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How Keynes Almost Prevented The Keynesian Revolution
Submitted by Mark Tovey via The Mises Institute,
October 30, 1929. A brisk autumn’s day in Manhattan. The Savoy-Plaza Hotel’s thirty-three stories cast a long shadow over Central Park. At the base of the hotel a financier lies freshly fallen, motionless, while his last breath, wrenched from the lungs by force of impact, is now a red mist of gore in the air.
Sirens and uniforms. The suicide spot quickly becomes crowded by spectators, who form a vision-impairing ring-fence of backs, much to the annoyance of elbow-throwers at the periphery. Winston Churchill stands at his hotel window looking down on the mess. To nobody’s surprise, the police will find an empty wallet and five margin calls in the dead man's pockets.1
Churchill’s curtains flutter shut, and we are left to wonder whether anyone — Churchill included — can yet see his clumsy, cigar-wielding hand in it all; whether anyone realizes that, had Churchill as Chancellor of the Exchequer only restored the gold standard at a lower exchange rate, as Keynes had recommended, the Wall Street Crash of 1929 could have been averted (or at least ameliorated).
Alas, by ignoring Keynes in 1925, Churchill triggered a calamity so severe that it not only inspired one man to kill himself beneath the British statesman’s very window but, more insidiously, also provided the impetus for the economics profession’s rejection of the “classical” axioms. As Keynes’s biographer Robert Skidelsky writes, Keynes “did not believe in the system of the ideas by which economists lived; he did not worship at the temple.” And while “in former times he would have been forced to recant, perhaps burnt at the stake, as it was ... the exigencies of his times enabled him to force himself on his church.”
1925: Britain’s Return to the Gold Standard
The pound sterling’s link to gold was severed at the start of WWI. After eleven years of unfettered inflation, Chancellor of the Exchequer Winston Churchill restored convertibility at the pre-war level of 4.25 pounds per ounce of gold.
Keynes, quite rightly, took exception to this particular detail: expecting Britain’s global customers to go on paying the same gold-price for the weakened pound was unrealistic. At this exchange rate the pound would be overvalued, and the only cure would be a sustained period of deflation — which was “certain to involve unemployment and industrial disputes.” Indeed, in 1926 a general strike crippled Britain for nine days.
What Keynes did not predict, however, was how Churchill’s blunder would later bring about an easing of monetary policy in America. And even supposing Keynes had predicted this side effect, would he have understood its implications for long-run sustainability? (Recall that both F.A. Hayek and Keynes predicted a crash would occur in 1929: Hayek because interest rates were too low, Keynes because they were too high!)
1927: At the Fed (With Cap in Hand)
American sellers (in particular) were accepting British gold in exchange for goods, but were dissuaded from returning it due to the unfavorable rate of exchange. As a result, Britain’s gold supplies diminished at a rapid rate, which made the authorities understandably twitchy: how could they keep their pledge to convert pounds into gold if they had none?
In response, the Governor of the Bank of England, Montagu Norman, set off across the Atlantic and, with much pleading, persuaded the Federal Reserve to ease monetary policy. By lowering interest rates and raising inflation, the Fed stemmed gold flows into America, giving the British a much-needed respite from the ill-effects of Churchill’s costly pound.
With this episode of soft-hearted internationalism came an upswing in the Wall Street boom and “from that date,” wrote Lionel Robbins, “according to all the evidence, the situation got completely out of control.”
In The Great Crash, a very popular account of the lead up to the Great Depression, John Kenneth Galbraith writes:
the rediscount rate of the New York Federal Reserve was cut from 4 to 3.5 percent. Government securities were purchased in considerable volume with the mathematical consequence of leaving the banks and individuals who had sold them with money to spare. The funds that the Federal Reserve made available were either invested in common stocks or ... they became available to help finance the purchase of common stocks by others. So provided with funds, people rushed into the market.
