Keynesianism : Merits of Keynesianism in Post World War II Europe After World War II
Keynesianism : Merits of Keynesianism in Post World War II Europe After World War II : European economies experienced a sort of economic miracle. Even after the devastation the war caused, countries were profiting and, by all appearances, economies were thriving.
This economic boom can be attributed in large part to the economic innovation that John Maynard Keynes dreamed up in order to resolve The Great Depression — spending your way out. France’s economic boom can very easily be explained by Keynesianism as it employed it very effectively. Germany, by contrast, had a successful economic post war period and, while it implemented ideas similar to Keynesianism, it did not fully embrace this specific mode of economics. Britain embraced Keynesianism, but did not utilize it to its fullest potential. It is important to realize that certain systems were more conducive and could more easily implement Keynesianism. Furthermore, Keynesianism alone was not sufficient at pushing the economy forward. Certainly, it was an effective starting tool. However, the best way to jumpstart the economy and to maintain this strong foundation was a blend of Keynesianism (or something akin to it) and governments that could be goal oriented, adaptive, and efficient. An assessment of exactly what John Maynard Keynes stood for is necessary in determining if his theory is responsible for the post World War II economic boom. Keynes deviated from some of his predecessors like Adam Smith and Thomas Malthus, both of whom advocated and emphasized the importance of saving one’s money. Smith and Malthus developed their ideas at a time when “the only people who could afford to save were wealthy landlords and
capitalists, and any sums they put together were usually employed in productive investments of one kind or another” (Heilbroner, 1986, 264). Keynes, however, took a stand against these classical economists, which makes sense given the changes that had taken place over the course of time. At some point, “the structure of the economy changed. The distribution of wealth improved, and along with it the possibility of saving became open to more and more members of society” (Heilbroner, 1986, 264). While the greater distribution of wealth is certainly a positive, it also meant that more people now had the means to save their money. Keynes argued that if more people are saving money and not spending, then the economy will naturally stagnate, as money is no longer circulating. He therefore proposed that the best way to solve a depression (or any economic problem akin to a depression) was for the government to encourage its citizens to spend money. Instead of taking the Laissez Faire approach that Keynes’s predecessors endorsed, Keynes’s methods required action. He broke from the belief that the economy would simply heal on its own. If a government, according to Keynes, wanted to see its economy improve, it would need to make sure that its citizens were comfortable and had the means to spend money in order to move the economy forward.
Keynes does something that previous economists failed to do — he acknowledges and emphasizes the psychological element that exists in the discussion and practice of economics. During a depression or any difficult economic time, people are usually more inclined to try and save their money, since they fear a dark future. Thus, it is the responsibility of a government to ensure that people do not feel this fear and are willing to spend.
The first part of this paper will discuss France’s very clear implementation of Keynesianism and why it worked well within France’s governmental and economic system. The next section will evaluate Germany’s scarce use of Keynesianism and will briefly compare
Germany’s economic approach to France’s. The paper will conclude with a discussion of Great Britain and how it embraced Keynesianism but was least prepared to implement the system simply because its history and governmental structure was not conducive to the level of action that Keynesianism requires.
France, more so than both Germany and Great Britain, implemented Keynesianism in its economic system. First, it was easy for France to put Keynes’s economic philosophy into its society simply because it worked with their already existing economic structure. France’s government already controlled most of the banks, making it easier for the government to create and enforce its own economic agenda. The government created a “system of direct quotas on bank lending, known as the encadrement du crédit; and the state often exempted certain industrial sectors from its lending limits” (Hall, 1986, 153). The French government had a tremendous amount of control over its economy — an important and necessary feature for an effective implementation of Keynesianism. The quote above indicates that the French state clearly had a direction that dictated its decisions on which industries to lend more money to. Furthermore, the state did not shy away from permitting banks to give loans, as they wanted an active, stimulated economy.
The French did not merely control its banks effectively and encourage the use of loans though. There were also “short periods when a temporary price freeze was utilized to halt the spread of inflation” (Hall, 1986, 154). Inflation is a natural concern and problem that usually arises with the use of Keynesianism. However, the French managed to successfully address the problem rather than shy away from it. This indicates that while Keynesianism is useful at creating a positive, effective economy, it is not enough. It requires careful attention to detail. Most importantly, though, for any economy to grow, the government must be aware and adapt to
problems that might arise. France, with its measures to combat inflation, show that the reason for its sudden growth after World War II stemmed in part from its use of Keynesianism, but also came as a result of an active, involved government.
