Monday, December 22, 2008

The Great Slump of 1930

I am shifting my normal focus on nuclear power, decarbonization, and environmental issues because of the extroprdinary economic situation we face. Last month over 500,000 workers lost their jobs in the United States. Were such a pace of job layoffs, it would profoundly impact our national economic situation. It is appear that the stock market collapse may not be over, and the wealth iost in the United States and around the world will impact the international economy as well as our national economy for some time to come. It is not yet clear if we face a 19th Century type crash, or a great economic contraction similar to the Great Depression of the 1930's. Lets hope that it is the former, rather than the latter.

The great English Economist Lord John M. Keynes wrote a famous essay on the crash of 1930 which in mny ways reflected our current situation. The title of the essay was "The Great Slump of 1930".

JOHN MAYNARD KEYNES on The Great Slump of 1930

The world has been slow to realize that we are living this year in the shadow of one of the greatest economic catastrophes of modern history... [The man in the street] begins to doubt the future. Is he now awakening from a pleasant dream to face the darkness of facts? Or dropping off into a nightmare which will pass away?

He need not be doubtful. The other was not a dream. This is a nightmare, which will pass away with the morning. For the resources of nature and men's devices are just as fertile and productive as they were. The rate of our progress towards solving the material problems of life is not less rapid. We are as capable as before of affording for everyone a high standard of life—high, I mean, compared with, say, twenty years ago—and will soon learn to afford a standard higher still. We were not previously deceived. But today we have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand. The result is that our possibilities of wealth may run to waste for a time — perhaps for a long time.


Phil Henshaw said...

Keynes was one of the few truly interdisciplinary systems thinkers among the early economists (before there was such a label) . His contributions are perhaps even more noteworthy for what his followers discarded than for what they listened to. He wrote a extensively in his "Treatise on Money" and in his "General Theory..." (ch 18) on the climax of capitalism, and what would be necessary to relieve the most unpleasant defects of capitalism that would emerge at that time... Read it and weep, is what most capitalists would say. In modern science the climax of a system begins at the point of its diminishing returns for increased investment. Keynes observed that at the climax of capital the only way to stabilize money is for people with money to spend it fast enough for it to not accumulate. It would work, and absolutely nothing else actually can. The visionary economist Kenneth Boulding who was a co-founder of the Society for General Systems Research wrote and talked about it his whole life too. I've updated the simple model with some more modern systems theory, fyi. -- Phil Henshaw --

Charles Barton said...

The problem of course is that the Chinese acted like 19th century capitalists, and that is enough to produce a typical boom and bust cycle in the world's economy. The cure is to raise the pay of Chinese workers so that they can consume what the Chines economy produces.


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