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A Short View of Russia - 1925
End of Laissez-Faire - 1926
National Self-Sufficiency - 1933
An open Letter to President Roosevelt - 1933

Keynes in main Points

Introduction - Expansionary fiscal Policy - Inflation - Interest Rate - Religion and Capitalism - Equality - National Self-Sufficiency - Keynes and Laissez-Faire - Social Consequences of Changes in the Value of Money - Keynes and Gold Standard - Keynes and Population Control - Links and Literature


John Maynard Keynes was the most influential economist of the twentieth century. His economic theory gave the key to end the Great Depression of the thirties.

John Maynard Keynes 1883 - 1946
John Maynard Keynes 1883-1946.

He was born in an academic family in Cambridge. He had two younger siblings. The father John Neville Keynes taught in political economics, logic and ethics at Cambridge University. In his schooldays at Eton the young Keynes particularly excelled in mathematics.

In 1905 he took the civil servant exam and got a job in the India Office. In his spare time, he worked on a book about mathematical probability. In 1909 he began to teach economics at Cambridge.

During the First World War, he worked for the English government in charge of foreign currencies and relations with allies.

Keynes in 1915
Keynes in conversation with the philosopher Bertrand Russell to the left and the author Lytton Strachey to the right in 1915. Photo National Portrait Gallery.

At the peace negotiations in Versailles after the war, Keynes was secretary of the British government; but in June 1919 he resigned on the grounds that the proposals made concerning German compensation payments were both unfair and impractical.

In December 1919 he published "The Economic Consequences of the Peace". The book's message was that Europe would not be able to thrive without a fair, efficient and integrated economic system, which was not possible under the economic conditions of the Treaty. In addition, he believed that the Allies in the Peace Treaty had failed the promises they gave in the ceasefire agreement with regard to compensation, territorial adjustments and uniformity in economic conditions. He predicted that the Treaty of Versailles would promote a desire for revenge among the Germans. The book became a best seller and made him world famous.

Lydia Lopokova and John M. Keynes
Lydia Lopokova and John M. Keynes. Photo Walter Benington Wikimedia Commens.

During the interwar period he made himself a substantial personal fortune thanks to lucky investments. He became a board member of several companies and a prominent support of the arts. Which harmonizes well with his lifelong conviction that man does not live by bread alone - that Western civilization is on a blind track because it focuses too much on growth, individualism and profitability calculations and represses religion and cultural and spiritual community. Among other things, he got built a theater in Cambridge.

In 1926, he married the Russian ballet dancer Lydia Lopokova. Together they traveled to Soviet Russia to visit Lydia's family. After returning home, he wrote "A Short View of Russia", where he analyzed Leninism regarded as a religion.

In 1926 he held his lecture "End of Laissez-faire" precisely in Germany. As you will remember, Keynes had from the time of peace negotiations in Versailles good connections in Germany.

When the thirties great depression developed in the United States with factory closures and rising unemployment, he outlined his solution in two "open letters" to Franklin D. Roosevelt in December 1933 and June 1934, as well as in some speeches he made in England, in which he assessed the results of the American "New Deal" policy.

Unemployed in the USA of the thirties
Unemployed in USA of the thirties. Photo Alphaville.

He considered Franklin D. Roosevelt as "guardian of the reformers in all countries seeking to address evils of society with rationel experiments within the framework of the existing social system." For Roosevelt, Keynes was "the most sympathetic of the World".

Also in 1933 the Nazis came to power in Germany. Very quickly the German financial genius, Schacht, wiped out the unemployment with a very similar monetary expansion policy, which characterized both the Keynesian ideas as well as Roosevelt's New Deal.

In his writings of the twenties and early thirties, he argued for a "new liberalism". He demonstrated that governments' "deficit-spending" was an effective mean to overcome the Great Depression. His early articles and speeches contained all the main components, which were later included in his principal work "The General Theory of Employment, Interest and Money", published in 1936 and which became the principal work for several generations of economists and politicians.

Unemployed queuing in front of the relief office New York 1929
Unemployed queuing in front of the relief office in New York 1929. Photo Wikimedia Commons.

"The General Theory" is an extensive work of about 400 pages, which in many chapters, often difficult to access, is trying to show why the classic economic theories failed and could not explain the world-wide economic depression that ravaged the whole of the western world in the thirties.

The book deals with many topics such as labor market, money, interest rates, investment, savings and consumption, but there is no section on expansive fiscal policy.

By the term "General Theory" is to be understood that Keynes' academic opponents, the classical economists, including Marshall, Mill, Ricardo and Malthus, in his opinion only described special cases in the economy, while his book describes the economy as a whole.

The classical economists described how the labor supply and demand curves crossed each other and in the long run formed an equilibrium point, because workers and entrepreneurs wanted to adjust the cost of labor cost to each other. Keynes argued that in the long run, we all will be dead, that full employment can not always be achieved by making wages sufficiently low.

Soup Kitchen in Berlin in 1923
Soup Kitchen in Berlin in 1923. Photo Bundesarchiv.

The classical economists - including Marx - saw sharp definitions, total, average and marginal curves and mandatory economic laws everywhere, while Keynes said that "The economy is an unpredictable system characterized by instability".

The classic Say's law states that supply creates demand. Every time someone sells a product, he gets the money on hand, thereby creating demand, because he has to spend his money. Keynes turned Say's Law on its head, as he argued that supply is determined by demand.

The philosopher Bertrand Russell said that he was the most intelligent person, he ever knew. "Every time I argued with Keynes, I felt that I had my life in my hands, and I rarely escaped without feeling me a bit of a fool."

Keynes at the Bretton Woods conference in 1944
Keynes at the Bretton Woods conference in 1944 in conversation with the Soviet representative. Photo National Archives.

In 1944 he participated in the Bretton Woods conference as head of the British delegation. The conference was intended to organize the international economic system for the coming post-war times. The World Bank and the IMF were founded. At this conference, Keynes proposed to establish an international reference currency, as a kind of overall global currency. He did not get his suggestion through, mostly because of American resistance. After the war, dollars became, in practice, the international reserve currency, to the great benefit of the US economy.

John Maynard Keynes died at the age of only 62 years of a heart attack in his farmhouse in East Sussex in April 1946.

Expansionary fiscal Policy

"There was no wage so low that it could eliminate unemployment" Keynes wrote in "General Theory". His solution to the thirties massive unemployment was to stimulate demand by creating jobs and thus giving the unemployed money to spend.
Franklin D. Roosevelt signs the law on the Tennessee Valey Project May 18, 1933 The construction of Douglas Dam, which was part of the Tennessee Valley Project
Left: Franklin D. Roosevelt signs the law on the Tennessee Valey Project May 18, 1933.
Right: The construction of Douglas Dam which was part of the Tennessee Valley Project.

Keynes' academic main opponents, the classic economists, saw the labor market as a self-regulating mechanism, which in the long run by itself would create a balance between supply and demand without intervention by a government. They believed that in case of unemployment, the workers would over time adjust their expectations to the wages. Employers would then again find their projects profitable and employ more workers, and the problem would thus solve itself in a new balance between supply and demand.

Opening a new Autobanh in Germany in 1934
Opening a new Autobahn in Germany in 1934.

Men "In the long run we are all dead", as he wrote to a friend. The classic economists came too easily to their conclussion. They only told that when the storm ceased, the ocean would be calm again; and what should seafarers use that for?

