Winston Churchill and the financial crisis
Peter Clarke was Professor of Modern British History at Cambridge and is the author of one of the leading texts on the Keynesian Revolution. He has now written a biography, Keynes: The Twentieth Century’s Most Influential Economist.
Clarke is, as you might expect, sympathetic to Keynesianism. In his very final paragraph a cautious approach to policy seems to be discarded in favour of government action. The text may have been written during those more innocent times, during the first few months of 2009, when there was a rather widespread belief that high levels of public spending would soon clear our economic problems away. This is what Clarke wrote:
“It is indeed Keynesian to applaud government for trying something, and on a large scale too, when faced with obvious market failure. And the yardstick that Keynes introduced for assessing the costs is still valid: whether the economy itself can be expanded by such measures, generating the very resources that finance the initial stimulus. That is what justifies government action, not only for reasons of short-term expediency, but also in the long run.”
This is bad theory and worse policy. For all of Clarke’s historical knowledge about Keynes the man, and his deep understanding of historiography and historical circumstance, it contains little useful economic content. Contrast these words with a statement made by Winston Churchill on Budget Day in 1929 which is quoted by Clarke earlier in the book as a counterfoil to Keynes:
“The orthodox Treasury dogma, which is steadfastly held, [is] that whatever might be the political or social advantages, very little additional employment and no permanent additional employment can, in fact, and as a general rule, be created by State borrowing and State expenditure.”
This is a passage that with the wisdom of hindsight could be quoted today. The start of 2009 already looks like a bygone era. Clarke having quoted this passage from Churchill, then writes that:
“With his knack for spotting the telling quotation, Keynes had seized on Churchill’s words, the better to expose this dogma as fallacious.”
Well then, whose dogma has actually been exposed? Whose views, do you suppose, will be seen by history as having been fallacious? As things now stand, one must say that Churchill appears to have got it exactly right and the Keynesians have been utterly wrong.