Keynesian Policy and British Unemployment in the 1930s

Abstract

Tn a recent survey in this Review Glynn and Booth suggest that the much proclaimed 'End of the Keynesian Era' cast doubts on the ability of established theories to explain not only the problems of the contemporary world but also, by extension, those of the interwar period.' They condemn the simple and crude Keynesian analysis of deficient aggregate demand for having neglected the essentially structural and regional dimensions of the problem and for having popularized the belief that Keynesian techniques could have solved mass unemployment. Historical analysis, they write, has suffered from the tantalizing attraction . .. of the Keynesian paradigm. 2 This approach, we believe, is both premature and over-pessimistic. The diagnosis of interwar unemployment and of the potential effect of corrective policies cannot simply be based on a substitution of fashionable prescriptions for unfashionable ones without an adequate analysis of the economic setting. To postulate that the current so-called crisis of Keynesian economics renders invalid the Keynesian paradigm of the I930s ignores the fact that today's economic conditions, institutions, expectations and reactions are very different from those which confronted policy makers fifty years ago. Glynn and Booth have, in our view, over-emphasized the factors frequently alleged to be so damaging to the Keynesian case, especially with regard to the structure of the economy, and have neglected evidence providing prima facie support for a short-run expansionist fiscal policy aimed at raising aggregate demand.