Here’s a letter to The Nation:
Thomas Geoghegan writes approvingly that “for Keynes, a trade surplus was a ‘stimulus,’ and a deficit was a disaster” (“What Would Keynes Do?” Sept. 27).
Yep. Keynes did indeed fret over trade deficits. This fact shows, however, not that we Americans today should redouble our anxiety over our trade deficit, but simply that Keynes’s understanding (circa 1936) of trade flows was poor.
Even on Keynes’s own terms his fretting isn’t justified. Famously fearful that private investment spending would be chronically inadequate in advanced capitalist economies, Keynes should have recognized that “trade deficits” (even during his era when some remnants remained of the international gold standard) are often balanced by countervailing inflows of capital – that is, by inflows of pro-growth investment expenditures of the very sort that Keynes worried would be lacking.
Keynes’s endorsement of Mercantilist nostrums reflects merely the confused intellectual knot that Keynes tied himself into by trying to build a “new” “general theory” out of the detritus of long-discredited pedestrian notions of how economies work.
Donald J. Boudreaux
I thank Peter Minowitz for alerting me to this essay in The Nation.