Monday, October 20, 2008

Photo of the Day

At Bretton Woods, N.H., in 1944, the United States Treasury secretary, Henry Morgenthau Jr., left, conferred with the British economist John Maynard Keynes about the rules for the postwar economic order



We Forgot Everything Keynes Taught Us

"The outstanding fact is the extreme precariousness of the basis of knowledge on which our estimates of prospective yield have to be made," Keynes wrote in his great book "The General Theory of Employment, Interest, and Money" in 1936. We disguise this uncertainty from ourselves by assuming that the future will be like the past, that existing opinion correctly sums up future prospects, and by copying what everyone else is doing. But any view of the future based on "so flimsy a foundation" is liable to "sudden and violent changes. The practice of calmness and immobility, of certainty and security suddenly breaks down. New fears and hopes will, without warning, take charge of human conduct . . . the market will be subject to waves of optimistic and pessimistic sentiment, which are unreasoning yet in a sense legitimate where no solid basis exists for a reasonable calculation." Keynes accused economics of being itself "one of these pretty, polite techniques which tries to deal with the present by abstracting from the fact that we know very little about the future."

1 comment:

D Lamont said...

The relationship between John Maynard Keynes and Henry Morgenthau was not all smooth sailing, and reflects some of the complexities in US-UK relations during world war II. It's worth reading about. Maybe the best account is in D Markwell's 'Keynes and International Relations', but it is also worth looking at Morgy's diaries edited by J M Blum, and some of the other accounts of wartime economic diplomacy.