Galbraith goes on to quote a member of the Federal Reserve Board who, with hindsight, called the operation “one of the most costly errors” committed by a banking system “in 75 years.”
Galbraith finishes: “the view that the action of the Federal Reserve in 1927 was responsible for the speculation and collapse which followed has never been seriously shaken.”
John Maynard Who?
When Keynes wrote against returning to the gold standard at pre-war parity in 1925, he did so with the expectation that he might actually influence policy. As a younger, unknown man he had worked at the Treasury for a brief stint, leaving a legendary impression; and by 1925, six years after his best-seller The Economic Consequences of the Peace, he was a famous man whose words carried weight.
It is not outlandish then to imagine a world in which Keynes got his way. In such a world, the Wall Street crash and ensuing depression might never have happened - without the costly pound, the Fed would have had no impetus to inflate. Keynes would subsequently have found the economics profession less rattled, less willing to abandon its “classical” axioms in favor of his new-fangled approach. Keynes might have averted Keynesianism.
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Brace for impact.
Jumping out of windoes? How barbaric.
But then I guess they didn't have nail guns back then.
When corresponding about The Road to Surfdom Hayak told Keynes that his disciples were doing dangerous things with his teachings. Keynes agreed and said something to the effect that he would have to soon use his influence to sway the opinion of the economic community back toward sanity. Shortly after the conversation he died.
Blaming Churchill alone for this economic disaster gives that bisexual idiot too much credit. When things go really bad, it usually takes a team. For an inkling on how bad the U.S. economy was in the post WWI years, look at mint coinage production. In 1922, the Denver and Philadelphia mints stamped out no nickels, dimes, quarters or half dollars. Some 1922-D pennies were produced (7million) but the mints were very busy stamping out silver dollars. And those silver dollars had to be minted, thanks to the Pittman Act of 1918. Churchill had to know the U.S. and British economies were in a slump in 1925, but he though himself above the doings of peasants. Approving the return to the gold standard was the act of an drunken idiot looking to get attention, which describes Churchill to a tee.
There were also two American policies that contributed to the great run up and subsequesnt crash.
#1. Buying stocks on margin. the margin rate was only 10%. So with $1,000 you could buy $10,000.
#2. Bank, Brokerage, Investment Bank could all do the same business.
Banks were invested in stocks, money moved freely between bank, brokerage, and speculative investment banking, and Joe sixpack was given way too much credit.
Winston Churchill had nothing to do with it.
The anti-gold crowd looks at this and says "see the gold standard didn't work". But the fact is that Churchill just tried to peg the pound at the wrong gold price
Fractional reserve banking existed in the 19th century, thus debt based money was used alongside gold and silver during this time. Krugman often says that the gold standard was unstable because of the panics of the 19th and early 20th century, but the truth is it was the expansion and contraction of debt based money through fractional reserve banking that caused the booms and subsequent busts. Panic was an apt term because people panicked when they realized that their debt based money was not backed by gold and silver as implied by what was written on it, it was backed by debt and an insolvent institution. Anyone who says that the instability of the 19th century was caused by the gold standard is being intellectually dishonest.
Perhaps you'll think this off-topic, but the local CBS affiliate here in Chattanooga has pre-empted the PGA Championship with a broadcast of empire worship following the killing of five Marines a couple week ago. No, I'm not defending the killings (by a deranged Muslin-American youth); I'm lamenting the fact that the American people are too dumbed-down, docile, and dependent to have any idea who their real enemy is, i.e., the same entity that has turned the world's money and banking system into the greatest fraud in the history of the world and is leading it down the rathole of financial and moral bankruptcy.
As always, it and its counterparts around the world can kiss my ass.
from gallipoli to gold Churchhill was a disaster.
Churchill - one of the greatest men from the greatest country that owned the greatest empire the world has ever seen.