But he does not like to tell how this stimulation of demand should take place in practice. In his "General Theory" he does not go into such details. However, from his support and acceptance of efforts in the United States and Germany, we can conclude that he was in favor of that governments initiated construction work and, in this connection, paid wages to the former unemployed, giving them money in the hands that would stimulate demand.

We remember that in 1933 he sent an open letter to the American President Roosevelt, in which he listed three points for how the Americans could get rid of the Great Depression: "Broadly speaking, therefore, an increase of output cannot occur unless by the operation of one or other of three factors." (1) "Individuals must be induced to spend more out of their existing incomes;" (2) "or the business world must be induced, either by increased confidence in the prospects or by a lower rate of interest, to create additional current incomes in the hands of their employees, which is what happens when either the country's current assets or fixed assets increase;" (3) "or public authority must be called in aid to create additional current incomes through the expenditure of borrowed or printed money."

Hoover Dam under construction
Hoover Dam under construction on the border between Nevada and Arizona in the United States. It was built between 1931 and 1936. Photo Vibe Science.

He comments further on the three points: (1) "In bad times the first factor cannot be expected to work on a sufficient scale." (2) "The second factor will come in as the second wave of attack on the slump after the tide has been turned by the expenditures of public authority." (3) "It is, therefore, only from the third factor that we can expect the initial major impulse."

It is relatively clear talking, but he still does not write entirely clear how this consumption of "borrowed or printed money" should be arranged; should government directly give the unemployed money in hand as a kind of unemployment benefit, or should the government start large public construction projects that create jobs and thus incomes?
Den gamle Lillebæltsbro
The old Lillebælt Bridge in Denmark was built 1925-1935 to create employment for the many unemployed. At that time Denmark still had a national economy in the sense that one might expect that money paid out for labor and materials would largely be used in Denmark and thus help to put the wheels of economy in motion.
A similar expansionary fiscal policy today would not have this effect to the same extent because we now have a global economy. It would put the wheels in motion, but in China, south Europe and similar places, where the products come from. Even the bars we can not have for ourselves, some paid out wages would certainly be used in Mallorca and in Bankok. Photo: Villy Fink Isaksen, Wikimedia Commons, License cc-by-sa-3.0

But as he compares the situation with a war, which is a very large public project, we must think that he did not have in mind just giving the unemployed some cash: "Thus as the prime mover in the first stage of the technique of recovery I lay overwhelming emphasis on the increase of national purchasing power resulting from governmental expenditure, which is financed by loans and not by taxing present incomes." - "That is why a war has always caused intense industrial activity. In the past orthodox finance has regarded a war as the only legitimate excuse for creating employment by governmental expenditure. You, Mr President, having cast off such fetters, are free to engage in the interests of peace and prosperity the technique which hitherto has only been allowed to serve the purposes of war and destruction."

Bonneville Dam
Public Works Administration Project Bonneville Dam under construction between the states of Oregon and Washington in the United States. Built 1934-1937. Photo U.S. National Archives and Records Administration Wikipedia.

There were many components in Roosevelt's New Deal program, but major construction projects were dominating. They included three quarters of the country's new schools, infrastructure development, social housing and a number of airports, bridges and dams. In Germany, the national-socialists came to power - also in 1933 - and the German financial genius, finance minister Schacht quickly got rid of the unemployment with a very similar expansive fiscal policy, as Keynes' recommended president Roosevelt in his open letter; That is autobahns and the like.

In the thirties, the nations also had export and import as today, but to a much smaller extent. The nations economies were so to say much more national.

An expansive fiscal policy was aimed at putting the economic wheels of the nation into action by creating a chain reaction. In connection with large construction works the government paid out large amounts for wages, materials and subcontractors. This money came into the hands of workers and entrepreneurs, who used them for mainly domestic consumption, purchases and investments. This created new revenue elsewhere in society, which was also used for mainly domestic consumption, which in turn created new revenue and so on.

Helle Thorning Smith
Helle Thorning Smith - In the election campaign for the parliamentary elections in 2011 the social democrat candidate Helle Thorning repeatedly proposed an expansive fiscal policy "to put the wheels in action" in spite of the fact that she should know that it would not have much effect in a small globalized economy like the present Danish. No one argued against her. Photo Kathemera.gr.

Today, the situation is completely different. The nations economies are international and global. The vast majority of goods in the stores are manufactured in countries very far from the point of sale. Many consumables are produced in China, vegetables are from southern Europe, software from the United States and so on. An expansive fiscal policy today will burn out like a wet firecracker. It will put the wheels in action, however, in China, South Europe and Silicon Valey and many other exotic places. Perhaps big nations like the US, China and Russia still can benefit from an expansive fiscal policy.


Keynes has gone into the history of economic theory as the man, who made inflation respectable. He warned against devastating hyperinflation, but ultimately meant that a lesser inflation of about two percent in many ways was beneficial to the economy of the society.

Hyperinflation in Germany in the early 1920's
Hyperinflation in Germany in the early 1920's. Photo Pinterest.

In "The Economic Consequences of the Peace" from 1919 he described the devastating consequences of a possible future hyperinflation: "Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily" The citizens only have the number of monetary units that they have saved, and their value is constantly reduced by the rate of inflation, while governments can print all the money they find appropriate..

In "Social Consequences of Changes in The Value of Money" from 1923 he outweighs inflation to deflation: "Thus inflation is unjust and deflation is inexpedient. Of the two perhaps deflation is, if we rule out exaggerated inflations such as that of Germany, the worse; because it is worse, in an impoverished world, to provoke unemployment than to disappoint the rentier. But it is necessary that we should weigh one evil against the other. It is easier to agree that both are evils to be shunned."

Keynes at a meeting in Germany
Keynes at a meeting in Germany in 1922, which aimed to stabilize the German mark. Photo Sueddeutche Zeitung.

Herbert Hoover, who had been the American president during most of the crisis, lost greatly in the presidential elections in November 1932 to the democrat Franklin D. Roosevelt. During the election campaign, he had campaigned against Roosevelt's proposal, which he believed would increase inflation.

In his open letter to president Roosevelt Keynes patiently explained that a small inflation in general is merely a sign of economic health that should not deter him: "Now there are indications that two technical fallacies may have affected the policy of your administration. The first relates to the part played in recovery by rising prices. Rising prices are to be welcomed because they are usually a symptom of rising output and employment. When more purchasing power is spent, one expects rising output at rising prices. Since there cannot be rising output without rising prices, it is essential to ensure that the recovery shall not be held back by the insufficiency of the supply of money to support the increased monetary turn-over."

Municipal Auditorium in Kansas City
KC Municipal Auditorium in Kansas City under construction in 1935. It was built as part of the New Deal.

However, rising prices, as a result of limited supply, will be a sign that the economy has problems: "But there is much less to be said in favour of rising prices, if they are brought about at the expense of rising output. Some debtors may be helped, but the national recovery as a whole will be retarded. Thus rising prices caused by deliberately increasing prime costs or by restricting output have a vastly inferior value to rising prices which are the natural result of an increase in the nation’s purchasing power."

Keynes explained that the president should not for fear of inflation shy away from increasing the amount of money as needed: "The other set of fallacies, of which I fear the influence, arises out of a crude economic doctrine commonly known as the Quantity Theory of Money. Rising output and rising incomes will suffer a set-back sooner or later if the quantity of money is rigidly fixed. Some people seem to infer from this that output and income can be raised by increasing the quantity of money. But this is like trying to get fat by buying a larger belt. In the United States to-day your belt is plenty big enough for your belly. It is a most misleading thing to stress the quantity of money, which is only a limiting factor, rather than the volume of expenditure, which is the operative factor."

