John Maynard Keynes Explains Cure to High Unemployment in His Own Voice (1939)

When some­one ques­tions the effec­tive­ness of Key­ne­sian eco­nom­ics, the obvi­ous reply is: Remem­ber World War II?

The British econ­o­mist John May­nard Keynes argued that there is a role for gov­ern­ment inter­ven­tion when aggre­gate demand for goods and ser­vices drops, as it did dur­ing the Great Depres­sion. With­out increased pub­lic spend­ing to make up for decreased pri­vate spend­ing, he said, an econ­o­my will slide into a vicious cir­cle of low demand and low out­put, ensur­ing a pro­longed peri­od of high unem­ploy­ment. Gov­ern­ment thrift at such times will only deep­en the prob­lem. “The boom, not the slump,” said Keynes, “is the right time for aus­ter­i­ty.”

In 1939 dark clouds of war were gath­er­ing over Europe, but Keynes saw a sil­ver lin­ing: an oppor­tu­ni­ty to prove his the­o­ry cor­rect. He believed that the mas­sive gov­ern­ment-fund­ed war mobi­liza­tion would final­ly give suf­fi­cient stim­u­lus to end the Great Depres­sion. On May 23 of that year Keynes gave his famous BBC radio address, “Will Re-arma­ment Cure Unem­ploy­ment?” He said, in part:

It is not an exag­ger­a­tion to say that the end of abnor­mal unem­ploy­ment is in sight. And it isn’t only the unem­ployed who will feel the dif­fer­ence. A great num­ber besides will be tak­ing home bet­ter mon­ey each week. And with the demand for effi­cient labor out­run­ning the sup­ply, how much more com­fort­able and secure every­one will feel in his job. The Grand Exper­i­ment has begun. If it works–if expen­di­ture on arma­ments real­ly does cure unemployment–I pre­dict that we shall nev­er go back all the way to the old state of affairs. Good may come out of evil. We may learn a trick or two, which will come in use­ful when the day of peace comes.

When the day of peace did come, the Great Depres­sion was over and Eng­land and Amer­i­ca were embarked on a long peri­od of ris­ing eco­nom­ic pros­per­i­ty. In these times of reces­sion and gov­ern­ment aus­ter­i­ty, it may be good to remem­ber some­thing else Keynes said in his radio address: “If we can cure unem­ploy­ment for the wast­ed pur­pos­es of arma­ments, we can cure it for the pro­duc­tive pur­pos­es of peace.”

You can find Keynes’ clas­sic work, The Gen­er­al The­o­ry of Employ­ment, Inter­est and Mon­ey, in our col­lec­tion of Free eBooks.

Relat­ed Con­tent:

The Hayek vs. Keynes Rap

by | Permalink | Comments (2) |

Sup­port Open Cul­ture

We’re hop­ing to rely on our loy­al read­ers rather than errat­ic ads. To sup­port Open Cul­ture’s edu­ca­tion­al mis­sion, please con­sid­er mak­ing a dona­tion. We accept Pay­Pal, Ven­mo (@openculture), Patre­on and Cryp­to! Please find all options here. We thank you!

Comments (2)
You can skip to the end and leave a response. Pinging is currently not allowed.
  • Paul Marks says:

    What actu­al­ly hap­pened durng World War II is that real wage rates (judged by real i.e. “black mar­ket” prices) fell — so of course the mar­ket cleared and unem­ploy­ment vaished (those con­cript­ed British sol­diers were not earn­ing high wage — not if you dodge them by real i.e. “black mar­ket” prices).

    If gov­ern­ment spend­ing increas­es could cure unem­ploy­ment (with­out real wages com­ming down) then please explain the FAILURE of such a pol­i­cy in the Unit­ed States in the 1939s — by 1938 vast amounts of mon­ey had been spent and mass unem­ploy­ment was still there.

    There is no need for war to clear a labour mar­ket by wage lev­els ajust­ing to new real­i­ties — IF the gov­ern­ment steps out of the way (includ­ing no PRO UNION STATUTES) the mar­ket will clear.

    For exam­ple, in 1921 Her­bert “The For­got­ten Pro­gres­sive” Hoover, was not Pres­i­dent.

    Hoover after the 1929 cred­it bub­ble bust (the bust of the Ben­jamin Strong New York Fed cre­at­ed bub­ble) pre­vent­ed wages adjust­ing to the bust — he was a clas­sic believ­er in the “demand” fal­la­cy.

    Hoover also great­ly increased tax­es on “the rich” and gen­er­al­ly was the oppo­site of his the image giv­en of him today.

    But in 1921 Hoover was not Pres­i­dent — so when that cred­it bub­ble burst he was not able to threat­en and demand that wage rates be kept up (and they dure­ly fell) and Hoover was not able to “pro­tect” gov­ern­ment spend­ing either — the War­ren Hard­ing Admin­is­tra­tion (with Hoover as a dis­sent­ing mem­ber) cut gov­ern­ment spend­ing by 25%.

    Accord­ing to Key­ne­sian ide­ol­o­gy allow­ing wages to fall and cut­ting gov­ern­ment spend­ing by 25% (not “cut­ting the increase” like a mod­ern gov­ern­ment — actu­al­ly CUTTING GOVERNMENT SPENDING) should have destroyed the econ­o­my if done in the face of a bust.

    In real­i­ty the econ­o­my was in recov­ery with­in six months — and mass unem­ploymet fell away.

    1921 (indeed every oth­er pre­vi­ous bust going all the way back to 1819) is impos­si­ble to explain by Key­ne­sian doc­trine — in each case after wages fell the econ­o­my RECOVERED and unem­ploy­ment FELL.

    And wages?

    AFTER the econ­o­my recov­ered wages start­ing to go UP — but based on RISING PRODUCTIVITY (not “demand” ide­ol­o­gy).

    Stuff to read.

    Robert Hig­gs — on World War II.

    Hunter Lewis — “Where Keynes Went Wrong”.

    And Thomas Woods (“Melt­down”) on the true cause of the cur­rent crises.

  • Jeff says:

    War does not cre­ate wealth. Using scarce resources to make bombs to blow up oth­er scare resources makes peo­ple poor­er, not rich­er. Of course, enslav­ing young men and ship­ping them over­sees to fight will low­er unem­ploy­ment.

Leave a Reply

Open Culture was founded by Dan Colman.