If only more modern leaders were like him we wouldn't be in this mess we are now.
with so many superlatives all heaped on the man from Gallipoli and the light brigade charge one would think that the Cuban cigar should be the icon of NEW GOLD and Cuba its Fort Knox; not its Gitmo!
Fidel was right to kick Bautista out but should have invited Winston, in retirement, to be his point man for making Habana cigars the "girls best friend" and icon of wealth; something Clinton never forgot!
Cuba would be rich and the Bay of Pigs would have never occurred!
Fidel would have gotten more bang for his buck had he allowed Meyer Lansky to bribe him. That was the real act that upset the applecart.
In a way, Churchill as Man of the Century will be appropriate. This has been the century of the State of the rise and hyper-trophic growth of the welfare-warfare state and Churchill was from first to last a Man of the State, of the welfare state and of the warfare state. War, of course, was his lifelong passion; and, as an admiring historian has written: “Among his other claims to fame, Winston Churchill ranks as one of the founders of the welfare state.” Thus, while Churchill never had a principle he did not in the end betray, this does not mean that there was no slant to his actions, no systematic bias. There was, and that bias was towards lowering the barriers to state power.
To gain any understanding of Churchill, we must go beyond the heroic images propagated for over half a century. The conventional picture of Churchill, especially of his role in World War II, was first of all the work of Churchill himself, through the distorted histories he composed and rushed into print as soon as the war was over. In more recent decades, the Churchill legend has been adopted by an internationalist establishment for which it furnishes the perfect symbol and an inexhaustible vein of high-toned blather. Churchill has become, in Christopher Hitchens’s phrase, a “totem” of the American establishment, not only the scions of the New Deal, but the neo-conservative apparatus as well politicians like Newt Gingrich and Dan Quayle, corporate “knights” and other denizens of the Reagan and Bush Cabinets, the editors and writers of the Wall Street Journal, and a legion of “conservative” columnists led by William Safire and William Buckley. Churchill was, as Hitchens writes, “the human bridge across which the transition was made” between a noninterventionist and a globalist America. In the next century, it is not impossible that his bulldog likeness will feature in the logo of the New World Order.
https://www.lewrockwell.com/1970/01/ralph-raico/man-of-blood
http://www.mosaisk.com/revolution/Winston-Churchill-Zionism-Versus-Bolsh...
From the days of Spartacus-Weishaupt to those ofKarl Marx, and down to Trotsky (Russia), Bela Kun(Hungary), Rosa Luxemburg (Germany), and Emma Goldman (United States), this world-wide revolutionary conspiracy for the overthrow of civilization and for the reconstitution of society on the basis of arrested development, of envious malevolence, and impossible equality, has been steadily growing.
Although in all these countries there are many nonJews every whit as bad as the worst of the Jewish revolutionaries, the part played by the latter in proportion to their numbers in the population is astonishing.--Reminds me that 3 of 5 Supreme Ct. justices who voted for qu**r marriage.
Is any of this true?
Though perhaps it didn't matter and the 1929 bubble and crash was going to occur anyway.
It's the first that I've heard about what was going on in the UK financially during that period, but it could be true. Either way, there were a lot of factors leading up to 1929 in the US alone.
You might find this interesting as well:
The Invergordon Mutiny was an industrial action by around 1,000 sailors in the British Atlantic Fleet that took place on 15–16 September 1931. For two days, ships of the Royal Navy at Invergordon were in open mutiny, in one of the few military strikes in British history.
The mutiny caused a panic on the London Stock Exchange and a run on the pound, bringing Britain's economic troubles to a head and forced it off the Gold Standard on 21 September 1931.
https://en.wikipedia.org/wiki/Invergordon_Mutiny
Once again, the Federal Reserve is at the center of another boom and bust
Getting tired of it yet, people?
No one is tired of it yet apparently. Most still think the Federal Reserve delivers packages overnight.
The premise of this article is very questionable.
Indeed, somewhat like fictional masturbation founded in economic fantasy aka dribble.
