Wisdom from the Great Depression
October 20, 2005
Here are some surprisingly modern observations on the Great Depression from the year 1931:
We live in a society organized in such a way that the activity of production depends on the individual business man hoping for a reasonable profit, or at least, to avoid an actual loss. The margin which he requires as his necessary incentive to produce may be a very small proportion of the total value of the product. But take this away from him and the whole process stops. This, unluckily, is just what has happened. The fall of prices relative to costs, together with the psychological effect of high taxation, has destroyed the necessary incentive to production. This is at the root of our disorganization. It may be unwise, therefore, to frighten the business man or torment him further.
What kind of an economist blames high taxes and scary anti-capitalist proposals for a good chunk of the Great Depression? What kind of an economist highlights the fall in prices relative to costs, implying that a fall in costs (including wages!) would alleviate the crisis? Robbins? Hayek? Mises?
Nope. The author is John Maynard Keynes, from Essays in Persuasion. It makes me wonder if there’s a lot more wisdom in Keynes than in Keynesianism.
Aside from the economic content, what caught my eye is the date, 1931, the year of my birth. Be that as it may, it reinforces my long-held belief that there are certain economic principles that have the nature of unchanging truth. Keynes’s words still ring true. Attacks on the capitalistic economic system are still mostly misguided.
One can be acutely aware of the dark side of capitalism without rejecting its potential for good for humankind. What other economic system in place today can equal that potential? I know of none.
Dave, an unapologetic capitalist, he.
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