Money illusion
Money illusion - It is easier for employees to accept a small inflation than a equivalent salary reduction. Drawing from Market Business News.

Companies need to reward employees, who have done a good job with wage increases. In general, it is not used directly to reduce the pay for employees, who have done less well, as this can cause very negative reactions. Therefore, the overall wage level in a company may have a constantly rising trend. However, if there is an inflation of maybe two percent, this will counteract the rising labor costs. It is easier for employees to accept two percent inflation, which affects everyone, than to accept a personal salary reduction of two percent. It is called the "money illusion", although the author can not see that Keynes has used this expression.

With his own words in "General Theory": "Whilst workers will usually resist a reduction of moneywages, it is not their practice to withdraw their labour whenever there is a rise in the price of wage-goods" and later: "it would be impracticable to resist every reduction of real wages, due to a change in the purchasing-power of money, which affects all workers alike" and even later: "whereas they do not resist reductions of real wages, which are associated with increases in aggregate employment and leave relative money-wages unchanged"

Interest Rate

Keynes did not reject the neo classics' beautiful and simple interest rate model, which simply described the interest rate as the price of money created by the balance between savers' supply of loanable funds and the projectmakers demand for funding. He improved and refined it.

The inauguration of the Storestrøm bridge on postcards
The inauguration of the Storestrøm bridge on postcard. Photo: Lokalhistorisk arkiv for Nord Falster

Also at Keynes the interest rate is also determined of supply and demand for money. The money supply comes mainly from the central bank's money supply. However, it may also come from, for example, income from a possible surplus on foreign trade and the like. The central bank can increase the amount of money by "printing" money and directly lending them to the banks or by buying bonds and other debt securities from the banks and paying them with "printed" money. It can reduce the amount of money by letting loans and debt securities to the banks expire and charge the outstanding amounts.

Following Keynes the demand for money is determined by the income-motive, the business-motive, the precautionary-motive and the speculative-motive.

The income-motive is the desire to have cash enough to cope with daily payments.

The business-motive is explained by that almost all projects are characterized by that investments and costs come first, whereas the payments from sales only occurs after some time. Companies want enough liquidity to bridge between these times.

The precautionary-motive is explained by that the future is uncertain and it is good to have funds to cope with unexpected situations.

The speculative-motive involves so to speak investing in cash. In uncertain times without significant inflation, cash is an excellent passive investment. If investors expect a fall in asset prices, they will increase their cash reserves so they are ready to buy, when prices drop. Households and banks hold back their money, and that can drive up the price of money, the interest rate, if not the trend is met by the Central Bank by increasing the money supply.

John Maynard Keynes and  Kingsley Martin.
John Maynard Keynes and Kingsley Martin photographed at Monk's house. Harvard University Library Wikipedia Commons.

The classical economists thought that savings are a function of the interest rate, to be understand that a high interest rate will motivate individuals and companies to save more. Keynes, on the other hand, said that savings are a function of income rather than the interest rate, so to be understand that in a high income economy individuals will save more than in a low income income economy.

This must support that the classical economists thought that human needs are infinite and insatiable, and he must have thought that the marginal needs of poor people are stronger than marginal needs of more wealthy people. So that more wealthy people will save a greater proportion of their income.

Keynes introduced the concept of liquidity trap. This refers to a situation where an increase in money supply against expectations does not cause interest rates to fall; This may motivate a central bank to add even more liquidity to the market, which then also does not have the desired effect. The central bank can thus be said to have fallen into a trap and pumped out a lot of liquidity to no avail. One can imagine that the lack of effect may be due to the lack of sufficient potential business opportunities, consumers have already have covered basic needs and the like.

liquidity trap
Liquidity trap - The vertical axis represents the interest rate and the horizontal the amount of money. It can be seen that if Ms0 is reduced to Ms1 or increased to Ms2, the interest rates will remain unaffected. Drawing from economicsdiscussion.net.

For many years the theory of liquidity trap was standing in the shadow of other economic theories, but it emerged from the scenes, when Japan experienced a prolonged stagnation period in spite of an interest rate level of 0%. Following the financial crisis in 2008, Japan was joined in the liquidity trap by the United States and Europe. Economist and Nobel Prize winner Krugman noted that a tripling of the US money supply from 2008 to 2011 had no significant effect on US interest rates and consumer prices.

It fits very well with Keynes's advice to President Roosevelt in his open letter in 1932: "Rising output and rising incomes will suffer a set-back sooner or later if the quantity of money is rigidly fixed. Some people seem to infer from this that output and income can be raised by increasing the quantity of money. But this is like trying to get fat by buying a larger belt."

Religion and Capitalism

In "A Short view of Russia" Keynes wrote that Leninism was absolutely hopeless as an economic system. It was: " - the turbid rubbish of the red bookshops", but as a religion, it was quite another matter. Here, it was facing a Western Europe, which spiritually and religiously was virtually disarmed and defenseless. To a large extent, Europeans had thrown away all values except"love of money".

Marx, Engels, Lenin and Stalin
Marx, Engels, Lenin and Stalin on a communist poster from the thirties. Keynes considered communism as an economic theory of absolute uselessness, but as a religion, it could be very dangerous for the European nations which in religious and spiritual way are completely disarmed and defenseless. Photo: Fidelem Nuntium.

He continued in "A Short view": "At any rate to me it seems clearer every day that the moral problem of our age is concerned with the love of money, with the habitual appeal to the money motive in nine-tenths of the activities of life, with the universal striving after individual economic security as the prime object of endeavour, with the social approbation of money as the measure of constructive success, and with the social appeal to the hoarding instinct as the foundation of the necessary provision for the family and for the future. The decaying religions around us, which have less and less interest for most people unless it be as an agreeable form of magical ceremonial or of social observance, have lost their moral significance just because - unlike some of their earlier versions - they do not touch in the least degree on these essential matters. A revolution in our ways of thinking and feeling about money may become the growing purpose of contemporary embodiments of the ideal. Perhaps, therefore, Russian Communism does represent the first confused stirrings of a great religion."

Og videre: "For modern capitalism is absolutely irreligious, without internal union, without much public spirit, often, though not always, a mere congeries of possessors and pursuers. Such a system has to be immensely, not merely moderately, successful to survive. In the nineteenth century it was in a certain sense idealistic; at any rate it was a united and self-confident system. It was not only immensely successful, but held out hopes of a continuing crescendo of prospective successes. today it is only moderately successful. If irreligious Capitalism is ultimately to defeat religious Communism, it is not enough that it should be economically more efficient - it must be many times as efficient."

Limited company
Limited companies are often, but not always, owned by thousands of anonymous and ever-changing shareholders, who have only one interest: to increase their wealth. The sole task of management is to satisfy shareholders' expectations of long-term profit. Photo: Legalzoom.

Several other places he repeats in various ways that he believes that Europe needs a new religion as a basis for new spiritual unity; But since his time, the cultural situation in Europe has not improved. Cultural life has mostly been something about to liberate our selves from the chains of the past, challenge cultural standards, break patterns, cross borders and so on.

For the European peoples it would be a quite obvious value to start to love their own kind, their own nation and its history, language, music and literature. It does not mean that you despise all the others, but it's natural to love your own.


