What struck me most in the speeches delivered by the Minister of Finance and the Central Bank Governor during the annual dinner of the was that they could easily have been interchanged. Both gentlemen would have felt comfortable with the other’s thoughts and suggestions. Economics through and through. No politics.
What’s more fascinating, at least in the eyes of someone with my beliefs, both speeches were mainly Keynesian in their approach towards a continuing improvement in Malta’s economic management: fiscal sustainability, wider diversification of economic activities, narrowing of the banks’ excessive operating margins in order to foster further growth in the volume of business credit especially to SMEs, the creation of a Development Bank, and, not least, the Financial Stability Board whose very name is itself indicative of Keynesian teachings.
Malta is fortunate that it does not have any extreme far-right movement faithful only to supply-side economics whatever the global, European or national circumstances. Like, for instance, the ‘Young Guns’ budding movement in America which is busy inside the Republican Party, intent on stamping out stridently what they describe in their manifesto as Keynes’ nefarious influence on the Obama administration “with its evils of Keynesian activism and exponents”.
They hanker after a return to the late 1970s – mid-1980s when Reaganomics and Thatcherism preached that more investment and work resulted from cutting taxes than via government anti-cyclical short-run budgetary intervention. In effect, a return to the neo-classical laissez-faire doctrine which Keynes managed so well to discredit throughout all his active life spanning over three decades. Probably also the most consistent of all his beliefs and teachings.
Exactly 90 years ago Keynes published his fifth book, A Tract on Monetary Reform, which I found so fascinating as to prefer it even to his masterpiece 13 years later, The General Theory of Employment, Interest and Money, by far the most influential on world statesmen in the most difficult times of all economic history. It also coincided with ’s first Labour government led by Ramsay MacDonald with the support of the Liberals whom Keynes inspired and worked for.
That is why I consider it fitting now to pay a little tribute to the world’s greatest economist of all times. The ‘Tract’ makes for sparkling reading, though rather badly organised by his standards. It is a brilliant attack on the deflation policies adopted by nearly all governments in the wake of the first World War.
Both speeches were mainly Keynesian in their approach towards a continuing improvement in Malta’s economic management
Keynes brought out vividly the importance of stabilising prices, not through controlling the ‘supply’ of money as advocated by the monetarists, but by stabilising its ‘demand’ for business purposes. In fact, the ‘Tract’ is considered as Keynes’ scientific breakthrough for better understanding the theory of money, particularly the role of banks in creating much-needed credit, but always under the control of a central bank.
Our Finance Minister and the Governor couldn’t have been more loyal to Keynes in their speeches even if they had wanted to.
He was indeed a veritable monetary reformer, but simultaneously also a steadfast pragmatist who advocated the stimulation of the market, not its elimination, as often accused by monetarists barely a generation ago. Their unflinching support of unfettered market forces in all areas of economic life has been well and truly shattered since the 2008 crisis which, thanks to a re-visit to Keynesianism, managed to avoid developing into a depression. Instead, it reached only the status of a “great recession”. Thankfully.
In order to persuade non-believers, Keynes at times tended to resort even to exaggerations for the sake of effect. In LSE’s vast library I was able to listen to his cultured voice on BBC radio exhorting people to burn their old sheets and blankets and buy new ones so as to revive Lancashire’s moribund textile industry.
On another occasion he shocked politicians by saying “it’s better to employ people to dig up holes and fill them again than leaving them idle”.
By way of concluding this homage to Keynes, here is an example of his prophetic genius, among others, in his quest (unsuccessful) for a huge reduction in the reparation quantum and duration imposed on Germany by the 1918 Treaty of Versailles:
“The policy of reducing to servitude for a generation, of degrading the lives of millions of human beings, and of depriving a whole nation of happiness, should be abhorrent and detestable, (repeat) abhorrent and detestable, even if it were possible, even if it enriched ourselves, even if it did not sow the decay of the whole civilised life of Europe... Nothing can delay for very long that final war between the forces of Reaction and the despairing convulsions of Revolution, before which the horrors of the late German war will fade into nothing.”
This was written a decade before Hitler was elected Chancellor.