Schauble, Keynes and a shadowy HM Treasury Official

Back in 1930, a policy pamphlet was published, one either inspired or even written by John Maynard Keynes. Its title: We Can Conquer Unemployment. We mobilised for war. Let us now mobilise for prosperity! Why is this relevant?

My friend and colleague Tony Aspromourgos, of Sydney University, just sent me a photocopy from Peter Clarke’s excellent little book entitled Keynes: the Rise, Fall, and Return of the 20th Century’s Most Influential Economist (New York: Bloomsbury, 2009) of p.122 on which the author, P. Clarke, reproduced the said pamphlet’s title page of a copy that was held in His Majesty’s Treasury. Clearly, some official there, at the Treasury (whose views were identical to the official austerian approach that dominates, currently, EU ‘elite’ thinking) had scribbled on the title page three words that expressed his/her view of Keynes’ proposals: Extravagance, Inflation, Bankruptcy.

On Monday 5th September, the German Finance Minister, Mr Schauble wrote an article in the Financial Times which used up 865 words to say that which the anonymous Treasury official said in three: That the Keynesian critique of austerity in the midst of a recession brought on by a financial crisis must be rejected as false and as an extravagant precursor to  inflation and bankruptcy.

History proved the Treasury official tragically wrong and vindicated Mr Keynes. It will surely prove Mr Schauble wrong for precisely the same reasons. Hopefully the human cost will be lower this time around.

PS. A big thank you to Tony Aspromourgos for sending this in.


  • Dear Yanis,
    Major analysts agree on a Keynsian type inspired stimulus instead of more disastrous austerity, such as Wolf, Krugman, Munchau. Nevertheless, Merkel, Schauble, Rutte still express with ever more heated and passionate conviction, a protestant oriented austerity-for-virtue policy, which sounds incredibly out of touch with reality.
    Addtionally, instead of the Germany exit option to which you often allude, they seem to favour, after all and after the Greek ostinate paradigm, expulsion of persistently insolvent countries from the Eurozone.
    The emerging and eventually unfounded conviction that Ireland-Portugal may manage to go through this despite austerity – on the contrary Greeks appear to be bad sheep – tends to confirm that such an option is becoming atttractive to the EU elites.

    Meanwhile the trivialisation and cariccaturisation of the “eurobond” “messiah”, damaging a priori the market’s confidence even in the case a well-thought version of it should be adopted. The German Constitutional Court did comment also on this option and not in a productive way.
    On the other hand, the agony of trapped capital for safe havens – the swiss franc-euro equity and the low bunds’ rates – indicates that there may be the opportunity for a new major role of Germany as almost sole funder of EU debt as a new peculiar Minotaur and shadow super finance minister of the EU, eventually to punish (stick) and to invest (carot) according to political and economic influence/dependency?

    Please be so kind to share your thoughts about this and draft a possible scenario for the immediate future.

    PS> I also sense that any – even well intended and designed – euro-bond solution may not include and protect Greece, as long as the regime which governs its debt would not be renegotiated under the current EU and global recession trends? Do I get this right?
    thank you

  • “The Liberal policy is a practical policy. In the first place it seeks to restore the prosperity of our industries by breaking down the barriers to international trade, by promoting harmonious relations between employer and employed, by encouraging in every way greater efficiency in industry, and by restoring the Trades Facilities Act, which gave the support of the national credit to industrial enterprise of a substantial and valuable kind and which could not be initiated or carried out without special assistance. Before the Act was abandoned by the present Government, enterprises of the aggregate value of £74,000,000 were put through at an infinitesimal cost to the Treasury.

    In the second place, it pledges itself to find immediate employment for those now out of work on works of national utility and development, many of these works, like electricity, telephones, housing, roads, and railways, being long overdue. It is surely better, instead of wasting our substance by spending £70,000,000 a year on ‘doles’ for which there is no return, to lay out this enormous expenditure in providing work on plans which will leave the nation richer and more efficient for its tasks. The details of these plans are set forth in the liberal pamphlet ‘We Can Conquer Unemployment’, and need not be repeated here.”

    What continues to go wrong for the science of economics is that all seem to concentrate upon the idea that some form of central government action and related funding mechanism is the ultimate creator of national prosperity; when, clearly, that has repeatedly proven not to be so.

    The new challenge today is to recognise that there must be something missing from the equation. And that, IMHO, that missing element is free enterprise equity capital investment right down at the grass roots of society; moreover, invested into a true free market economy rather than a feudal mercantile economy as we have today.

  • “First they ignore you, then they ridicule you, then they fight you, then you win.”
    -Mahatma Gandhi

  • What I know about economics would happily fill a thimble
    but somehow I am vaguely reminded of Kaleci’s thoughts about full employment.
    Full employment would be possible in a capitalist economy he says, if a plan existed to produce it and there were sufficient raw materials etc, it would even be favourable in terms of rates of profit.
    However it would not be favourable to capitalists as it would improve the bargaining position of labour ( thus usually leading to demands for higher wages, better conditions etc) and erode their influence over politics. So capitalists would not support a full employment plan unless they were staring at the abyss and even then not all of them.
    I am fairly sure that the people in power in the advanced nations know this and that is why Keynesian spending is not an option (yet) for European leaders.
    Van Rompuy the other day said…
    ” we have to consider all options – but always in the framework of fiscal discipline.”
    (obviously taken out of context but it would seem that this is something of a mantra for European political leaders at the moment)
    what I take from this is that there will only be cause for action once it is absolutely certain there is no other option.

  • Dear Yianni:

    I enjoyed reading your post and I have cited it in a post that I wote earlier today entitled “Austerity and Recovery” on my own blog, see:

    I hope you and your readers enjoy mine as much as I enjoyed yours.

    Keep up the good work.

    All the best,

    ps: the paper on government ownership of banks that I presented in Athens a couple of years ago is now published online in Economica, see: