Here’s a letter to The Economist.
Editor:
Only by overlooking key historical facts is Joseph Stiglitz able to argue that “John Maynard Keynes saved capitalism from itself” (April 8). Perhaps the most important of these facts is one that’s famously documented by Milton Friedman and Anna Schwartz: the failure of the Federal Reserve. A central bank established to be a lender of last resort to a banking system that government, not capitalism, kept excessively fractured, the Fed allowed the money supply to contract by about 30 percent between 1929 and 1933. This spark for the Great Depression wasn’t a failure of capitalism; it was a failure of government.
And it was government failure that extended the Great Depression. Robert Higgs has marshaled ample evidence that New Deal policies and rhetoric – not capitalism – created such uncertainty for investors that they remained on the sidelines until after WWII.
As for Keynes, the irony – as George Selgin documents in his 2025 book, False Dawn – is that FDR rejected Keynes’s belief that economic downturns are best treated with deficit spending. And Keynes, to his credit, warned FDR not to cartelize the economy through the National Recovery Act – an unfortunately unsuccessful effort by Keynes to save capitalism, not from itself, but from the state.
If your readers want a more accurate history of Keynes and the Great Depression, they should ignore the potted one served up by Prof. Stiglitz and instead consult the works of economists such as Friedman and Schwartz, Higgs, and Selgin.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
