Even Keynes endorsed the crowding-out logic against deficit-financed public works in 1924
Evidence
The Treasury’s argument, echoing Hume and Smith, was that to borrow money to finance spending, the government would have to offer better terms than those available elsewhere. This would have the effect of reducing overall investment by “crowding out” private capital while increasing the debt for what would offer only a temporary respite rather than a full-blown cure. As Conservative chancellor of the exchequer Stanley Baldwin put it in 1922, “Money taken for government purposes is money taken away from trade, and borrowing will thus tend to depress trade and increase unemployment.” Such views, however, were not limited to the Treasury. The mindset was so widely shared that no less a figure than John Maynard Keynes argued in 1924 that “public money which has been raised by borrowing, can do nothing of itself … and it may do actual harm if it diverts existing working capital from the production of goods.” — Mark Blyth, Austerity, 331
Categorization
- XREF: Contradicts the standard Keynesian image; relevant to Mattei and the intellectual-history of austerity. — connects to: Keynes held that free-market capitalism usually has deficient effective demand — Clara E. Mattei, The Capital Order: How Economists…, 1690
- DEFINE: Defines the crowding-out argument as the core of the Treasury view.
- SHARE: Worth sending to anyone working on Keynes or the Treasury view’s prehistory.
Broader Connections
- Keynes held that free-market capitalism usually has deficient effective demand
#complicates(0.85) — Clara E. Mattei, The Capital Order, 1690