Shame.
Here is something with a little more integrity:
http://www.garynorth.com/public/92.cfm
Today, as aforeesaid, stupid is really ubiquitously pervasive these days - are there no exceptions?
Ho hum
Everyone seems to have forgotten the "BRADBURY POUND".... never heard of it before?
chances are you havent because it was "National Credit" issued by the "GB Govt Treasury" & "not borrowed at interest" from the Zionist banks.
Yes in 1914 David Lloyd George had £365 million "bradbury Pounds" put into circulation in Britain as national credit as GB has just entered the war against Germany & GB was near Bankrupt before a rifle had even been loaded!!! Obviously the Govt & Banks didnt want anyone to know or to demand their gold back from the BoE vault, as it had been stolen by the "zionist Bankers" in the "shitty of London"....
However the most important part was not the insolvency of GB, as such, it was the Fact that "the Government Treasury" had created its own currency, independantly of the banks, issued without any interest or debt... "national credit"....
As we all know National credit is lawful & can be done at any time easily.... but as we also all know, when a bank cartel controls the Govt... no Govt will issue National Credit that is Debt free. Be it a greenback dollar or a bradbury pound... the zionists will never allow such freedoms EVER. see below for a good read & a lot of little known truth regards war, money & "repayment of debt with life"
http://www.ukcolumn.org/sites/default/files/pdf/bankers-bradburys-carnage-western-front.pdf
"The pound sterling’s link to gold was severed at the start of WWI. After eleven years of unfettered inflation, Chancellor of the Exchequer Winston Churchill restored convertibility at the pre-war level of 4.25 pounds per ounce of gold....
In response, the Governor of the Bank of England, Montagu Norman, set off across the Atlantic and, with much pleading, persuaded the Federal Reserve to ease monetary policy. By lowering interest rates and raising inflation, the Fed stemmed gold flows into America, giving the British a much-needed respite from the ill-effects of Churchill’s costly pound."
The US slave farm was used to pay UK war debt.
I once tried to explain this to a 'one world government'-fearful relative to explain that it's been that way a lot longer than we've been alive. He would have none of it, of course. To him, the one world government is in the near future but we're still free.
Give'em a copy of "The Creature From Jekyll Island," and have'em read the first 60 pages of chapter 1...
Too much to read. This is the Introduction to "The Great Red Dragon: Foreign Money Power In The United States." (1889)
"An Imperialism of Capital has grown up within the last two centuries from small beginnings, until it is now the mightiest power that has ever existed on earth. It is an Imperialism mightier than the empire of the Caesars, grander than the empire of Napoleon in the hour of his highest glory. In comparison with it, all other empires sink into comparative insignificance. This titanic power is the Imperialism of Capital, which I call, by way of distinction, the Money Power."
And both were right...Hayek that the crash would come...and Keynes that it could be (temporarily!) delayed by lowering rates.
Again. Wrong. The largess of the 20s had that crash baked into the cake (as per Hayek's prediction above). It was a matter of time.
Again, no. Keynesianism was a prereq for the defecit spending required for American Empire and there's nothing MJK could have done to prevent that "Manifest Destiny".
A good piece from the von Mises institute. In 1925 Keynes knew what he was talking about. Churchill did not. With characteristic arrogance and bravado, Churchill made decisions in matters for which he had no quaifications. It is a pity that Keynes' ideas are currently being attacked by libertarians and neo liberals who don't know what they're talking about, and are misrepresenting the man and his legacy.
Most, if not all "economists" that quote Keynes as their Authority and source, have no idea what Keynes wrote, nor any of his work. It is they that have given Keynes a bad name - for those things they and their Cult have done in his name.
Ho hum
This seems to me to be a post defending the grifters at the FedRes, Zion's plunders, and the apologist for them, Keynes.
Guillotine the Fed. "Return" Zion. Restore the American country.
Liberty is a demand. Tyranny is submission.
