Sunday, May 24, 2009

the simplest and least objectionable procedure would be for the federal government to increase its expenditures or decrease its taxes

TO BE NOTED: Grasping Reality with Both Hands:

"The Chicago School on Dealing with Depression in 1933 I

Milton Friedman in "A Comment on the Critics" approvingly quotes Jacob Viner's (1933) "Balanced Deflation, Inflation, or More Depression":

Even more pertinent is a talk Viner delivered in Minneapolis of February 20, 1933, on "Balanced Deflation, Inflation, or More Depression"....

[I]t woul dhve been sound policy on the part of the federal government deliberately to permit a deficit to accumulate during depression years, to be liquidated in prosperity years.... The outstanding though unintentional achievement of the Hoover Administration in counteracting the depression has in fact been its deficits of the last two years....

[...]

I will use the term 'inflation' to mean an inrease in the total amount of spendable funds.... It is often said that the federal government and the Federal Reserve system have practiced inflation during this depression and that no beneficial effects resulted from it. What in fact happened was that they made mild motions in the direction of inflation.... At no time... since the beginning of the depression has there been for so long as four months a net increase in the total volume of bank credit....

Assjming for the moment that a deliberate policy of inflation should be adopted, the simplest and least objectionable procedure would be for the federal government to increase its expenditures or decrease its taxes, and to finance the resultant excess of expenditures over tax revenues either by the issue of legal tender greenbacks or by borrowing from the banks...


From J. Rennie Davis (1968), "Chicago Economists, Deficit Budgets, and the Early 1930s," American Economic Review 58:3,1 (June), pp. 476-481:

Frank H. Knight to Senator Robert F. Wagner (May 8, 1932): As far as I know, economists are completely agreed that the Government should spend as much and tax as little as possible at a time such as this--using the expenditure in ways to do the most good in itself and also to point toward relieving the depression...

Jacob Viner (1931): [T]he public works or other useful services so financed [by deficit spending] during a period of economic depression are from the national economic point of view almost costless..."

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