’s link to gold was severed at the start of WWI. After eleven years of unfettered inflation, Chancellor of the Exchequer Winston Churchill restored convertibility at the pre-war level of 4.25 pounds per ounce of gold.

Keynes, quite rightly, took exception to this particular detail: expecting Britain’s global customers to go on paying the same gold-price for the weakened pound was unrealistic. At this exchange rate the pound would be overvalued, and the only cure would be a sustained period of deflation — which was “certain to involve unemployment and industrial disputes.” Indeed, in 1926 a general strike crippled Britain for nine days.

What Keynes did not predict, however, was how Churchill’s blunder would later bring about an easing of monetary policy in America. And even supposing Keynes had predicted this side effect, would he have understood its implications for long-run sustainability? (Recall that both F.A. Hayek and Keynes predicted a crash would occur in 1929: Hayek because interest rates were too low, Keynes because they were too high!)

1927: At the Fed (With Cap in Hand)

American sellers (in particular) were accepting British gold in exchange for goods, but were dissuaded from returning it due to the unfavorable rate of exchange. As a result, Britain’s gold supplies diminished at a rapid rate, which made the authorities understandably twitchy: how could they keep their pledge to convert pounds into gold if they had none?

In response, the Governor of the Bank of England, Montagu Norman, set off across the Atlantic and, with much pleading, persuaded the Federal Reserve to ease monetary policy. By lowering interest rates and raising inflation, the Fed stemmed gold flows into America, giving the British a much-needed respite from the ill-effects of Churchill’s costly pound.

With this episode of soft-hearted internationalism came an upswing in the Wall Street boom and “from that date,” wrote Lionel Robbins:

“according to all the evidence, the situation got completely out of control.”

In The Great Crash, a very popular account of the lead up to the Great Depression, John Kenneth Galbraith writes:

the rediscount rate of the New York Federal Reserve was cut from 4 to 3.5 percent. Government securities were purchased in considerable volume with the mathematical consequence of leaving the banks and individuals who had sold them with money to spare. The funds that the Federal Reserve made available were either invested in common stocks or … they became available to help finance the purchase of common stocks by others. So provided with funds, people rushed into the market.

Galbraith goes on to quote a member of the Federal Reserve Board who, with hindsight, called the operation “one of the most costly errors” committed by a banking system “in 75 years.”

Galbraith finishes:

“the view that the action of the Federal Reserve in 1927 was responsible for the speculation and collapse which followed has never been seriously shaken.”

John Maynard Who?

When Keynes wrote against returning to the gold standard at pre-war parity in 1925, he did so with the expectation that he might actually influence policy. As a younger, unknown man he had worked at the Treasury for a brief stint, leaving a legendary impression; and by 1925, six years after his best-seller The Economic Consequences of the Peace, he was a famous man whose words carried weight.

It is not outlandish then to imagine a world in which Keynes got his way. In such a world, the Wall Street crash and ensuing depression might never have happened — without the costly pound, the Fed would have had no impetus to inflate. Keynes would subsequently have found the economics profession less rattled, less willing to abandon its “classical” axioms in favor of his new-fangled approach. Keynes might have averted Keynesianism.

  • 1. This is a dramatization of an event reported by Winston Churchill. Quoted on p. 7 of Robert P. Murphy’s Politically Incorrect Guide To The Great Depression and the New Deal.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.

Image source: iStockphoto

Previous Post

Unemployment in Germany will Rise Next Year Mainly Because of Migrant Inflow, Say German Economists Working at Banks

Next Post

Stock Price Premiums and Discounts between Hong Kong and Shenzhen

Related Posts

How First Republic's Befriending Of The Wealthy Led To A Crisis
Business

How First Republic’s Befriending Of The Wealthy Led To A Crisis

by John Wanguba
March 31, 2023
How Is Donald Trump's Indictment Affecting The Crypto Space?
Econ Intersect News

How Is Donald Trump’s Indictment Affecting The Crypto Space?

by John Wanguba
March 31, 2023
What Does CFTC's Lawsuit Against Binance Mean For Coinbase?
Business

What Does CFTC’s Lawsuit Against Binance Mean For Coinbase?

by John Wanguba
March 31, 2023
Will The Fed Rate Hikes Crash The Stock Market?
Economics

Will The Fed Rate Hikes Crash The Stock Market?

by John Wanguba
March 31, 2023
How To Protect Your Portfolio Against Inflation And Interest Rate Hikes
Econ Intersect News

How To Protect Your Portfolio Against Inflation And Interest Rate Hikes

by John Wanguba
March 31, 2023
Next Post

Stock Price Premiums and Discounts between Hong Kong and Shenzhen

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Browse by Category

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized

Browse by Tags

adoption altcoins bank banking banks Binance Bitcoin Bitcoin adoption Bitcoin market Bitcoin mining blockchain BTC business China crypto crypto adoption cryptocurrency crypto exchange crypto market crypto regulation decentralized finance DeFi Elon Musk ETH Ethereum Europe finance FTX inflation investment market analysis Metaverse NFT nonfungible tokens oil market price analysis recession regulation Russia stock market technology Tesla the UK the US Twitter

Archives

  • March 2023
  • February 2023
  • January 2023
  • December 2022
  • November 2022
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • August 2010
  • August 2009

Categories

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized
Global Economic Intersection

After nearly 11 years of 24/7/365 operation, Global Economic Intersection co-founders Steven Hansen and John Lounsbury are retiring. The new owner, a global media company in London, is in the process of completing the set-up of Global Economic Intersection files in their system and publishing platform. The official website ownership transfer took place on 24 August.

Categories

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized

Recent Posts

  • How First Republic’s Befriending Of The Wealthy Led To A Crisis
  • How Is Donald Trump’s Indictment Affecting The Crypto Space?
  • What Does CFTC’s Lawsuit Against Binance Mean For Coinbase?

© Copyright 2021 EconIntersect - Economic news, analysis and opinion.

No Result
View All Result
  • Home
  • Contact Us
  • Bitcoin Robot
    • Bitcoin Profit
    • Bitcoin Code
    • Quantum AI
    • eKrona Cryptocurrency
    • Bitcoin Up
    • Bitcoin Prime
    • Yuan Pay Group
    • Immediate Profit
    • BitIQ
    • Bitcoin Loophole
    • Crypto Boom
    • Bitcoin Era
    • Bitcoin Treasure
    • Bitcoin Lucro
    • Bitcoin System
    • Oil Profit
    • The News Spy
    • British Bitcoin Profit
    • Bitcoin Trader
  • Bitcoin Reddit

© Copyright 2021 EconIntersect - Economic news, analysis and opinion.

en English
ar Arabicbg Bulgarianda Danishnl Dutchen Englishfi Finnishfr Frenchde Germanel Greekit Italianja Japaneselv Latvianno Norwegianpl Polishpt Portuguesero Romanianes Spanishsv Swedish