"No one in our age was cleverer than Keynes nor made less attempt to conceal it.", wrote the economist F. Harrod in his book, "The Life of John Maynard Keynes'".

In his critique of Leninism Keynes lets clearly shine through that he considered himself as part of an intellectual elite, indispensable to all human development: "How can I accept a doctrine which sets up as its bible, above and beyond criticism, an obsolete economic textbook which I know to be not only scientifically erroneous but without interest or application for the modern world? How can I adopt a creed which, preferring the mud to the fish, exalts the boorish proletariat above the bourgeois and the intelligentsia who, with whatever faults, are the quality in life and surely carry the seeds of all human advancement?"

The social contract by Jean-Jacques Rousseau
The social contract by Jean-Jacques Rousseau. Foto: Term Paper Service.

He felt akin to Newton, Darwin and Hume, and he was convinced that the intellectuals also in the future would show the way forward. Perhaps he would have thought differently if he had experienced today's intellectuals' total failure in relation to Islamic immigration, feminism and the climate religion.

He describes how the idea of equality grew in the European philosophy and became the new moral standard, by which everything was to be measured: "Rousseau took the Social Contract from Locke and drew out of it the General Will. In each case the transition was made by virtue of the new emphasis laid on equality. "Locke applies his Social Contract to modify the natural equality of mankind, so far as that phrase implies equality of property or even of privilege, in consideration of general security. In Rousseau's version equality is not only the starting-point but the goal."

Vi ved ikke, hvad der fik Thomas Jefferson til at skrive i den Amerikanske uafhængigheds-erklæring fra 1776: "We hold these truths to be self-evident, that all men are created equal". All our experience tells us the exact opposite. People are not at all born equal in the meaning alike. Some are born as women, others are born as men. One has blue eyes and pale skin like a Viking, another is dark and has eyes black as coal. One is tall and strong and another one is small and flimsy. Some are born with the predisposition for intelligence, and others are not; some are born with marked predisposition to aggressiveness and others not so much. Even identical twins are not quite alike.

Every tree in the forrest is unique and different from the other trees; and any snowflake in a blizzard is different from the others.

Harrison Bergeron
Harrison Bergeron is a science fiction novel by Kurt Vonnegut from 1961. By the year 2081 all Americans by law are declared completely equal. Nobody must be smarter, more beautiful, stronger or more athletic than anyone else. The General Handicapper Office's agents enforce the Equality Act, which forces people to wear "handicaps": masks for those, who are too handsome, headset speakers that disturb the minds of those, who are too intelligent, and heavy weights for those, who are too strong and athletic. Harrison Bergeron is a beautiful, intelligent, brave and athletic teenager fourteen years old. One day in April he is be removed from his home due to violation of the Equality Act. He is subsequently shot for open screen by the General Handicapper Office's leader. Photo: Relentless Magazine.

We all have a different starting point in life that we must accept. We are sons and daughters of parents, who were also children of their time and most likely did their best. Some are born into wealthy families and get a few million for the start; others are born in less wealthy families and must start from the bottom and do all their experiences themselves. It is certain that a child born in a wealthy academic family is in a far better position than a child born by parents, who are alcoholics and drug addicts.

Some people are simply luckier than others, and by complete chance they find themselves in the right place at the right time.

We will be taught that the idea of political equality is that everyone should be equal before the law, and that is a really good idea. But it has indeed been the case in Europe for centuries?

If we all have to be complete equal, it is not enough to win a majority in parliament - we must turn to a higher level in organisation. We must go to church and ask God to correct his mistakes and send an update to his creation.

National Self-Sufficiency

In 1933 Keynes published a controversial article in The Yale Review, advocating a greater degree of national self-sufficiency, and - logically speaking - thus a lesser degree of international trade. This for an economist's heretical point of view is often referred to as protectionism. His goal was to bring the unemployed to work and utilize the country's resources by producing products that England otherwise imported from abroad.

This was a sensational break with hundreds of years of English free trade tradition introduced by Adam Smith and David Ricardo.
The closed Thomas B. Thriges factories in Odense
The closed Thomas B. Thriges factories in Odense Denmark has now been transformed into second hand stores, oriental markets, public offices, meeting rooms and much more. Thomas B. Thrige produced electric motors, elevators and equipment for power plants.
The old European factories, which produced a wide range of products in their respective areas have largely been closed and only partially replaced by much more specialized companies, which are better suited to today's globalized economy. Photo Google Maps.

Adam Smith wrote in 1776 in the "Wealth of Nations": "If a foreign nation can provide us with a commodity cheaper, than we can make it ourselves, then it is better to buy it with a part of our own production, in which we have some advantage."

David Ricardo in 1817 put forward the famous example of cloth produced cheap in England, and port wine produced cheap in Portugal. He described Portugal exporting port wine to England, and England selling clothes to Portugal. This international trade is mutually beneficial, as both nations become richer than they would have been if the Portuguese had drunk all the port wine themselves, and the Englishmen had kept their cloth.

Brandts Klædefabrik
The long time since closed Brandts Cloth Factory in Odense Denmark. There is now cultural center, cinema, cafes, meeting rooms, art school, film workshop and much more in the building. Photo: Marco Kahlund Wikipedia.

Keynes also had the wealth of England in mind. He knew that the value of labor, which was not utilized, was lost forever, when the day was over. England should, to a greater extent, produce itself instead of importing from distant countries. He wrote: "Even today I spend my time" - "in trying to persuade my countrymen that the nation as a whole will assuredly be richer if unemployed men and machines are used to build much needed houses than if they are supported in idleness."

"If I had the power today," he wrote, "I should most deliberately set out to endow our capital cities with all the appurtenances of art and civilization on the highest standards" - "For with what we have spent on the dole in England since the war we could have made our cities the greatest works of man in the world."

All in all, he did not think that the benefits of international division of labor were as great as they had been: "But I am not persuaded that the economic advantages of the international division of labor today are at all comparable with what they were." - "But over an increasingly wide range of industrial products, and perhaps of agricultural products also, I have become doubtful whether the economic loss of national self-sufficiency is great enough to outweigh the other advantages of gradually bringing the product and the consumer within the ambit of the same national, economic, and financial organization. Experience accumulates to prove that most modem processes of mass production can be performed in most countries and climates with almost equal efficiency."

Officine Meccaniche Reggiane
The Italian aircraft manufacturer Officine Meccaniche Reggiane between Parma og Bologna is closed and the premises converted to alternative use. Photo: The Architecture Insight.

His concerns about excessive international division of labor was in line with the efforts that simultaneously were unfolded in the United States and Germany to get rid of unemployment. In these countries, they did not come out of the thirties' crisis by increasing international division of labor, but by boosting domestic demand and supply, just as Keynes had in mind.

In his time, as well as in the present, thoughts of increased national self-sufficiency were met with the standard argument that it would lead to war, and international trade and the increasing entanglement of national economies was preserving peace. To this he answered: "To begin with the question of peace. We are pacifist today with so much strength of conviction that, if the economic internationalist could win this point, he would soon recapture our support. But it does not now seem obvious that a great concentration of national effort on the capture of foreign trade, that the penetration of a country's economic structure by the resources and the influence of foreign capitalists, and that a close dependence of our own economic life on the fluctuating economic policies of foreign countries are safeguards and assurances of international peace. It is easier, in the light of experience and foresight, to argue quite the contrary."

