Wednesday, February 5, 2014

Keynes Got There First: The Paradox of the Great Depression

I pulled this quote of John Maynard Keynes from Paul Krugman, who posted lecture slides from his course on the Great Recession. It encapsulates the great paradox of the modern economy: how can we have all of the physical and human capital that we have ready to serve us and yet it lies idle? This thought struck me when first studying the Great Depression: how come if we still had all of our stuff (don't accuse me of having been too articulate) we were so poor? What happened? It's not like a physical catastrophe occurred that wiped out all of our stuff.  Alas, Keynes got there first. No surprise, I guess. Anyway, think on this: 

This is a nightmare, which will pass away with
the morning. For the resources of nature and
men's devices are just as fertile and productive
as they were. The rate of our progress towards
solving the material problems of life is not less
rapid. We are as capable as before of affording
for everyone a high standard of life—high, I
mean, compared with, say, twenty years ago—
and will soon learn to afford a standard higher
still. We were not previously deceived. But to-
day we have involved ourselves in a colossal
muddle, having blundered in the control of a
delicate machine, the working of which we do
not understand. The result is that our
possibilities of wealth may run to waste for a
time—perhaps for a long time.

Keynes, "The Great Slump of 1930"

1 comment:

Stephen N. Greenleaf said...

P.S. The criticism that I should have included is that Keynes in this quote remains too sanguine about waiting for nature (in the guise of a free-market economy) to take its course. I think his General Theory obviously recognized this defect. He could (literally) afford to wait; many out of work couldn't--and can't today.