"Inflation Seen As Nation's Salvation" Redux; How Keynes Grew To Hate 'Keynesianism' And Love The Monetary Bomb

Tyler Durden's picture

There are few things as entertaining as watching US propaganda movies from the 1930s. Case in point, this documentary from the depths of the great recession (1933), when America was struggling with a deflationary wave nearly as bad as the one today, and when the only salvation was the spinning of Keynesian politics to the point where even Keynes himself had to send a letter to FDR to warn him that how the US was was interpreting his fledgling economic religion (it hadn't quite made cult status yet), was wrong. Of course, nobody cared then, and nobody will care now: after all there are cans to be kicked, mid-term elections to prepare for, and votes to be bought with ridiculous unemployment benefit extensions upon extensions. And while even back then Keynes disagreed with FDR's wholesale economic approach which compounded failure upon failure, only to be saved by the "fluke" that was WWII, one wonders just how quickly he is spinning in his grave today, when, as Rick Santelli pointed out, we no longer have deflation, but deleveraging to the tunes of tens of trillions of dollars, and no longer a cyclical recession, but a structural shift in the way credit is apportioned, and disappearing, in the economy. We expect to soon see a comparable shift in the Fed's and the ECB's subliminal cartoon messages, which just like the recent 180 from Barton Biggs, will soon begin highlighting all those "previously undiscovered silver linings" in the great satan of inflation.

Hilarious video below:

And as PopModal points out, before America listens to the Krugmanites threaten mass extinction events in case America does not continue to spend, spend, SPEND, read the following observations based on an open letter from Keynes to Roosevelt:

"Now there are indications that two technical fallacies may have
affected the policy of your administration. The first relates to the
part played in recovery by rising prices. Rising prices are to be
welcomed because they are usually a symptom of rising output and
employment. When more purchasing power is spent, one expects rising
output at rising prices. Since there cannot be rising output without
rising prices, it is essential to ensure that the recovery shall not be
held back by the insufficiency of the supply of money to support the
increased monetary turn-over. But there is much less to be said in
favour of rising prices, if they are brought about at the expense of
rising output. Some debtors may be helped, but the national recovery as a
whole will be retarded. Thus rising prices caused by deliberately
increasing prime costs or by restricting output have a vastly inferior
value to rising prices which are the natural result of an increase in
the nation's purchasing power."

"I do not mean to impugn the social justice and social expediency of the
redistribution of incomes aimed at by N.I.R.A. and by the various
schemes for agricultural restriction. The latter, in particular, I
should strongly support in principle. But too much emphasis on the
remedial value of a higher price-level as an object in itself may lead
to serious misapprehension as to the part which prices can play in the
technique of recovery. The stimulation of output by increasing aggregate
purchasing power is the right way to get prices up; and not the other
way round.
"

Of course, when the nation has no purchasing power, the government steps in to both restrict output and to borrow from future consumption to be the purchasing power of last resort.

As for Bernanke's insane monetary printing experiment, Keynes had a thing or two to say about that as well:

"The other set of fallacies, of which I fear the influence, arises out
of a crude economic doctrine commonly known as the Quantity Theory of
Money. Rising output and rising incomes will suffer a set-back sooner or
later if the quantity of money is rigidly fixed.
Some people seem to
infer from this that output and income can be raised by increasing the
quantity of money. But this is like trying to get fat by buying a larger
belt. In the United States to-day your belt is plenty big enough for
your belly. It is a most misleading thing to stress the quantity of
money, which is only a limiting factor, rather than the volume of
expenditure, which is the operative factor.
"

So before all those who are dead set on spending America to oblivion and printing trillions and quadrillions more, perhaps they should realize that even Keynes not only did not endorse such irresponsible behaviour, but in fact criticized the US president way back in the day for taking the message of
Keynesianism and turning it over on its head.

Full letter from JM Keynes in the December 31, 1933 NYT issue.

Keynes NYT Dec 31, 1933

h/t Ian