Keynes and the gold standard

[pdavidso <pdavidso@xxxxxxx>]

>===== Original Message From wmosler@xxxxxxxxxx =====
>Hi Paul,
>
>To be relevant throughout, one must 'translate' Keynes from fixed (gold
>standard) to flex exchange rate environment. Keynes is, best I can tell,
>totally correct in a gold standard regime, but needs translation to be
>applicable today.


Not true. The General Theory was published in 1936 -- while the Gold Standard
was abandoned years earlier.

As the biographer of Keynes, Robert Skidelsky noted "what made his book [Tract
on Monetary Reform] shocking was its iconclasm of expression and its attack on
the gold standard". From then on Keynes attacked the gold standard
every chance he got. Keynes believed, according to Skidelsky; "the gold
standard itself was an important source of price instability"

Keynes described the gold standard as "a barbarous relic" and he always
championed a managed money system instead-- where if necessary, for "symbolic
or conventional values" we can make the managed money system look like there
was gold underlying it -- as long as we can "print gold nationally...[and]
internationally." and do not rely on a gold standard!

In his Clearing union writings for Bretton Woods, Keynes, according to
Skidelsky "started off by dismissing the classical theory of the gold
standard. The flow of gold never did preserve equilibrium in the balance of
payments".

I could continue -- but I think I have given you enough quotes from Skidelsky
and Keynes to indicate that Keynes was not applying his analysis and proposals
to a gold standard system -- nationally or internationally!

> While mainstream doesn't know this specifically, they
>none the less aren't technically wrong in dismissing some of Keynes as
>inapplicable today (though I can do the same for their ramblings).

Not true! The belief in a flexible exchange rate system which you apparently
share with mainstream economists requires the assumption of a very large
Marshall-Lerner condition. Otherwise flexible exchange rates exacerbate,
rather than cure, the problem. Emopirical evidence including the J-curve
analysis indicates that for most nations the Marshall-Lerner condition does
not hold in the short-run and in the long run we'll all be dead! So flexible
exchange rates are the problem, not the solution.
>

I believe that by tying your argument regarding deficits and foreign savings
demands for US dollar denominated assets with the desire of flexible exchange
rates, you are tying you very correct innovative view of savings and the
demand for net assets (which underlies Keynes's liquidity preference analysis)
to the very inapplicable flexible exchange rate system -- and thereby draw
away attention -- and deleting the importance --from your truly important
deficit-savings message.

But we have gone through this before and I don't seem to be able to get you to
understand why the lack of aMarshall -Lerner condition makes a difference.

best.

Paul

Paul Davidson
Editor, Journal of Post Keynesian Economics
University of Tennessee
SMC 503
Knoxville, Tennessee 37996-0550
office phone #;(865)974-3303; office fax#(865)974-4601
home phone and fax # (561)369-1951
email pdavidson@xxxxxxx
http://econ.bus.utk.edu/Davidson.html





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Paul Davidson
Editor, Journal of Post Keynesian Economics
University of Tennessee
SMC 503
Knoxville, Tennessee 37996-0550
office phone #;(865)974-3303; office fax#(865)974-4601
home phone and fax # (561)369-1951
email pdavidson@xxxxxxx
http://econ.bus.utk.edu/Davidson.html