Lots of semi-clever people, especially politicians, think they have grasped ‘the lesson of the 1930s’. That lesson, in their minds, goes something like this. Unconstrained capitalism caused the Great Crash, whose effects were then exacerbated in the US by the laissez-faire dogma of Herbert Hoover and his Republicans. Recession turned to depression, and only Franklin Roosevelt’s willingness to intervene brought the country back to growth. Their conclusion? The state should spend money during downturns so as to ‘kickstart the economy’.
It has been a long time since serious economic historians took this view, but it continues to beguile the half-educated graduates who predominate in the world’s legislatures and television editorial conferences. If your last brush with economics was an A-level the 1980s, you’ll almost certainly have picked up didactic phrases about ‘the paradox of thrift’, ‘counter-cyclical spending’ and so on. Keynes’s observation that ‘practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist’ has never applied so aptly as today; he is the defunct economist.