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Tuesday, November 04, 2008

"We Were All Keynesians Then"

Though the idea is likely far older, using public works projects to stimulate employment goes back at least to the mercantilists. For example, Sir William Petty (1623-1687) believed the government should employ the idle to work on roads, dredge rivers, build bridges, that sort of thing, though he did say in A Treaties of Taxes and Contributions (1662) that "tis of no matter if it be employed to build a useless Pyramid upon Salisbury Plain, bring the Stones at Stonehenge to Tower-Hill, or the like," so it was more of a traditional Keynesian view on stimulating aggregate demand than one devoted purely to construction of infrastructure. Thomas Malthus (1766-1834) believed that:

It is also of importance to know that, in our endeavors to assist the working class in a period like the present, it is desirable to employ them in those kinds of labour, the results of which do not come for sale into the market, such as roads and public works, The objection to employing a large sum in this way, raised by taxes, would not be its tendency to diminish the capital employed in productive labour; because this, to a certain extent is exactly what is wanted; but it might, perhaps, have some effect of concealing too much the failure of the national demand for labor, and prevent the population from gradually accommodating itself to regular demand. This, however, might be, in a considerable degree, corrected by the [low] wages given. [Political Economy, 2nd Ed., 429-430]

And, from 80 years ago, Calvin Coolidge echoes this theme:

We Were All Keynesians Then, Journal of Political Economy, Back Cover, Vol. 104, No. 5 (Oct., 1996):  The idea of utilizing construction, particularly of public works, as a stabilizing factor in the business and employment situation has long been a plan of perfection among students of these problems. If in periods of great business activity the work of construction might be somewhat relaxed; and if in periods of business depression and slack employment those works might be expanded to provide occupation for workers otherwise idle, the result would be a stabilization and equalization which would moderate the alternations of employment and unemployment. This in turn would tend to favorable modification of the economic cycle. . . The first and easiest application of such a regulation is in connection with public works; the construction program which involves public buildings, highways, public utilities, and the like. Most forms of Government construction could be handled in conformity to such a policy, once it was definitely established. . . This applies not only to the construction activities of the Federal Government, but to those of states, counties and cities.

More than this, the economies possible under such a plan are apparent. When everybody wants to do the same thing at the same time, it becomes unduly expensive. Every element of costs, in every direction, tends to expand. These conditions reverse themselves in times of slack employment and subnormal activity, with the result that important economies are possible.

I am convinced that if the Government units would generally adopt such a policy, and if, having adopted it, they would give the fullest publicity to the resultant savings, the showing would have a compelling influence upon business generally. Quasi-public concerns, such as railroads and other public utilities, and the great corporations whose requirements can be quite accurately anticipated and charted, would be impressed that their interest could be served by a like procedure.

[Calvin Coolidge, address before the Associated General Contractors of America; quoted in L. W. Wallace, "A Federal Department of Public Works and Domain: Its Planning, Activities, and Influence in Leveling the Business Cycle," Proceedings of the Academy of Political Science 12 (July 1927): 108-9] (Suggested by David Laidler)

Everything new is old again, and it's time to rebuild. Given the state of our infrastructure and the state of the economy, both of which have crumbling foundations, it's past time to start these projects. So what are we waiting for?

    Posted by on Tuesday, November 4, 2008 at 12:15 AM in Economics, Fiscal Policy, History of Thought | Permalink  TrackBack (0)  Comments (13)


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