Project for Philosophical Evaluations of the Economy |
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Keynes 1929 versus Keynes 2009
An attempt at redefining a venerable philosophy, first drafted on April 7, published on April 14, 2010
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According to US President Herbert Hoover(see his memoirs) his Treasury Secretary Andrew Mellon gave him the following policy
advice at the outset of the Great Depression:
“The "leave-it-alone liquidationists" headed by Secretary of the Treasury [Andrew] Mellon [1921-1932] ... felt that government must
keep its hands off and let the slump liquidate itself. Mr Mellon had only one formula: 'Liquidate labor, liquidate stocks, liquidate the
farmers, liquidate real estate.'… He held that even panic was not altogether a bad thing. He said: 'It will purge the rottenness out of
the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be
adjusted, and enterprising people will pick up the wrecks from less competent people.”
The anti-cyclical government intervention theory of John Maynard Keynes (most prominently elaborated in his
work: “General Theory of Employment, Interest and Money” published in 1936) has been a great success. It has
helped to keep the world on a continuous growth path for almost a century. It has been indispensable to stabilize
the initially still fragile democracies in Western Europe (Germany, Italy, France, Spain, etc…). It has provided a
fundamental compliment to free market theory without which it would have been impossible to win the Cold War.
And it has helped to attract countries towards the ideas of freedom that otherwise would never have contemplated
doing so (China, Korea, Malaysia, Indonesia, Singapore, Brazil, Mexico, etc…).
And yet, despite all these undeniable successes, the current debt levels of countries like Greece, Spain, Ireland,
United Kingdom and others should encourage us to redefine the Keynesian theory with a view to the current
social and political context. After all, today’s world is no longer that of the Cold War, and it’s even less that of
1929. .
In this respect it seems to us that any review of the Keynesian philosophy has to bear in mind the fact that the
citizens of today are no longer the innocent, God-fearing souls of 1929 who never got to see the world in the way
a CNN viewer nor had the chance to hop around like frequent flier does. Instead we should accept that our post-
modern societies are made up of a multitude of self-conscious consumers who have left their dysfunctional
families behind in order to grab an even bigger share of the global glamour market. In other words, we are
dealing now with individuals who are anything else but humble and dependent, but who have learned to fight for
their rights even if their own interpretation of these rights is at times surprisingly wanting.
People like these, who have not the remotest idea as to why they should treat strangers (whom they will likely
never meet again in their lives) the same way that they expect to be treated themselves do no longer need to be
protected by their government in the way that ordinary citizens did in 1929. Because people like these are
neither innocent in the advent of an economic downturn nor do they have the strings attached to their sense of
being that would make it difficult for them to professionally repositioning themselves if market conditions require
so.
If we, hence, want to do ourselves a favor we should not burden our future with more tax payer debts but much
rather help each other to understand the personal responsibility that we all have in avoiding the next crises from
happening. And to do that we have to give ourselves the opportunity to realize why we should avoid the
temptation of reckless greed, and why we should balance our personal interest against that of the common good.
After all, it is only in times of hardship and pain when people truly understand the need for solidarity and empathy.
And it is only in times of common shock and awe when we comprehend how dependent we ultimately are of a
benevolent social undercurrent which is willing to disperse its trust and credit generously.
In other words, this project feels that US Secretary Mellon’s earlier observations (see above) on the educational
value of economic pain are not entirely off the mark. In fact, Noah denkt™ would be prepared to argue that it is
hard to see how else it would be possible to bring back people into the realm of measure and balance if it isn’t by
also exposing them to the devastating side of their own unreasonable behavior.
Now, obviously, there is a host of arguments that can be leveled at this point of view. And we wouldn’t be truthful
to ourselves if we weren’t prepared to face them. So let us do our best to tackle the criticism that we are likely to
incur for our view:
First outrage: Post-modern people aren’t as selfish, confident and independent as this article claims them to be
Noah denkt™’s answer: Well, they may not be as bad we have exaggerated them to be in this article (for clarity
purposes). The truth though is that nowadays’ people are way more informed, individualized and self-conscious
as the people in 1929 were. And so they are in a lesser need of protection than people in 1929 were.
Second outrage: If you take the present financial crisis, it is hard to argue that ordinary citizens had a part in
causing it.