Soldiers graves in Normandy
Soldiers graves in Normandy. It is the memories of the death of so many young men and the massive destruction of everything in Europe - as told by historians, writers and poets - that prevents a new war between Europe's nations. Even without the EU, these memories would still be alive. It is absurd to imagine a new war between the European nations. Photo: Pxhere.

In the present, we can supplement him by saying that international cooperation, for example in the EU - as the Union is today - does not in itself guarantee the peace of Europe, on the contrary. We can fear that the Brussels leadership's efforts to undermine and destroy the nations by promoting and allowing unrestricted immigration from Africa and the Middle East will lead - not to war - but to civil war and comprehensive bloodshed in a not very distant future.

Keynes was concerned that the economic entanglement between nations would limit a governments freedom of action. Already in his time, many companies were organized as joint-stock companies owned by a host of ever-changing shareholders, who only had very superficial ideas about the companies business: "Advisable domestic policies might often be easier to compass, if the phenomenon known as "the flight of capital" could be ruled out. The divorce between ownership and the real responsibility of management is serious within a country, when, as a result of joint stock enterprise, ownership is broken up among innumerable individuals who buy their interest today and sell it to-morrow and lack altogether both knowledge and responsibility towards what they momentarily own. But when the same principle is applied internationally, it is, in times of stress, intolerable - I am irresponsible towards, what I own, and those who operate, what I own, are irresponsible towards me. There may be some financial calculation, which shows it to be advantageous that my savings should be invested in whatever quarter of the habitable globe that shows the greatest marginal efficiency of capital or the highest rate of interest. But experience is accumulating that remoteness between ownership and operation is an evil in the relations among men, likely or certain in the long run to set up strains and enmities which will bring to nought the financial calculation."

Share trading platform
Today, the economies of nations have been entangled to an extent that would have caused Keynes to rotate in his grave, if he had known. With a few clicks, any private or professional investor can buy stocks from almost anywhere in the world. Only Russia and probably a few other nations do not allow everyone to buy their shares. Photo: Nordea Invest Magasin.

The problem of economic entanglement, as he pointed out back then, has today grown much larger. The increased specialization, which is an inevitable consequence of globalization, has caused individual companies to buy and sell products and components to other international companies to a greater extent than before.

Many more companies have been put on stocks, and these are owned by many more and more frequently changing international investors. Many investors seek to reduce their risk by diversifying their equity investments to many different nations, continents and markets.

Probably, such an intenational casino economy will not last forever. But it can last long time, because it involves complex and almost uncalculable contexts.

All the world's central banks have embraced Keynes' idea that some limited inflation is beneficial to the nations' economies. Ordinary people save for their retirement; They face that if they simply put the savings in an bank-account, its value every year will be reduced with the rate of inflation. Therefore, they are forced to enter the market for investment goods, especially shares, individually or together in associations or the like. The stock market is a zero-sum game: there will be paid in as much to the market as paid out. In this market, the small private savers will meet large international investors, investment banks and the like, who with the greatest matter of course will take their "cut" - at the expense of especially small and inexperienced investors.

But when millions, indeed billions, of people are saving for their retirement, it represents astronomical fortunes, which nations can not afford to remain passive.

Keynes and Laissez-Faire

Laisssez-faire is the idea that governments should refrain from interfering in the market and let it develop "naturally".

In the Middle Ages Pope Gregory 7. setled "libertas ecclesiae," which means "freedom of the Church", which meant that only the church itself - and not the kings - should have the right to choose bishops, priests and abbots and in general make decisions about ecclesiastical and religious matters. Similarly, the business sector claimed Laissez-Faire as an almost divine doctrine in their demands for freedom for their sector of society, thus to be understood that governments should refrain from interfering.

Parisian café life
Parisian café life - painted by Gaetano de Las Heras - 1903.

Laissez-faire was everywhere presented as an imperative scientific truth, completely in line with Newton's laws and Darwin's development theory. However, Keynes points out that the great economists have never supported general laissez faire, and the idea is not at all particularly scientific. The Laissez-Faire concept basically comes from some conversation topics that were popular in the Parisian cafe environment in the early nineteenth century.

In 1926 he published an article titled: "The End of Laissez-Faire", in which he demonstrates that many popular phrases and assumptions that support the idea of the business sector's freedom of government interference have arisen from certain interpretations of the classical economists and philosophers: "It is not true that individuals possess a prescriptive "natural liberty" in their economic activities. There is no "compact" conferring perpetual rights on those who Have or on those who Acquire. The world is not so governed from above that private and social interest always coincide. It is not so managed here below that in practice they coincide." - "It is not a correct deduction from the principles of economics that enlightened self-interest always operates in the public interest. Nor is it true that self-interest generally is enlightened; more often individuals acting separately to promote their own ends are too ignorant or too weak to attain even these."

John Maynard Keynes
John Maynard Keynes in 1925. Foto: Bettmann Corbis.

But where the philosophers ceased, the economists took over, and it was first and foremost them, who promoted the idea of laissez-faire. Keynes continued: "But it was the economists who gave the notion a good scientific basis. Suppose that by the working of natural laws individuals pursuing their own interests with enlightenment in condition of freedom always tend to promote the general interest at the same time! Our philosophical difficulties are resolved-at least for the practical man, who can then concentrate his efforts on securing the necessary conditions of freedom. To the philosophical doctrine that the government has no right to interfere, and the divine that it has no need to interfere, there is added a scientific proof that its interference is inexpedient. This is the third current of thought, just discoverable in Adam Smith, who was ready in the main to allow the public good to rest on "the natural effort of every individual to better his own condition", but not fully and self-consciously developed until the nineteenth century begins. The principle of laissez-faire had arrived to harmonise individualism and socialism, and to make at one Hume's egoism with the greatest good of the greatest number. The political philosopher could retire in favour of the business man - for the latter could attain the philosopher's summum bonum by just pursuing his own private profit."

Keynes citerer en professor Cairnes: "The maxim of laissez-faire", he declared, "has no scientific basis whatever, but is at best a mere handy rule of practice." And later: "The beauty and the simplicity of such a theory are so great that it is easy to forget that it follows not from the actual facts, but from an incomplete hypothesis introduced for the sake of simplicity."

Ronald Reagan and Magaret Thatcher at Camp David
Ronald Reagan and Magaret Thatcher at Camp David - Keynes' ideas seemed discredited after the inflation and unemployment of the seventies, which governments could not bring to an end with traditional Keynesian policies. Keynes's theoretical opponents, the monetarists, led by Milton Friedmann, triumphed.
Politicians again hailed private enterprise and laissez-faire. Inspiret by Ronald Reagan and Magaret Thatcher governments privatized public enterprises around the world. The British government sold British Steel and the coal mines, the German government sold its shares in Volks Wagen, the Danish government sold Tele Danmark, Girobank and Copenhagen Airport. Ferry service, housing, cleaning of schools and hospitals were left to private firms. Foreign exchange rates and interest rates were left to find their level guided by the market forces.

Which last remarks he explains in more details to that the classic economy simple and beautiful model with the curves that represent supply and demand intersecting in a point of balance is only an educational model that covers a much more complex reality. Which reflects his own definition that "The economy is an unpredictable system characterized by instability".

The classical economists, he says, appoint a special case to be the normal and the rest to be regrettable complications: "For economists generally reserve for a later stage of their argument the complications which arise

(1) when the efficient units of production are large relatively to the units of consumption,
(2) when overhead costs or joint costs are present,
(3) when internal economies tend to the aggregation of production,
(4) when the time required for adjustments is long,
(5) when ignorance prevails over knowledge and
(6) when monopolies and combinations interfere with equality in bargaining."

