Chapter 6: After Keynes: Full Employment, Inflation and the Welfare State
6. After Keynes: full employment, inflation and the welfare state Many economists hope indeed that the ultimate remedy may be found in the field of monetary policy, which would involve nothing incompatible even with nineteenth century liberalism. Others . . . believe that real success can be expected only from the skilful timing of public works undertaken on a very large scale. This might lead to much more serious restrictions on the competitive sphere, and in experimenting in this direction we shall have to carefully watch this step if we are to avoid making all economic activity progressively more dependent on the direction and volume of government expenditure. Friedrich Hayek (1944, pp. 90–91) Sometimes a book’s importance lies not in its content but in its timing. The reception accorded to Hayek’s Road to Serfdom in 1944 owed much to Europeans’ and Americans’ growing alarm about extensive economic planning becoming a post-war norm.1 While concerned about Communism, they also worried about the post-war dirigiste policies of the non-Communist left and much of the right. On his first visit to Germany after World War II, Röpke noted that many Germans yearned for socialist solutions to their economic problems ([1947f] 1964, p. 158). He was also disturbed that the occupying powers were effectively continuing the same economic policies of the defunct National Socialist regime ([1945b] 1946, p. 237). Prominent among such policies was a commitment to ‘full employment’. This had been given particular impetus in Europe by the 1942 Beveridge Plan, of which R...
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