Posted by: Dirk | September 14, 2016

The euro zone crisis: What would John Maynard do? (working paper)

I have just published a working paper online (link) with the above title. What would John Maynard have thought about the euro zone crisis, and perhaps more importantly, what would he have done? The answer, most people think, is in the General Theory (1936), which was published 80 years ago. Why this is correct, there are other writings by Keynes in which he summarizes his ideas in much shorter space. The one that my article dissects is his letter to FDR, the US president, from December 31 1933. It was published in the NY Times and can be read online (link). Keynes describes three possible ‘techniques of recovery’, but argues that only one would be available at that time. I think that this letter is probably the best source to answer the question about what John Maynard would have done if he’d lived today. His point is monetary: if the monetary circuit experiences a slowdown, some actor must add more deposits into the economy to create more income and hence more demand. How do you add deposits and hence income to the world economy? Well, there are only three options. If you don’t pick any of them, you are not making sense and the crisis will persist. I find his reasoning very persuasive.

You can read my article online following this link (to the ideas/repec database, where you find a link to the pdf file).


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