The thing about KEYNES is he wasn't that KEEN. He was a nutty Eugenicist who wanted to Quantitatively Ease People out of the Population. And his dumb policies (now famously known as KEYNESIANISM) are doing NOW what they did then: Fan the Flames of a Country going up in Smoke. (sidenote: ALAN GREENSPAN was the Spawn of Keynes). To wit, the FED RES is just as Fictional as Keynes policies were (based as they are on his half-baked economic theories).
Now, CHURCHILL--THAT was a Politician my friend! Lover of MACHIAVELLI that he was, in the early years of his career as a member of Parliament and then as a junior cabinet minister, he frequently sent copies of the book to friends along with his endorsement of the book’s value. In other words, he knew how to play the game--and get shit done.
Of course, by now we should have a clue that we live in a MONOPOLY GAME-based Economy. JP MORGAN is the Banker (still). Really, the whole Game is based on the moving and grooving of Morgan, Carnegie, Rockefeller and Vanderbilt. So have fun with your QE-Monopoly Money.
I suggest that you do a little more reading. Greenspan was not a Keynesian. He was a disciple of Ayn Rand, a Russian Jewish lady who propounded a number of sophomoric ideas that were in direct contradiction to the principles of American constitutional democracy.
You state, “American sellers (in particular) were accepting British gold in exchange for goods, but were dissuaded from returning it due to the unfavorable rate of exchange”
You don’t explain how the Fed, by inflating the money supply in America and creating a stock market bubble, effected the exchange of gold, exports to England and the loathing to accept the pound for settlement.
While I believe you are correct, you should resubmit this article and more clearly connect the dots as this is the crux of your argument.
A major theme of Jesuit historian Eric Jon Phelps is that nearly all world leaders are Masonic, Zionist or Jesuit agents of the European Black Nobility.
He argues that FDR and Churchill were secret 33rd deg Masons working for the Black Nobility and that explains why Churchill committed so many supposedly accidental “blunders”.
If you consider the Churchill-instigated disastrous Mediterranean Gallipoli invasion that slaughtered thousands
of Australian and New Zealand mostly Protestant troops in WW1, you will understand he was carrying out the Black Nobility’s Protestant genocide campaign between 1914 through 1945.
In fact he argues that it was one of the major purposes of both WW1 and WW2, contrary to disinformation pushed in our news and education.
Likewise if you consider another disastrous Churchill-instigated Mediterranean invasion, consider during WW2, you will see another supposedly accidental “blunder” take place.
It was Churchill’s disastrous plan to invade the Italian “soft underbelly” of Europe. It served to uselessly prolong the war and continue the slaughter of mostly Protestant troops on all sides.
Few understand the war on Protestants, and any other disloyal heretic group like Orthodox Russians, Jews and Buddhists that resisted allegiance to Catholic Rome, that the
Black Nobility have been conducting since the Dark ages when the Popes ruled the world unopposed.
The disastrous stock market bubble of 1929 that transferred vast fortunes to Black Nobility agents that own our Fed and
the Bank of England was deliberately planned by 33rd deg Mason Winston Churchill. As FDR said, in politics “there are no accidents”.
See Eric Jon Phelps - Vatican Assassins, Jesuit Order, Knights of Malta
https://www.youtube.com/watch?v=_F31TmQ9GwU
Pretty incredible numbers;
"Brokers' loans reached four billion on the first of June 1928, five billion on the first of November, and by the end of the year they were well along to six billion. Never had there been anything like it before..."
The Great Crash 1929
By John Kenneth Galbraith
https://books.google.com/books?id=YoXZWqBIIE8C&printsec=frontcover&dq=J....
@RichardParker. A great book that one. I have it myself. Another good one is "money, whence it came, where it went" J.K.galbraith. "ATLAS SHRUGGED" by AYN RAND. By the way, who is John Galt?. _ JOHNLGALT.