The Elgar Companion to John Maynard Keynes
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The Elgar Companion to John Maynard Keynes

Edited by Robert W. Dimand and Harald Hagemann

The most influential and controversial economist of the twentieth century, John Maynard Keynes was the leading founder of modern macroeconomics, and was also an important historical figure as a critic of the Versailles Peace Treaty after World War I and an architect of the Bretton Woods international monetary system after World War II. This comprehensive Companion elucidates his contributions, his significance, his historical context and his continuing legacy.
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Chapter 31: How to Pay for the War

Peter Spahn


Keynes’s proposal on How to Pay for the War can be read as a supplement to the analytical apparatus of the General Theory, applied to an economy with resource constraints. Demand restriction was needed to prevent inflation. Keynes pointed to a kind of full-employment multiplier, later elaborated by Kaldor, which transformed excess demand into wage and price increases. Instead of raising interest rates or taxes, Keynes suggested a compulsory saving scheme. For stabilization reasons, this had to be extended also to the working class. From a political-reform view point, he assessed this as an advantage as workers, after the war, would profit from owning wealth. However, Keynes was unable to convince the Labour Party and the unions. Rationing and price controls were adopted that helped to control Britain’s stabilization problem.

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