John Maynard Keynes in his later years
John Maynard Keynes on the rostrum in his later years. Photo: economic-definition.com

He recommended that the solution to laissez-faire's problems is a government's cautious intervention in the market as needed. He cites Burke and Bentham: "We cannot therefore settle on abstract grounds, but must handle on its merits in detail, what Burke termed "one of the finest problems in legislation, namely, to determine what the State ought to take upon itself to direct by the public wisdom, and what it ought to leave, with as little interference as possible, to individual exertion". We have to discriminate between what Bentham, in his forgotten but useful nomenclature, used to term Agenda and Non-Agenda." - "Perhaps the chief task of economists at this hour is to distinguish afresh the Agenda of government from the Non-Agenda; and the companion task of politics is to devise forms of government within a democracy which shall be capable of accomplishing the Agenda."

Keynes illustrates his view with two "examples":

(1) He proposes to establish economic organizations in "the ideal size" - "somewhere between the individual and the modern state", which do not have long-term profit maximization as their overall goal, but "whose criterion of action within their own field is solely the public good." - "I propose a return, it may be said, towards medieval conceptions of separate autonomies. But, in England at any rate, corporations are a mode of government which has never ceased to be important and is sympathetic to our institutions. It is easy to give examples, from what already exists, of separate autonomies which have attained or are approaching the mode I designate - the universities, the Bank of England, the Port of London Authority, even perhaps the railway companies."

The blacksmiths' guild
The blacksmiths' guild. Old drawing of unknown origin.

We remember that the medieval guilds were not profit-maximizing organizations in the modern sense, and they were not unions. They worked in many ways to benefit their members by taking care of quality, test for skilled craftmen and masters, prices and the number of practitioners in the profession. They supported each member in case of emergency, for example if the house burned, if they became sick or threatened on their life. The elderman swore loyality to the king, and thereby the guilds were important part of society. They created the framework for the lives of individuals with their ceremonies and annual festivities.

Keynes is not very specific about what he thinks, but one can imagine that the Danish GTS institutes, public utility companies, state railways and other non-profit or governmental organizations would be according to his taste.

In addition, he believes that many public limited companies are gradually becoming public property, as they are already owned by a broad public:"But more interesting than these is the trend of joint stock institutions, when they have reached a certain age and size, to approximate to the status of public corporations rather than that of individualistic private enterprise."

China Unicom
China Unicom is a large state-owned Chinese telecommunications company. Photo China Unicom

"We must take full advantage of the natural tendencies of the day, and we must probably prefer semi-autonomous corporations to organs of the central government for which ministers of State are directly responsible", he concludes this "example".

In this context, the big Chinese state companies are very interesting. Under Deng Xiao Ping's leadership China's economy changed from a traditional socialist command economy to a "socialist market economic system", which was approved by the 14. Party Congress in 1993. The foundation for this decision had already been laid in 1988 with the "Enterprise Law", which made large business organizations to legal entities, if one can put it that way. It created a characteristic structure with some very large, more or less governmental units surrounded by thousands of very small private initatives.

China Shipping
China Shipping is a large state-owned Chinese container shipping company. Photo: Make money by import from China.

One might think that this structure - and of course, the Chinese themselves - enabled China to absorb and utilize the absurd amount of technological and mercantile knowledge that has been poured over them in connection with the globalization.

We find a similar structure in the Norwegian oil industry. In the middle, Statoil, partly state-owned, raises up, and around it operates a myriad of smaller, inovative and flexible companies. However, Statoil is not owned by the state in a way, so it is subject to a minister's daily decisions. We can believe that it is this structure - not to forget the Norwegians themselves - which is the background for the success of the Norwegian oil industry, not only in terms of acquiring the wealth that the oil itself represents, but also in acquiring and making use of all technology related to exploration and production of oil.

Statoil produktions drilling rig
Statoil's production drilling rig in the Troll field. Statoil has just changed its name to Equinor. Photo Offshore Energy Today.

By comparison, Venezuela is the world's most oilrich country, it has larger oil reserves than Norway, yet the country had deveoped badly. Venezuela fully nationalized its oil industry in 1971 and placed it under the direct control of government, which caused that it was used to finance comprehensive social programs that included direct cash payments to the demanding voters. The national oil industry was completely destroyed, and the country was ravaged by strikes and political unrest and saw something as absurd as lack of gasoline in March 2017 and regular famine in 2018.

(2) In, what Keynes calls the second "example", he again emphasizes the importance of the agenda: "The most important Agenda of the State relate not to those activities which private individuals are already fulfilling, but to those functions which fall outside the sphere of the individual, to those decisions which are made by no one if the State does not make them. The important thing for government is not to do things which individuals are doing already, and to do them a little better or a little worse; but to do those things which at present are not done at all."

Mangel på benzin i Venezuela
Lack of gasoline in Venezuela in 2017. Photo: Wikimedia commons.

In addition, he proposes the creation of some bodies to control the currency and credit as well as collecting and distributing information with the intention of improving market's transparency in order to make it more stable: "I believe that the cure for these things is partly to be sought in the deliberate control of the currency and of credit by a central institution, and partly in the collection and dissemination on a great scale of data relating to the business situation, including the full publicity, by law if necessary, of all business facts which it is useful to know." What we must believe to a large extent today has taken place with the now closed foreign exchange center, Denmark's National Bank, Banking Supervision, Denmark Statistics and so on.

Social Consequences of Changes in the Value of Money

Inflation describes a deterioration of the value of money in the form of price increases. Deflation means an increase in the value of money that is manifested by a fall in prices.

In "Social Consequences of Changes in the Value of Money" Keynes writes that any change in the value of money will be in favor of some and to disadvantage and misfortune to others, thereby creating the seeds of social dissatisfaction, turmoil and instability: "Thus a change in prices and rewards, as measured in money, generally affects different classes unequally, transfers wealth from one to another, bestows affluence here and embarrassment there, and redistributes Fortune's favours so as to frustrate design and disappoint expectation." - "Each process, inflation and deflation alike, has inflicted great injuries. Each has an effect in altering the distribution of wealth between different classes, inflation in this respect being the worse of the two. Each has also an effect in overstimulating or retarding the production of wealth, though here deflation is the more injurious."

Inflation during the Weimar Republic in Germany
Inflation during the Weimar Republic in Germany. Photo: Pinterest.

At inflation, savers, who have their fortune in a fixed amount of money, e.g. bonds, will see their life's savings reduced by the rate of inflation. Pensioners and others, who receive a fixed grant each month, will find that they can buy still less for it.

By contrast, the savers counterparts, the debtors, who are all kinds of borrowers, will find that the real value of their debt will be reduced by inflation.

For businessmen, inflation will be beneficial, Keynes says: "But during the period of change, while prices are rising month by month, the business man has a further and greater source of windfall. Whether he is a merchant or a manufacturer, he will generally buy before he sells" - "he is always selling at a better price than he expected and securing a windfall profit upon which he had not calculated. In such a period the business of trade becomes unduly easy. Any one who can borrow money and is not exceptionally unlucky must make a profit, which he may have done little to deserve. Thus, when prices are rising, the business man, who borrows money is able to repay the lender with what, in terms of real value, not only represents no interest, but is even less than the capital originally advanced."

He describes how the post-war inflation transformed formerly worthy businessmen into shameless profitmakers who "begins to think more of the large gains of the moment than of the lesser, but permanent, profits of normal business."

