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News : Irish Economy Last Updated: Apr 7, 2015 - 9:01 AM


Keynes in Dublin
By Michael Hennigan, Founder and Editor of Finfacts
May 28, 2010 - 4:27 AM

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John Maynard Keynes (left), honorary advisor to the UK Treasury and Assistant Secretary, US Treasury, Harry Dexter White, in Savannah, Georgia, US, March 1946, where the inaugural meeting of the International Monetary Fund's Board of Governors was held. Just a month later, Keynes died of a heart attack at his holiday home in Tilton, East Sussex on April 21, 1946.

White is suspected (not in the Senator Joseph McCarthy sense) of passing government documents to the Soviets and he died in August 1948, three days after giving testimony on the issue to a US congressional committee. In 1997, the bipartisan Commission on Government Secrecy, chaired by Democratic Senator Daniel Patrick Moynihan, stated in its findings that the complicity of Harry Dexter White seemed to be established. Photo credit: IMF

The renowned Depression era British economist John Maynard Keynes gave a lecture in Dublin in April 1933 on the day President Franklin D. Roosevelt announced that America was abandoning the gold standard - - the 1913 Federal Reserve Act provided that at least 40% of currency notes issued had to be backed by gold.

Credit to Prof. Frank Barry of Trinity College for bringing attention on the Irish Economy blog to Keynes'  April 19, 1933 lecture on national self-sufficiency at University College Dublin's then location at Earlsfort Terrace. It was a time when Seán Lemass in the De Valera government, was promoting a policy of developing local industry behind high tariff walls.

It was also a time of global tumult. President Roosevelt had been in office since early March and was given wartime powers by the US Congress to deal with the economic emergency and on January 30th of that fateful year, Adolf Hitler had been appointed chancellor of Germany. Keynes had been a member of the British delegation at Versailles and saw that the vengeful peace, would have baleful economic consequences for both victors and vanquished. America was a creditor of both sides and biographer Robert Skidelsky, makes clear that at every stage of the economist's career, he tried to think broadly about the social and political consequences of economic policy.

Keynes' prescient 1919 book The Economic Consequences of the Peace, had set out the inevitable "rapid depression of the standard of life of the European populations to a point which will mean actual starvation for some (a point already reached in Russia and approximately reached in Austria). Men will not always die quietly. For starvation, which brings to some lethargy and a helpless despair, drives other temperaments to the nervous instability of hysteria and to a mad despair."

The book also contains the famous passage where Keynes describes life of free trade as it existed in 1914, when a man in London could travel the world freely, invest wherever he wanted, and "could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep." Not only that, Keynes' Londoner "regarded this state of affairs as normal, certain, and permanent, except in the direction of further improvement."

In Dublin, Keynes told his audience that
"as lately as 1923 I was writing that free trade was based on fundamental 'truths' which, stated with their due qualifications, no one can dispute who is capable of understanding the meaning of the words."

He said:"It is a long business to shuffle out of the mental habits of the prewar nineteenth-century world. It is astonishing what a bundle of obsolete habiliments one's mind drags round even after the centre of consciousness has been shifted. But to-day at last, one-third of the way through the twentieth century, we are most of us escaping from the nineteenth; and by the time we reach its mid point, it may be that our habits of mind and what we care about will be as different from nineteenth-century methods and values as each other century's has been from its predecessor's."

After the chaos of the post-war period, Keynes said that he was inclined to the belief that, after the transition is accomplished, a greater measure of national self-sufficiency and economic isolation among countries than existed in 1914 may tend to serve the cause of peace, rather than otherwise. "At any rate, the age of economic internationalism was not particularly successful in avoiding war; and if its friends retort, that the imperfection of its success never gave it a fair chance, it is reasonable to point out that a greater success is scarcely probable in the coming years," he said.

He warned on economic nationalism, that "words ought to be a little wild--for they are the assault of thoughts upon the unthinking. But when the seats of power and authority have been attained, there should be no more poetic license."

In a lesson that is as apt today for policymakers at a time of turmoil as it was then, Keynes said: "Russia, again furnishes us with an example of the crushing blunders which a régime makes when it has exempted itself from criticism. The explanation of the incompetence with which wars are always conducted on both sides may be found in the comparative exemption from criticism which the military hierarchy affords to the high command. I have no excessive admiration for politicians, but, brought up as they are in the very breath of criticism, how much superior they are to the soldiers! Revolutions only succeed because they are conducted by politicians against soldiers. Paradox though it be--who ever heard of a successful revolution conducted by soldiers against politicians? But we all hate criticism. Nothing but rooted principle will cause us willingly to expose ourselves to it."

In December 1933, Keynes in his open letter to President Roosevelt said: "You have made yourself the Trustee for those in every country who seek to mend the evils of our condition by reasoned experiment within the framework of the existing social system. If you fail, rational change will be gravely prejudiced throughout the world, leaving orthodoxy and revolution to fight it out."

President Roosevelt began a program of purchasing US mined gold in October 1933, which prompted Keynes' comment: "the recent gyrations of the dollar have looked to me more like a gold standard on the booze than the ideal managed currency of my dreams."

By January 1934, the price of gold had risen from $20.67 to $35 and the dollar had lost 40% of its foreign exchange value when measured in gold. It should have boosted American exports but only exported financial turmoil.

Also in 1934, Keynes met the President in the White House and urged F.D.R. to do more deficit spending. "He left a whole rigmarole of figures," a bewildered F.D.R. complained to Labor Secretary Frances Perkins. "He must be a mathematician rather than a political economist." Keynes was equally unimpressed, telling Perkins that he had "supposed the President was more literate, economically speaking."

In his open letter, Keynes had said: "You are engaged on a double task, Recovery and Reform;--recovery from the slump and the passage of those business and social reforms which are long overdue. For the first, speed and quick results are essential. The second may be urgent too; but haste will be injurious, and wisdom of long-range purpose is more necessary than immediate achievement. It will be through raising high the prestige of your administration by success in short-range Recovery, that you will have the driving force to accomplish long-range Reform. On the other hand, even wise and necessary Reform may, in some respects, impede and complicate Recovery."

Recovery and reform  -- the same challenges faced by the 32nd and 44th president..

Transcript of Dublin lecture

John Maynard Keynes (right) in Bretton Woods, New Hampshire in 1944, where the post-war multilateral institutions, the International Monetary Fund and World Bank, were conceived.

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