Michael Hudson on John Maynard Keynes

Another in this occasional series from Michael Hudson’s excellent J is for Junk Economics:

“John Maynard Keynes (1883-1946): In the 1920s, Keynes became the major critic of World War I’s legacy of German reparations and Inter-Ally debts. Against the monetarist ideology that prices and incomes in debtor countries would fall by enough to enable them to pay virtually any level of debt, Keynes explained that there were structural limits to the ability to pay. Accusing Europe’s reparations and arms debts of exceeding these limits, Keynes provided the logic for writing down debts. His logic controverted the “hard money” austerity of Jacques Rueff and Bertil Ohlin, who claimed that all debts could be paid by squeezing a tax surplus out of the economy (mainly from labor).

Modern Germany has embraced this right-wing monetarist doctrine. Even in the 1920s, all its major political parties strived to pay the unpayably high foreign debt, bringing about economic and political collapse. The power of “sanctity of debt” morality proved stronger than the logic of Keynes and other economic realists.

In 1936, as the Great Depression spread throughout the world, Keynes’s General Theory of Employment, Interest and Money pointed out that Say’s Law had ceased to operate. Wages and profits were not being spent on new capital formation or employing labor, but were hoarded as savings. Keynes viewed saving simply as non-spending on goods and services, not as being used to pay down debts or lent out to increase the economy’s debt overhead. (Banks had stopped lending in the 1930s.) He also did not address the tendency for debts to grow exponentially in excess of the economy’s ability to carry the debt overhead.

It was left to Irving Fisher to address debt deflation, pointing to how debtors “saved” by paying down debts they had earlier run up. And it was mainly fringe groups such as Technocracy Inc. that emphasized the tendency for debts to grow exponentially in chronic excess of the economy’s ability to carry its financial overhead. Emphasis on debt has been left mainly to post-Keynesians, headed by Hyman Minsky and his successors such as Steve Keen and Modern Monetary Theory (MMT), grounded in Keynes’s explanation of money and credit as debt in his Treatise on Money (1930).”


2 thoughts on “Michael Hudson on John Maynard Keynes

  1. Ok. That was the answer to my last comment on “Re-reading Keynes”.
    Yet most of the so-called economists will not talk about critical importance of money creation and destruction on economic activity. Even MMT exclude the importance of money destruction onto economic activity. Only Keen dares to give it a crucial theme in economic analysis.
    That is embarassing to every economist.
    Money creation and destruction also plays a crucial role in international circulation.
    What makes the difference in sovereign and non-sovereign countries budget outcomes? Why non-sovereign money countries do have to act s if on Gold Standard and why those few do not? The answer is in whose money is being traded.
    Money creation and destruction also answers the question of why QE do not work as it was presented.

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