Satire Description of capitalism
Politicians gave in effect the businessmen's greed the blame for the price increases by sending out extra taxes on profits, subsidies, price- and interest rate-stop. Photo: Cilgin kalaba likta nuzakta.

But by so doing, the businessmen incured the anger and resentment of the other classes of society, as they understood that it was the greed of the businessmen that was the cause the price increases: "To the consumer the business man's exceptional profits appear as the cause (instead of the consequence) of the hated rise of prices."

But the European governments' money creation was the real reason for the inflation. Throughout the last years of the First World War, they had financed the war by printing money, thereby sowing the seeds for the significant inflation in the post-war years - not only in Germany. Nevertheless, they did not refrain from riding the wave and in effect blame the greed of businessmen for the price increases with a lot of subsidies, price and interest rate stops and extra taxes on profits. After all, they were politicians, and there were more votes in the consumers than there were in the businessmen.

Keynes is close to writing directly that the creation of money, the resulting inflation and the disturbances of the economy that it created in the form of reallocation of the wealth of society was the real reason for the emergence of socialism, which in turn caused the destruction of European culture and national communities that we still suffer from: "No man of spirit will consent to remain poor if he believes his betters to have gained their goods by lucky gambling. To convert the business man into the profiteer is to strike a blow at capitalism, because it destroys the psychological equilibrium which permits the perpetuance of unequal rewards. The economic doctrine of normal profits, vaguely apprehended by every one, is a necessary condition for the justification of capitalism. The business man is only tolerable so long as his gains can be held to bear some relation to what, roughly and in some sense, his activities have contributed to Society."

A businessman's windfall profit during inflation
A businessman's windfall profit during inflation. Photo: Good Returns.

Also deflation creates a redistribution of the wealth of society, which is harmful to the stability of nations, since everyone, who have their fortune in the form of a fixed amount of money, for example in bonds or other debt securities, will find that their wealth is increasing: "Deflation, as we have already seen, involves a transference of wealth from the rest of the community to the rentier class and to all holders of titles to money; just as Inflation involves the opposite. In particular it involves a transference from all borrowers, that is to say from traders, manufacturers, and farmers, to lenders, from the active to the inactive."

As Keynes said, will deflation be especially harmful to society's productivity: "The deflation, which causes falling prices, means impoverishment to labour and to enterprise by leading entrepreneurs to restrict production, in their endeavour to avoid loss to themselves; and is therefore disastrous to employment. The counterparts are, of course, also true, - namely that deflation means injustice to borrowers, because they will find that their debt will increase."

Keynes and the Gold Standard

It is a pervasive attitude of Keynes that he supports leadership and government and warns against laissez-faire in both economy, demographics and also in exchange rate policy. The gold standard represents a form of Laissez-faire policy, as the polticans want to lean back and let the free market forces in the gold market determine the value of a currency.

Roman solidi gold coins
A treasure consisting of 159 Roman solidi gold coins was found at St Albans i Hertfordshire in England in 2012. Photo Global Archaeology.

Ever since the severe inflation that followed the great war of 1914-18, ordinary citizens, who save for their retirement fear that their savings should be expropriated by inflation decided by central banks' boards. Especially in the US, many people look with suspicion on that currencies are managed by central banks' boards. The Austrian Economic School, represented by Ludwig von Mises and Friedrich Hayek, is very popular also in the US, precisely because it proposes a return to the gold standard, which means that the value of a monetary unit is defined by the market price of gold.

The gold standard is rooted in thousands of years of history, as many Roman and other historical coins consisted of gold. As coin material, gold was supplemented by other precious metals, especially silver and copper.

Especially the Germanic tribes, who attacked the Roman Empire around the year 500, had an insatiable desire for gold. Thus, archaeological findings from the older Germanic Iron Age in Scandinavia - describing the period from 375 to 550 - consist almost exclusively of objects of gold. Since there are no gold resources in the Scandinavian subsoil, we must think that this is gold that returning migration peoples have brought back to Scandinavia.

The Timboholm treasure from Vestergøtland
The Timboholm treasure from Vester Gøtaland is a gold treasure from the migration age found in 1904 on Timboholm's estates on the outskirts of Skövde near Lidkøbing by three farmworkers named Carl Wernlund, C. H. Lantz and Per Rythén. It consists of two bars and 26 spiral rings of unprocessed gold with a total weight of 7 kg. It dates back to 400-500 AD. Photo: Historiska Varlder.

Gold has always appealed to human desires. Even after it has been buried in soil and gravel for thousands of years, it will preserve its golden shine. It is heavy and feels valuable to have in hand; Its low heat capacity makes it feel comfortable to touch. It is soft and easy to process into amazing jewelry. Psychologist Sigmund Freud believed that the desire for the golden metal originated deep in the mind of man, founded in the earliest childhood.

But just because people desire the precious metals so intensly, it was dangerous to keep ones assets in gold and silver at home. During the Middle Ages, rich citizens began to deposit their precious metals at jewelers, merchants, or others, who had facilities for safe storage. As a receipt, they could get a "Bank Note", for example, declaring the value "One pound sterling silver". In France, the Templars already in the 1200s ran banking activities from their castle in Paris, Les Temples.

It became more and more common that owners of the deposited silver and gold did not pick up their values, using "bank notes" for payments instead of the actual gold or silver. If the seller absolutely wanted gold or silver, he could just take his "bank note" and go to the bank and demand it delivered.

Dutch National Bank's gold reserves
Dutch National Bank's gold reserves. Photo: The Event Chronicle.

The banks gradually found that it was relatively rare that someone presented their receipt and demanded the gold handed over. They could send more "bank notes" in circulation, than they had in precious metals, and still be reasonably sure to be able to keep their promise of delivering gold or silver on demand. And this was the beginning of "managed" currencies.

The goal of the Austrian economic school is to return to the good old days, when a monetary unit - dollar, pound or krone - represents a standard amount of gold stored in the currency issuing bank's basement.

Keynes has a number of concerns and arguments against a return to the Gold Standard.

Firstly Keynes is - as always - an advocate of responsibility and management. A central bank's decisions should be governed by a currency policy that defines Stability of prices versus stability of exchange. "Is it more important that the value of a national currency should be stable in terms of purchasing power, or stable in terms of the currency of certain foreign countries?"

British bank note
British bank note from 1843. Foto: British Notes.

Large nations may want to ensure a stable domestic purchasing power of their currency in relation to all other goods than gold.

But can we believe that the world market's gold supply will be constant - or just constantly growing - in all future? If the gold standard was introduced everywhere and suddenly new rich gold mines were found new places in the world, gold supply would increase and the price of gold would fall compared to other goods - along with the currencies, which would be inflation - and if the world's gold supply stagnates in relation to a rising national product, and the gold price therefore rises, it can lead to deflation.

If a single nation chooses to return to the gold standard, its central bank will be unable to maintain a particular exchange rate to the nation's important export markets. Its currency will be doomed to go up and down in alternating deflation and inflation following fluctuations on the international gold market. Any fluctuation in both directions will lead to losses and redistribution of the wealth of society and consequent political unrest followed by degradation of the common values of the nation. Government, politicians and central banks will wave their arms and say that this is completely natural market fluctuations and not their responsibility.

Bank of England's gold holdings
Dronning Elizabeth inspects Bank of Englands gold holdings. Photo Gold 401k.

Only if all the nations of the world change to the gold standard at the same time, fluctuations in the exchange rates can be avoided.