Noah denkt™’s answer: Well, it were ordinary citizens who signed up for sub-prime loans. They were ordinary
citizens that were happy to speculate on the possibility of later refinancing these unhealthy loans as long as that
was possible. Unfortunately it is also ordinary citizens who have stopped reading venerable newspapers and who
instead flogged to online sources of questionable quality. And aren’t they ordinary citizens who at every career
turn fake conviction and sincerity in order to increase their personal profit? - No, if we want to be honest here, we
have to admit that it was an undercurrent of general superficiality which created the backdrop to the recklessness
of financial markets. So we do in fact feel that you cannot let ordinary citizens as easy off the hook as populist
politicians would like to do this
Third outrage: Why should either the consumer or businesses start spending when the economy is depressed?
Noah denkt™’s answer: Obviously, we could opt for an economist answer to this question, which would go
something like this: Consumers start spending and investors start investing because things get cheaper and
become attainable when they earlier on had not been so. But we do not feel that this is not what is at the heart of
an economic turnaround. What really defines the core of an economic resurgence is the fact that people simply
get tired of being down and out and that they suddenly recover the force to be hopeful, optimistic and daring
again. After all, the human mind and soul tend to operate on the basis of a dialectic process. People have to
change their sentiment and their viewpoints from time to time if only to revalidate that the adequacy of their
original take. So the last thing to die is hope, - and rightly so.
Fourth outrage: But isn’t it true that someone with sufficient cloud needs to take the lead in order to initiate the
reemergence of hope? And who would have more cloud and be better prepared to take that lead than the
government itself?
Noah denkt™’s answer: We agree with this interpretation. We believe though that the timing of such a
government-run stimulus package is essential to reignite the general confidence. In other words, it seems
inadequate to us to that governments tend to intervene at the first sign of an economic crisis. Instead we would
suggest that they give themselves a chance to contemplate the situation before they decide to spend the tax
payers’ money. Or, to be even more precise, it seems to us that such a stimulus package may best be launched
once the general mood has somewhat adjusted to the overall hardship and the first signs of hope are in deed
emerging. After all, it is at this point in time, when the general confidence can truly be boosted. In all other
scenarios, however, the government is up against an adverse tide of negativity which makes it next to impossible
to contain that.
Fifth outrage: But the coalition of international governments did in fact manage to contain the present financial
crisis, did it not?
Noah denkt™’s answer: Yes, it did, but this intervention comes at best at the price of a pretty shallow growth
period afterwards- not to mention the moral hazard that is still looming in the background.
Sixth outrage: At least in Western Europe a severe depression would still cause the radicalization of the public
and would hence endanger the existence of the democratic rule of law. So governments really do not have a
chance but to act quickly in times of a crisis.
Noah denkt™’s answer: Well, Western Europe is also in danger of losing its democracy, if its nation states should
be unable to refinance their debt and if the Euro currency should go down the drain. More importantly, though,
Western Europe will certainly lose its democracy once its people have entirely lost their sense of responsibility for
the common good.
Seventh outrage: Well, it is easy to talk about this or that reaction to a crisis, if you aren’t actually in the midst of
it. Wouldn’t it, hence, be better to leave any decision making to the sense of urgency that develops once the
problem actually unfolds?
Noah denkt™’s answer: There is a lot of truth in that. Despite the fact though that the best intuition can be
generated only in the moment of the crisis itself, its final definition still depends heavily on the philosophical clarity
that has been achieved earlier on. In this respect a theoretical pre- and postwar evaluation is indispensable.
Eighth and last outrage: Isn’t it true that you yourself have argued for some government intervention at the outset
of the present financial crisis? How then can you now call for a hands-off approach?
Noah denkt™’s answer: We are not arguing for a hands-off approach. Much rather do we favor an intervention
strategy that errs on the side of minimal interference rather than adopting the Bernanke/Krugman theory which
supports the idea of massive government spending in order to suppress a rising tide of depressive market
sentiment.
An attempt at redefining a venerable philosophy, first drafted on April 7, published on April 14, 2010
--------------------------------------------------------------------------------------------------------------------------------------------
According to US President Herbert Hoover(see his memoirs) his Treasury Secretary Andrew Mellon gave him the following policy
advice at the outset of the Great Depression:
“The "leave-it-alone liquidationists" headed by Secretary of the Treasury [Andrew] Mellon [1921-1932] ... felt that government must
keep its hands off and let the slump liquidate itself. Mr Mellon had only one formula: 'Liquidate labor, liquidate stocks, liquidate the
farmers, liquidate real estate.'… He held that even panic was not altogether a bad thing. He said: 'It will purge the rottenness out of
the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be
adjusted, and enterprising people will pick up the wrecks from less competent people.”
