Friday, October 24, 2008

Keynes gave the solution 72 years ago

John Maynard Keynes explicitly addressed all these arguments in 1936 in chapter 22 of his General Theory. He wrote at length about those who thought the Fed and other central banks should have nipped the late-1920s boom in the bud with tighter monetary policy, and concluded that they were all wet:

"The right remedy for the trade cycle is not be found in abolishing booms and thus keeping us permanently in a semi-slump; but in abolishing slumps and thus keeping us permanently in a quasi-boom."

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