Why Oh Why Can't We Have a Better Press Corps? (Yet Another Washington Post Edition)
Brad Setser Is Foreign-Exchange Reserve-Obsessed

A Historical Document: John Maynard Keynes to Franklin Delano Roosevelt at the End of 1933

Keynes's thoughts on the first nine months of the New Deal:

John Maynard Keynes: You have made yourself the Trustee for those in every country who seek to mend the evils of our condition by reasoned experiment within the framework of the existing social system.... You are engaged on a double task, Recovery and Reform;--recovery from the slump and the passage of those business and social reforms which are long overdue. For the first, speed and quick results are essential. The second may be urgent too; but haste will be injurious, and wisdom of long-range purpose is more necessary than immediate achievement. It will be through raising high the prestige of your administration by success in short-range Recovery, that you will have the driving force to accomplish long-range Reform. On the other hand, even wise and necessary Reform may, in some respects, impede and complicate Recovery. For it will upset the confidence of the business world and weaken their existing motives to action, before you have had time to put other motives in their place. It may over-task your bureaucratic machine, which the traditional individualism of the United States and the old "spoils system" have left none too strong. And it will confuse the thought and aim of yourself and your administration....

I cannot detect any material aid to recovery in N.I.R.A., though its social gains have been large.... N.I.R.A.... has been put across too hastily, in the false guise of being part of the technique of Recovery....

The object of recovery is to increase the national output and put more men to work.... [A]n increase of output cannot occur unless by the operation of one or other of three factors. Individuals must be induced to spend more out o their existing incomes; or the business world must be induced, either by increased confidence in the prospects or by a lower rate of interest, to create additional current incomes... or public authority must be called in aid to create additional current incomes through the expenditure of borrowed or printed money.... It is... only from the third factor that we can expect the initial major impulse.

Now there are indications that two technical fallacies may have affected the policy of your administration. The first relates to the part played in recovery by rising prices. Rising prices are to be welcomed because they are usually a symptom of rising output and employment.... But there is much less to be said in favour of rising prices, if they are brought about at the expense of rising output. Some debtors may be helped, but the national recovery as a whole will be retarded. Thus rising prices caused by deliberately increasing prime costs or by restricting output have a vastly inferior value.... I do not mean to impugn the social justice and social expediency of the redistribution of incomes.... [BUT] stimulation of output by increasing aggregate purchasing power is the right way to get prices up; and not the other way round.

Thus as the prime mover... I lay overwhelming emphasis on... governmental expenditure which is financed by Loans and not by taxing.... Nothing else counts.... [I]n a slump governmental Loan expenditure is the only sure means of securing quickly a rising output at rising prices. That is why a war has always caused intense industrial activity. In the past orthodox finance has regarded a war as the only legitimate excuse for creating employment by governmental expenditure. You, Mr President, having cast off such fetters, are free to engage in the interests of peace and prosperity the technique which hitherto has only been allowed to serve the purposes of war and destruction....

The other set of fallacies, of which I fear... arises out of... the Quantity Theory of Money.... Some people seem to infer from this that output and income can be raised by increasing the quantity of money.... It is a most misleading thing to stress the quantity of money, which is only a limiting factor, rather than the volume of expenditure, which is the operative factor.

It is an even more foolish application of the same ideas to believe that there is a mathematical relation between the price of gold and the prices of other things.... [E]xchange depreciation should follow the success of your domestic price-raising policy as its natural consequence.... The currency and exchange policy of a country should be entirely subservient to the aim of raising output and employment to the right level. But the recent gyrations of the dollar have looked to me more like a gold standard on the booze than the ideal managed currency of my dreams....

Mr President... [y]ou are the only one who sees the necessity of a profound change of methods and is attempting it without intolerance, tyranny or destruction. You are feeling your way by trial and error, and are felt to be, as you should be, entirely uncommitted in your own person to the details of a particular technique. In my country, as in your own, your position remains singularly untouched by criticism of this or the other detail. Our hope and our faith are based on broader considerations.... In the field of domestic policy, I put in the forefront... a large volume of Loan-expenditures under Government auspices.... Could not the energy and enthusiasm, which launched the N.I.R.A..... be put behind a campaign for accelerating capital expenditures, as wisely chosen as the pressure of circumstances permits? You can at least feel sure that the country will be better enriched by such projects than by the involuntary idleness of millions.

I put in the second place the maintenance of cheap and abundant credit and in particular the reduction of the long-term rates of interest.... With these adaptations or enlargements of your existing policies, I should expect a successful outcome with great confidence. How much that would mean, not only to the material prosperity of the United States and the whole World, but in comfort to men's minds through a restsration of their faith in the wisdom and the power of Government!