The anti-cyclical government intervention theory of John Maynard Keynes (most prominently elaborated in his
work: “General Theory of Employment, Interest and Money” published in 1936) has been a great success. It has
helped to keep the world on a continuous growth path for almost a century. It has been indispensable to stabilize
the initially still fragile democracies in Western Europe (Germany, Italy, France, Spain, etc…). It has provided a
fundamental compliment to free market theory without which it would have been impossible to win the Cold War.
And it has helped to attract countries towards the ideas of freedom that otherwise would never have contemplated
doing so (China, Korea, Malaysia, Indonesia, Singapore, Brazil, Mexico, etc…).
And yet, despite all these undeniable successes, the current debt levels of countries like Greece, Spain, Ireland,
United Kingdom and others should encourage us to redefine the Keynesian theory with a view to the current
social and political context. After all, today’s world is no longer that of the Cold War, and it’s even less that of
1929. .
In this respect it seems to us that any review of the Keynesian philosophy has to bear in mind the fact that the
citizens of today are no longer the innocent, God-fearing souls of 1929 who never got to see the world in the way
a CNN viewer nor had the chance to hop around like frequent flier does. Instead we should accept that our post-
modern societies are made up of a multitude of self-conscious consumers who have left their dysfunctional
families behind in order to grab an even bigger share of the global glamour market. In other words, we are
dealing now with individuals who are anything else but humble and dependent, but who have learned to fight for
their rights even if their own interpretation of these rights is at times surprisingly wanting.
People like these, who have not the remotest idea as to why they should treat strangers (whom they will likely
never meet again in their lives) the same way that they expect to be treated themselves do no longer need to be
protected by their government in the way that ordinary citizens did in 1929. Because people like these are
neither innocent in the advent of an economic downturn nor do they have the strings attached to their sense of
being that would make it difficult for them to professionally repositioning themselves if market conditions require
so.
If we, hence, want to do ourselves a favor we should not burden our future with more tax payer debts but much
rather help each other to understand the personal responsibility that we all have in avoiding the next crises from
happening. And to do that we have to give ourselves the opportunity to realize why we should avoid the
temptation of reckless greed, and why we should balance our personal interest against that of the common good.
After all, it is only in times of hardship and pain when people truly understand the need for solidarity and empathy.
And it is only in times of common shock and awe when we comprehend how dependent we ultimately are of a
benevolent social undercurrent which is willing to disperse its trust and credit generously.
In other words, this project feels that US Secretary Mellon’s earlier observations (see above) on the educational
value of economic pain are not entirely off the mark. In fact, Noah denkt™ would be prepared to argue that it is
hard to see how else it would be possible to bring back people into the realm of measure and balance if it isn’t by
also exposing them to the devastating side of their own unreasonable behavior.
Now, obviously, there is a host of arguments that can be leveled at this point of view. And we wouldn’t be truthful
to ourselves if we weren’t prepared to face them. So let us do our best to tackle the criticism that we are likely to
incur for our view:
First outrage: Post-modern people aren’t as selfish, confident and independent as this article claims them to be
Noah denkt™’s answer: Well, they may not be as bad we have exaggerated them to be in this article (for clarity
purposes). The truth though is that nowadays’ people are way more informed, individualized and self-conscious
as the people in 1929 were. And so they are in a lesser need of protection than people in 1929 were.
Second outrage: If you take the present financial crisis, it is hard to argue that ordinary citizens had a part in
causing it.
Noah denkt™’s answer: Well, it were ordinary citizens who signed up for sub-prime loans. They were ordinary
citizens that were happy to speculate on the possibility of later refinancing these unhealthy loans as long as that
was possible. Unfortunately it is also ordinary citizens who have stopped reading venerable newspapers and who
instead flogged to online sources of questionable quality. And aren’t they ordinary citizens who at every career
turn fake conviction and sincerity in order to increase their personal profit? - No, if we want to be honest here, we
have to admit that it was an undercurrent of general superficiality which created the backdrop to the recklessness
of financial markets. So we do in fact feel that you cannot let ordinary citizens as easy off the hook as populist
politicians would like to do this
Third outrage: Why should either the consumer or businesses start spending when the economy is depressed?
