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.

10 thoughts on “Winston Churchill and the financial crisis”

  1. Posted 15/12/2009 at 13:52 | Permalink

    The quotation from Churchill expounding the ‘Treasury view’ 80 years ago contrasts possible short-term political advantages with likely long-term economic damage. No surprise in which side Keynes was on.

    Last week’s Pre-Budget Report represented one of the worst examples of this in post-war British history. For fear of damaging the Labour government’s chances in next year’s election, the Chancellor of the Exchequer and the Prime Minister continued to publish optimistic forecasts and to funk giving details of necessary significant future cuts in government spending.

    Maybe government spending should not be cut today. But the markets do want a credible plan for reducing borrowing tomorrow.

  2. Posted 15/12/2009 at 14:28 | Permalink

    Interesting use and interpretation of quotations, history and Churchill.

    Churchill stated “It is a good thing for an uneducated man to read books of quotations”. You have been educated. The educated usually produce supporting evidence.

    What economic evidence from The Great Depression and the current Credit Crunch, Financial Crisis and recession supports the assertion that “Keynesians’ dogma has been fallacious and they have been utterly wrong”?

    Churchill served as Chancellor between 1924 and 1929 – in the run up to the Wall St Crash. He was out of government in the 1930’s. Hayek, Keynes and Friedman identify cause. What policy prescription would Churchill, Friedman and Hayek advocate?

  3. Posted 15/12/2009 at 14:53 | Permalink

    Jonathan – Steven Kates provides evidence of the failure of Keynesianism in a longer piece here:

    He looks at Japan during the 1990s as well as the Great Depression.

  4. Posted 15/12/2009 at 15:30 | Permalink

    […] just about everyone except robably Richard Wellings of the IEA accepts that Britain going back on the gold standard under Churchill was one of the worst economic […]

  5. Posted 15/12/2009 at 16:40 | Permalink

    Surely one of the main things ‘wrong’ about Britain going back on the gold standard in 1925, when Churchill was Chancellor, was the rate at which convertibility was restored?

    Ricardo had said 100 years earlier that after the currency had depreciated by more than a certain amount, it would be folly to go back at the old exchange rate.

    Churchill didn’t claim to be an economist and could be forgiven of not being aware of what Ricardo had said. Keynes did claim to be an economist (though his mastery of economic history was, shall we say, idiosyncratic) and it is less easy to forgive his ignorance.

  6. Posted 15/12/2009 at 16:50 | Permalink

    Jonathan, Maybe Steven published a quote because it’s a post in a blog. Are you aware that blog postings are short?

    Just like Richard says, there is plenty of evidence and research done on the subject. I can suggest you read “The Failure of the New Economics” by Henry Hazlitt. It has 500 pages, you’ll not be short of the evidence you seek.

  7. Posted 17/12/2009 at 01:26 | Permalink

    Steven Kates has got it right.Keynesianism has been and is a total disaster for what is left of the free world’s finances, all at the taxpayers expense. When governments issue fiat paper money regardless of country; Russia, China, Canada, US, it ALWAYS ends in disaster. Jonathan read an incorruptible economist Professor Antal Fekete, not government and central bank lackeys like Keynes and many other economists. Freedom without gold impossible. Churchill also said judgement of peers is necessary for democracy. It is impossible to get Trial by jury for a defendant in tax cases brought by the government in Britain, Canada etc. Read Fekete, beautiful prose. Please Email me,

  8. Posted 17/12/2009 at 01:40 | Permalink


    Thanks for the link to the article.

    Flavio – Thanks for the reference to Hazlitt; like Richard’s link short for the blog. Churchill also said “Criticism is easy, achievement is difficult” and “It is always more easy to discover principles than to apply them”. Hazlitt made a profession from criticizing Keynes. I think the former’s namesake the playwright is arguably better known. Why should that be so, if so famed for proving Keynes so utterly wrong?

  9. Posted 17/12/2009 at 10:26 | Permalink

    ” if so famed for proving Keynes so utterly wrong?”

    Maybe just for the same reason that Roman citizens enjoyed the circus and getting bread thrown at them.

    Fiscal and monetary discipline has never been -and most likely will never be- popular. Politicians know that. Keynes has been a gift of the gods for politicians: finally they got a theory to back their irresponsible spending sprees!

  10. Posted 17/12/2009 at 17:12 | Permalink

    FLAVIO, JONATHAN, Keynes a gift from the gods for profligate politicians and central bankers. You know, I know. Economic evidence amassed by against the quantity monetary theory is overwhelming. Keynes is a charlatan, a saint of the Federal Reserve and other central banks. Fekete – read his documentation, its free, and history if written without bias would give him a Nobel Prize. His original work on gold, interest and bonds, his resurrection of the Real Bills Doctrine and Social Circulating Capital is a masterpiece.If you can refute it let me know. Philip

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