The Debt to John Maynard Keynes

Any work that avowedly accords high levels of employment primacy of place among short-run economic goals, must rely to a very large degree upon the work of Keynes. For Keynes, between the wars, the important task was not so much to use the international sector to help to achieve full employment as it was to gain some release for the domestic economy from a world in deep economic despair. In 1930 he advocated the imposition of capital controls to prevent (short-term) international capital movements from hamstringing expansionary domestic monetary policy,1 and fourteen years later, then Lord Keynes, he pleaded again for a monetary system that would permit the national economy a sufficient degree of independence to allow it to pursue its own macrostabilization policies:2 We are determined that, in future, the external value of sterling shall conform to its internal value as set by our own domestic policies, and not the other way round. Secondly, we intend to retain control of our own domestic rate of interest, so that we can keep it as low as suits our own purposes, without interference from the ebb and flow of international capital movements or flights of hot money. Thirdly, whilst we intend to prevent inflation at home, we shall not accept deflation at the dictate of influences from outside. In other words, we abjure the instruments of bank rate and credit contradiction operating through the increase of unemployment as a means of forcing our domestic economy into line with external factors.