Noah denkt™’s answer: Obviously, we could opt for an economist answer to this question, which would go
something like this: Consumers start spending and investors start investing because things get cheaper and
become attainable when they earlier on had not been so. But we do not feel that this is not what is at the heart of
an economic turnaround. What really defines the core of an economic resurgence is the fact that people simply
get tired of being down and out and that they suddenly recover the force to be hopeful, optimistic and daring
again. After all, the human mind and soul tend to operate on the basis of a dialectic process. People have to
change their sentiment and their viewpoints from time to time if only to revalidate that the adequacy of their
original take. So the last thing to die is hope, - and rightly so.
Fourth outrage: But isn’t it true that someone with sufficient cloud needs to take the lead in order to initiate the
reemergence of hope? And who would have more cloud and be better prepared to take that lead than the
government itself?
Noah denkt™’s answer: We agree with this interpretation. We believe though that the timing of such a
government-run stimulus package is essential to reignite the general confidence. In other words, it seems
inadequate to us to that governments tend to intervene at the first sign of an economic crisis. Instead we would
suggest that they give themselves a chance to contemplate the situation before they decide to spend the tax
payers’ money. Or, to be even more precise, it seems to us that such a stimulus package may best be launched
once the general mood has somewhat adjusted to the overall hardship and the first signs of hope are in deed
emerging. After all, it is at this point in time, when the general confidence can truly be boosted. In all other
scenarios, however, the government is up against an adverse tide of negativity which makes it next to impossible
to contain that.
Fifth outrage: But the coalition of international governments did in fact manage to contain the present financial
crisis, did it not?
Noah denkt™’s answer: Yes, it did, but this intervention comes at best at the price of a pretty shallow growth
period afterwards- not to mention the moral hazard that is still looming in the background.
Sixth outrage: At least in Western Europe a severe depression would still cause the radicalization of the public
and would hence endanger the existence of the democratic rule of law. So governments really do not have a
chance but to act quickly in times of a crisis.
Noah denkt™’s answer: Well, Western Europe is also in danger of losing its democracy, if its nation states should
be unable to refinance their debt and if the Euro currency should go down the drain. More importantly, though,
Western Europe will certainly lose its democracy once its people have entirely lost their sense of responsibility for
the common good.
Seventh outrage: Well, it is easy to talk about this or that reaction to a crisis, if you aren’t actually in the midst of
it. Wouldn’t it, hence, be better to leave any decision making to the sense of urgency that develops once the
problem actually unfolds?
Noah denkt™’s answer: There is a lot of truth in that. Despite the fact though that the best intuition can be
generated only in the moment of the crisis itself, its final definition still depends heavily on the philosophical clarity
that has been achieved earlier on. In this respect a theoretical pre- and postwar evaluation is indispensable.
Eighth and last outrage: Isn’t it true that you yourself have argued for some government intervention at the outset
of the present financial crisis? How then can you now call for a hands-off approach?
Noah denkt™’s answer: We are not arguing for a hands-off approach. Much rather do we favor an intervention
strategy that errs on the side of minimal interference rather than adopting the Bernanke/Krugman theory which
supports the idea of massive government spending in order to suppress a rising tide of depressive market
sentiment.
| © Landei Selbstverlag, owned by Wilhelm ("Wil") Leonards, Gerolstein, Germany. All rights reserved. Reminder: Noah denkt™ is a project of Wilhelm ("Wil") Leonards and his Landei Selbstverlag (WL & his LSV). Consequently, all rights to the texts that have been published under the Noah denkt™brand name are reserved by WL & his LSV. The commentary and the reasoning that was provided on this page is for informational and/or educational purposes only and it is not intended to provide tax, legal or investment advice. It should therefore not be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security or any issuer by WL & his LSV or its Noah denkt™ Project. In fact, WL & his LSV encourage the user to understand that he alone is responsible for determining whether any investment, security or strategy is appropriate or suitable for him. And to leave no doubt as to what this means we urge our user to also note our extended Legal Notice. |
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| Keywords: the wisdom of Keynes, the feasibility of government interventions, adjusting the Keynesian theory, reevaluation of the Keynesian theory, the success of Keynes, the wisdom of counter-cyclical intervention, the limits of Keynesian theory, future of Keynes |