America’s at a tipping point. Populists vent anger borne of economic humiliation, even as they fall further behind the mainstream. It’s an economic and political crisis without parallel since the Great Depression, almost a century ago.
Cambridge economist JM Keynes was the intellectual architect of the 1930’s rescue of capitalism. His insights, advanced through the New Deal, were piloted in the United States by Franklin Roosevelt. In London however, Keynes held an obscure government job during the war years. Then he died prematurely in 1946.
Tragically, Keynes did not leave behind a generalization of how his fix for the Great Depression might guide solutions to future economic problems. One wonders. If JM Keynes could be alive today, what sort of recommendations might he make? And how might he help scholars understand similarities between his work in economics and the work in physics of Albert Einstein?
EINSTEIN AND KEYNES
Einstein published his path-breaking Special Theory of Relativity in 1905, 31 years ahead of Keynes. Both focused upon qualifications of Newtonian orderliness in their respective disciplines. Independent of one another, they piloted somewhat parallel solutions, anchored in qualifications to the orderliness world view of Isaac Newton.
Einstein qualified Newton in this manner. Beyond our solar system or beneath the level of the molecule, randomness is a better explainer and predictor than orderliness. In economics, JM Keynes followed a somewhat similar pathway. He began by observing the suddenness by which depression economies became disorderly. Quantities supplied by producers did not equilibrate immediately with quantities demanded by consumers.
Given disequilibrium, what is the mystery variable that describes the difference between them? It’s called hoarding and it comes into being when an extended discrepancy occurs between quantity supplied and quantity demanded.
During the Great Depression, households responded to job loss by hoarding anything of value in anticipation of a bleak future. Stemming the hoarding of gold-backed money became an immediate focus of America’s new president, Franklin Roosevelt. Holding gold was made illegal. Then Roosevelt created massive employment programs to put people back to work, to stabilize household finances and to encourage the return of consumer and business confidence.
WHAT WOULD KEYNES DO NOW?
We’ll look next at what Keynes might do in this moment, in Part II, anchored in the hoarding hypothesis. Please stay tuned.
~ Jim Sawyer
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