A warning from the past: N. Kaldor on the Eurozone

They say that bright minds see well into the future, unimpaired by models, simulations and computational statistics. As evidence of this, consider the following lines from 1971. They was written by Nicholas Kaldor, a highly esteemed Cambridge economist who passed away in the mid-1980s. Discussing the prospect of a United States of Europe, which he did not oppose, he nevertheless warned:

“But it is a dangerous error to believe that monetary and economic union can precede a political union or that it will act (in the words of the Werner report) “as a leaven for the evolvement of a political union which in the long run it will in any case be unable to do without”. For if the creation of a monetary union and Community control over national budgets generates pressures which lead to a breakdown of the whole system it will prevent the development of a political union, not promote it.”

The above quotation was unearthed by Ramanan (click here) and was brought to my attention by Business Insider (click here).


  • And Kaldor knew well what a business cycle was, He would not have considered this cas as a short term slump.

  • Kaldor was a wise man who knew the limits in economic theory. Hayek’s translator who lived to write the scathing Scourge of Monetarism. May there be more like him.

  • I’m reading “The Rotten Heart of Europe” by Bernard Connolly right now. His observations on the bureaucratic and political attitudes toward the European exchange rate mechanism seem analogous to today’s EMU intrigues.

  • One of the best books ever written abut the EU. I have it here right next to me!

  • As a young student of economics in a number of UK universities in the 1970’s I was bombarded with the mathematical properties of the Arrow-Debreu general equilibrium model of an idealised perfectly competitive economy . Adam Smith via Walras to obsessive mathematical treatment using set theory 1950’s-70’s.. Lord Kaldor’s paper in the Economic Journal Against Equilibrium Economics , was a tremendous injection of sanity at the time and remains , for me, essential reading until today.
    I was thinking of Lord Kaldor recently as I have been watching in amazement the madness of what passes as .acceptable economic theory and policy from total idiots in Berlin , the EU , the IMF and ECB. In the 1970s and early 1980’s the economics profession was permeated by monetarism. This was a totalitarian disease , where any economist in various economics departments who did not “believe” in monetarism was considered insane or a poor economist and his career blocked. I experienced the full impact of this madness in the UK until the early 1990’s. By then none of the senior professors who were literally frothing at the mouth in pursuit of monetarist policies for 15-20 years would openly admit that they were ever supporters of monetarism.
    It was in the late 70’s if i remember rightly that Kaldor made the memorable comment regarding monetarism, to the effect that the economics profession was at the time operating in a pre-scientific age in which any crazy idea could take hold.
    When i read the daily statements of the clearly disturbed economists in Berlin , Brussels, Frankfurt and Washington I am reminded of Kaldor’s sanity and perception.

  • Astonishing! Great minds know the limits of a model… They know how to simulate and what the outcome means. They do not draw straight lines from algebra to life. In analytical terms, History can only be explained as a continuous divergence from trends…

  • Impressing. It reminds us of the Cavafy-verse (which is also an ancient citation) ΣΟΦΟΙ ΔΕ ΠΡΟΣΙΟΝΤΩΝ, i.e, wise men perceive things that are approaching (while ordinary people – many economists and politicians included – do not).

  • For those interested in finding out what sort of creature is EU i suggest the book: The Old New World by perry andreson:

  • Yanis, no matter how much more foreign nations taxpayer’s money you punp into the system, it won’t be enough for Greece. Even if Greece defaults – which it will do, sooner or later. Probably sooner.

    Even with a formal default and thus the cancellation of all debt, the fundamental problems of Greece will remain. The structural failures will remain. Greece appears by now more disorganised and overdebted than the GDR in her final days. But unlike the GDR, Greece has no big brother in standby for rescue.

    Face it: Greece is a failed state, by all serious definitions. There is no working constitutional legality, no functioning public services but an overblown public sector, incredible nepotism, a huge shadow sector, a burned in mentality of bribery, corruption and tax evasion. How do you want to change that? What modest or not so modest proposal do you want to apply?

