Edited by Robert W. Dimand and Harald Hagemann
Chapter 31: How to Pay for the War
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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