I believe this was E.F. Schumacher's idea that Keynes adopted. On Wed, Feb 4, 2015 at 9:02 AM, Hinrich Kuhls <[email protected]> wrote:
> Syriza’s finance minister has a big idea – but will Germany accept it? > Yanis Varoufakis wants to revive a Keynesian mechanism that may prove > unpalatable yet from which Germany directly benefited in the postwar period > Linsey McGoey > The Guardian, 30 January 2015 > > http://www.theguardian.com/commentisfree/2015/jan/30/syriza-finance-minister-big-idea-will-germany-accept-it > > Since Syriza’s victory in the Greek elections on Sunday, it is the new > Essex-educated finance minister Yanis Varoufakis who has been grabbing > most of > the headlines. Much of his appeal lies in his iconoclasm: in his 1998 book > Foundations of Economics, a kind of bible for the growing alternative > economics > movement, he cites the British Keynesian Joan Robinson: “The purpose of > studying > economics is to learn how not to be deceived by economists.” > > But what can we expect from this reluctant economist and reluctant > politician > intellectually? Announcing his decision to run for a parliamentary seat on > Syriza’s ticket on his personal blog, Varoufakis stressed that he never > wanted > to run for office, preferring to channel his policy ideas across the > political > spectrum. But he grew tired of seeing his policies ignored. > > Above all he wants to draw attention to an idea that was first conceived > by one > of his major intellectual influences: John Maynard Keynes. It’s an idea > that > even ardent Keynsians often neglect; an idea that Keynes dramatically > announced > to a group of sceptical listeners at the 1944 Bretton Woods conference; an > idea > that runs diametrically counter to the current policies of Germany’s > government. > That idea is a global surplus recycling mechanism. > > In his recent book The Global Minotaur, Varoufakis claims that the notion > of a > surplus recycling mechanism is simple in theory and revolutionary in its > implications. It was first devised by Keynes while working as an unpaid > policy > adviser to the British Treasury during the early 1940s. The proposal was an > outgrowth of Keynes’s frustration with the limits of the gold standard > during > the 1920s. At that time there was an outflow of gold from Britain to the > US to > pay for Britain’s trade deficit. Logically the inflow of gold should have > expanded the money supply in the US, increasing the competitiveness of UK > exports. But the US adopted policies to offset inflationary pressures. As > the > economist Marie Christine Duggan has suggested, the harsh lesson for > Keynes was > that the gold standard was ineffective at forcing creditor nations to > increase > domestic prices or reinvest their surpluses. Creditor nations were free to > hoard > as they liked, placing the burden of action on debtor nations who had very > little choice but to act in ways that tended to depress their domestic > economies. > > Keynes’s proposal for curbing the problem was to create global rules that > would > place equal pressure on both creditor and debtor nations to adjust their > respective trade imbalances, helping to ease the burden shouldered by > debtor > nations. He suggested that any nation that failed to ensure its trade > surplus > did not exceed a particular percentage of its trade volume would be charged > interest, compelling its currency to appreciate. These interest payments > would > help to finance the second arm of Keynes’s proposal: the creation of an > International Clearing Union. The ICU would act as a sort of automatic > “global > surplus recycling mechanism,” to use Varoufakis’s term. > > As Varoufakis has emphasised, individual nations do this internally. They > disperse their own wealth, either through direct transfers (paying > unemployment > benefits in Glasgow or Idaho through taxes raised in London or New York), > or > through direct investment – purposefully building more factories and > infrastructure in depressed regions. > > Keynes believed we needed something like this on a global scale. In recent > years, the idea has received more and more support: economists such as Paul > Davidson and Joseph Stiglitz are supporters. But surplus nations are rarely > enthusiastic about the idea. Even though the proposal serves their own > interests > over the long term (by systematically investing surpluses in depreciated > areas, > they’re helping to ensure markets for their own exports), few are willing > to > sacrifice short-term economic supremacy for long-term sustainability. > > When Keynes first introduced his proposal, the US delegation at Bretton > Woods > showed little interest in a plan that would restrict their ability to run > whatever surpluses they want. After intense negotiations, Bretton Woods > delegates reached an agreement that largely reflected the interests of the > US > contingent, led by Harry Dexter White. The most significant difference > between > White’s plan and Keynes’s is that White did not have any forced penalty > mechanisms in place to charge interest whenever nations exceed surplus > limits. > At the time, Geoffrey Crowther – then the editor of the Economist – > cautioned > that “Lord Keynes was right … the world will bitterly regret the fact that > his > arguments were rejected.” > > Years later it may be time to resurrect a once lost idea. But perhaps too > short > memories in surplus nations may be the obstacle. Heiner Flassbeck, a > professor > of economics at Hamburg University, is one of the few German economists to > highlight this point. Flassbeck points out that: “We’re asking debtor > countries > to repay their debt, but at the same time we are preventing them from > doing it > […] In Germany, unfortunately, the historical lessons are not even > discussed. > Nobody knows what happened, really, to Germany, what happened to the > Germany > reparations payments, that they were cancelled.” It’s good that Varoufakis > now > has a platform to remind them. > _______________________________________________ > pen-l mailing list > [email protected] > https://lists.csuchico.edu/mailman/listinfo/pen-l > -- Cheers, Tom Walker (Sandwichman)
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