Secondly he believes that gold is too rare to be an international reserve currency: "For except during rather brief intervals gold has been too scarce to serve the needs of the world's principal medium of currency. Gold is, and always has been, an extraordinarily scarce commodity. A modern liner could convey across the Atlantic in a single voyage all the gold which has been dredged or mined in seven thousand years. At intervals of five hundred or a thousand years a new source of supply has been discovered—the latter half of the nineteenth century was one of these epochs—and a temporary abundance has ensued. But as a rule, generally speaking, there has been not enough."

Thirdly, there is no efficient market characterized by perfect competition, which through thousands of transactions can define a stable price of gold and sustain our fascination with the golden metal. Few women wear gold jewelry, and very few men collect gold coins. The very most of the world's gold reserves have been melted into bars and put behind locks in the central banks' basements: "Thus, almost throughout the world, gold has been withdrawn from circulation. It no longer passes from hand to hand, and the touch of the metal has been taken away from men's greedy palms. The little household gods, who dwelt in purses and stockings and tin boxes, have been swallowed by a single golden image in each country, which lives underground and is not seen. Gold is out of sight -gone back again into the soil. But when gods are no longer seen in a yellow panoply walking the earth, we begin to rationalise them; and it is not long before there is nothing left."
Gold price 1344-1998
An estimate of the real price of gold. It is seen that the price has been fairly stable for long periods of history also in the era of the classic gold standard, apart from some problems in the time of the French Revolution and the Napoleonic Wars. On the other hand, the fluctuations have been high in the 1900s. The graph shows only the gold price until 1998, but in the following 20 years the fluctuations have also been big. Photo Zero Hedge.

The modern gold market is not a perfect competitive market, it may be better characterized as an oligopoly. Most of the gold is owned by a few central banks, who know each other and meet regularly.

Fourthly If a currency system based on the gold standard really was introduced, it would still be a "managed" currency. Central banks would not accept that their currencies followed gold's unpredictable price fluctuations with all the problems it would imply for export companies, employees, consumers and traders. They would meet, probably somewhere in Switzerland, and negotiate how the cake should be cut.

Keynes and Population Control

Just as Keynes did not think that laissez-faire was sound in the national economy, he nourished the lifelong conviction that also in terms of population development laissez-faire was a bad idea.

Thomas Malthus
The economist Thomas Malthus 1766-1834. Many believe that Keynes was inspired by Malthus more than by other economists. Although Malthus was a all round economist, he is, however, best known for his theory of the inevitable population-growth. Photo: John Linnell Wikipedia

He studied the the economist Thomas Malthus, who in 1798 pointed out that nations and their agricultural area as well as Earth as a whole has a certain limited size, while humans have the ability and motivation to multiply themselves indefinitely. No matter how flexible and creative we are, the population size sooner or later will reach an upper limit.

Already after a visit to Egypt in 1914, he warned in an Oxford lecture that colonial governments' efforts to raise living standards in Egypt and India would fail due to population growth; An increase in real wages in Punjab was due to only a "beneficent visitation" of the plague. He maintained that "almost any measures seem to me to be justified in order to protect our standard of life from injury at the hands of more prolific races. Some definite parceling out of the world may well become necessary; and I suppose that this may not improbably provoke racial wars" - "Countries in the position of British Columbia are entirely justified in protecting themselves from the fecundity of the East by very rigorous immigration laws and other restrictive measures."

Videre i "The Economic Consequences of the Peace" i 1919 udtrykte han sin bekymring for befolkningsudviklingen: "Before the eighteenth century mankind entertained no false hopes. To lay the illusions which grew popular at that age's latter end, Malthus disclosed a Devil. For half a century all serious economical writings held that Devil in clear prospect. For the next half century he was chained up and out of sight. Now perhaps we have loosed him again."

Excerpt from article by Keynes on Population
Excerpt from article by Keynes on Population from 1923 in New Republic Magazine

Keynes never let the population perspective out of sight. Also in his lecture, End of Laissez-Faire, in 1926, he made himself a spokesman for that a government should regulate the size and quality of a population. In connection with his explanation of the philosophical origin of laissez-faire, he points out that opposition to the state's intervention in the market and its possible interventions connected with population size and quality have the same origin: "These reasons and this atmosphere are the explanations, we know it or not - and most of us in these degenerate days are largely ignorant in the matter - why we feel such a strong bias in favour of laissez-faire, and why state action to regulate the value of money, or the course of investment, or the population, provokes such passionate suspicions in many upright breasts."

Og videre i End of Laissez-Faire: "My third example concerns population. The time has already come when each country needs a considered national policy about what size of population, whether larger or smaller than at present or the same, is most expedient. And having settled this policy, we must take steps to carry it into operation. The time may arrive a little later when the community as a whole must pay attention to the innate quality as well as to the mere numbers of its future members."

Keynes in front of his bookcase
Keynes in front of his bookcase. He enjoyed collecting books; He collected and preserved many of Isaac Newton's papers. Partly on the basis of these papers, he wrote about Newton as "The last of the magicians". Photo: economic-definition.com.

In a report by Margaret Sanger from a Genova conference about population, she quotes Keynes: "I am discouraged because they are not striking at fundamentals. They do not want to think of one fundamental question, and that is the population question. There is not a city, not a country, in the League of Nations today that will accept it, or discuss it, and until the nations of the world are willing to sit down and talk about their problems from the population point of view, its rate of growth, its distribution, and its quality, they might just as well throw their peace proposals into the waste basket, because they will never have international peace until they do consider that problem."

John Maynard Keynes was Director of the Eugenics Society from 1937 to 1944. As late as 1946, shortly before his death, he declared Eugenics to be "the most important, most significant and I will add genuine branch of sociology that exist"

Keynes speaks at the Bretton Woods conference in 1944
Keynes talks at Bretton Woods. In 1944 he attended the Bretton Woods conference as head of the British delegation. The conference intended to organize the international economic system for post-war time. The World Bank and IMF, "International Monetary Fund" was founded. At this conference, Keynes proposed to establish an international reference currency, as a kind of overall reserve currency. He did not get his proposals through. After the war, dollars became, in practice, the international reserve currency, to great benefit of the US economy. Photo: economic-definition.com

His eugenic concerns are often condemned as profoundly reprehensible according to modern politically correct standards, even as they were common among intellectuals of his time. Modern politicians do not recognize population problems. They have no qualms about inviting thousands, indeed millions, of primitive and not especially well gifted Africans and Muslims to settle in the European nations.

Skilled farmers chased Malthus' devil down into an obscure hole somewhere in the world by creating the Green Revolution and making overweight for at least as big a problem as hunger, at least in some parts of the world. But in modern times the devil has burst his chains and again shown his ugly face in Africa and the Middle East.

Links og Litteratur

John Maynard Keynes Wikiquote
John M. Keynes af Gregers Friisberg
An Open Letter to President Roosevelt The University of Texas
The Economic Consequences of the Peace by John Maynard Keynes Gutenberg
The General Theory of Employment, Interest and Money Wikipedia
Keynes's Remarks in the German Edition of the General Theory Social Democracy
The General Theory of Employment, Interest, and Money som pdf umkc.edu
Economic Possibilities for our Grandchildren Marxist.org
Keynes on Population (review) Project Muse
On Keynes and Eugenics Phillip W. Magness
Essays in Persuasion 1931 by John Maynard Keynes A Project Gutenberg Canada Ebook
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