    • Yiani:

      What exactly does it take to recognize a troll? Don’t you think it’s time for this guy to go?

      Just kick him out please. The same propaganda day in and day out. And that other guy Gray you kicked out is now in Athens News saying the exact same things.

      We are dealing with an organized mob here.

  • Αναρωτιέμαι τι ακριβώς είναι η κρίση;
    Δεν έχω σπουδάσει οικονομικά αλλά σκέπτομαι ότι τα χρήματα παγκόσμια είναι σταθερά; Δηλαδή υπάρχει συγκεκριμένη ποσότητα που ανακυκλώνετε από τα χέρια του ενός στου άλλου όπως ας πούμε στο επιτραπέζιο παιχνίδι μονόπολη; Αν είναι έτσι σε ποιανού τα χέρια έχουν μαζευτεί; Και αν έχουν μαζευτεί στα χέρια κάποιου τι μας εμποδίζει να δημιουργήσουμε καινούρια. Θα μου πείτε δεν μπορούμε να καταστρατηγήσουμε τους νόμους που αφορούν τη δημιουργία χρήματος . όμως είναι φανερό ότι αυτοί οι νόμοι μπάζουν από παντού αφού δεν προβλέπουν καταστάσεις σαν αυτές που περνάμε. Ξέρω ότι φαίνονται παιδαριώδη τα ερωτήματα μου αλλά είναι εύλογα.

    Ο νόμος που λέγετε ότι ψηφίστηκε στη Σερβία σχετικά με τις τράπεζες είναι αλήθεια;

    • Τα παγκόσμια αποθέματα χρυσού,παλιά καθόριζαν την ποσότητα του χρήματος που κυκλοφορούσε,καθώς και η ζήτηση του την ισοτιμία μεταξύ του χρυσού και των εκάστοτε νομισματικώ μονάδων.Τα τελευταία χρόνια ή έννοια του χρήματος ειναι αλληλένδετη με την έννοια του χρέους και άλλων παραγόντων οι οποίοι είναι άυλοι και δεν ειναι μετρήσιμοι επ’ακριβώς,αυτό δημιουργεί την κρίση.Όμως αυτοί οι παράγοντες (“οι αεριτζίδικοι”)είναι η πηγή του πλούτου όσων ασχολούνται με τα της οικονομίας και καθορίζουν την σύγχρονη “καπιταλιστική” δυτική οικονομία

  • From azizonomics (via zerohedge): “Greeks Want to Stay in the Euro? Why Don’t They Move to Germany?”:

    The fact that labour mobility is low in Europe is indicative of a fundamental problem. In any currency union or integrated economy it is necessary that there is enough mobility that people can emigrate from places where there is excess labour (the periphery) to places where labour is in short supply.

    Now, there is free movement in Europe, which is an essential prerequisite to a currency union. But the people themselves don’t seem to care for utilising it.

    Why? I can theorise a few potential reasons people wouldn’t want to move — displacement from friends and family, moving costs, local attachment. Yet none of those reasons are inapplicable to the United States. However there are two reasons which do not apply in the United States — language barriers and national loyalty. It is those reasons, I would suggest, that are preventing Europe from really functioning as a single economy with a higher rate of labour mobility.

    The people who built the Euro realised that such problems existed, but decided to adopt a cross-that-bridge-when-we-come-to-it approach:

    I am sure the Euro will oblige us to introduce a new set of economic policy instruments. It is politically impossible to propose that now. But some day there will be a crisis and new instruments will be created.

    Romano Prodi, EU Commission President, December 2001

  • My family members all the time say that I am wasting my time here at web, however I know I am getting experience every day by reading thes fastidious articles or reviews.

    • I wonder what do they do in their lives?Nevertheless,If God,let’s say,wanted to punish them,he should turn them into greek civilians.xaxaxa

1 Trackback