It is important also to consider France’s structure of government and why it was easier to employ Keynesianism given its existing framework. The governmental structure of France consists of a president who is “the most important actor in the political process” (Elgie, 2013, 34). This makes it easier for policies, whether they be social or economic, to be put in place because there are fewer mechanisms to slow down the president. Furthermore, French citizens have, at least since after World War II, shown great trust in government. Their culture and mentality puts great faith in their elected officials. This again helps when it comes to creating and enforcing new, rather significant economic changes. Keynesianism is most effective when there is a proactive government. France’s government and its citizenry, by nature, produce a state that seeks to innovate and implement improvements constantly.
The main problem facing Germany was that of inflation. The nation had a rich history with inflation during the Weimar Republic and the German banks, which wielded considerable authority, feared inflation perhaps more than any other potential economic consequence. Because of its fears and general problems regarding inflation, Germany did not seek to necessarily embody all of the traits in Keynesian economics. There were certainly moments when German governments encouraged spending, but for the most part, they rejected Keynesianism.
That said, Germany did use ideas similar to what Keynes proposed. Wolfgan Streek points out that “Little attention is paid in the Keynesian theory of full employment to the operation of the supply-side of the economy and to the social and political institutions required for its efficient performance” (Streek, 1991, 2). When it comes to creating a society that seeks to
employ its workforce and implementing this specific aspect of Keynesianism, Germany certainly has modes and mechanisms to do just that. Germany embraced diversified quality production in an attempt to continue to “protect their employment in the face of more volatile and crowded world markets” (Streek, 1991, 27). Diversified quality production came into existence as a consequence of new, exciting technologies. Diversified quality production overcomes the obstacle of combining “superior competitiveness in world markets through sophisticated application of information technology, a diversified product range… with high wages, skilled labour, and a flexible non taylorist organisation of work” (Streek, 1991, 25). Germany looked at Keynesianism and did not really embrace the notion of spending in order to stimulate the economy. Instead, it sought to ensure employers were protected and the welfare state was intact. The nation sought to create a competitive state, but also implement policies and standards (ie. high wages) that protected its working class.
Broadly speaking, Germany’s economic approach was different from France’s, as it did not empower the consumer to spend. Germany’s main focus was really on creating and encouraging workers and industries to innovate. Its economic miracle can best be attributed to its social market economy. Even if it did not fully embrace Keynesianism, Germany was proactive in trying to manage its inflation with the banks taking center stage here. It also sought to implement productive systems that would stimulate the economy. Germany’s case shows that, while Keynesianism is an effective way to jumpstart the economy, it is not the only way, and embracing it fully in certain systems is unnecessary and can, in fact, be harmful especially when inflation is the central problem that needs to be controlled.
The final country we analyze with respect to Keynesianism is Britain. Great Britain is historically the most unique compared to both France and Germany. The reason for this is that
Great Britain, especially prior to World War II, was far more advanced than the other European countries. France and Germany were both late industrializers while Great Britain had industrialized faster than the other European countries. Great Britain after World War II took a rather laid back approach simply because it could. Unlike France and Germany, Great Britain, because of its prior progress, did not have the same energy or ambition. Great Britain’s lack of ambition and enterprising spirit made it less inclined to intervene economically. Some sort of economic intervention is necessary in order for Keynesianism to work to its fullest potential. Britain’s general strategy was to spend money when the economy demanded it and then stop spending when inflation occured. This stop/start strategy was not overly effective. The best and most logical approach would have simply been to devalue the pound.
Keynesianism requires a very progressive mindset. Even though Britain embraced Keynesianism it was hard for it to truly grasp the concept simply because of the nature of its governmental system. Britain’s government can best be described as “traditionally modern” (Hancock, 2018, 13). The result of this kind of system usually produces “relatively gradual change based on pragmatic acceptance of changing national needs and changing social values” (Hancock, 2018, 13). Even if there were modern aspects to Great Britain, their education system remained rather antiquated. France, with its education, tried and managed to successfully create students who were well equipped to deal with economic problems that might come up. Great Britain, on the other hand, stayed stuck in its ways continuing to emphasize the classics. While there is merit in this study, it will likely fail in creating individuals with an enterprising drive with a thorough understanding of the economy. Great Britain, like France, had a citizenry that trusted its government. Still, though, this was not sufficient for producing positive results with the use of Keynesianism. France differs from Great Britain in that it is far easier to implement
larger, more sweeping changes. France’s quicker and more fervent desire to modernize made it easier for France to use Keynesianism effectively.
Keynesianism can certainly be a useful method for jump starting an economy. However, it is not the only method, and it, by itself, does not explain the economic boom that occurred in many European Countries after World War II. While it worked for France, Germany deviated and elected to use slightly varied methods. Great Britain demonstrated that Keynesianism, without careful planning and an ability to adapt, is simply ineffective. Moreover, it might not be the solution if the state is not structured in a way consistent with Keynes’s economics. All three of these countries demonstrate that if a government wants to jumpstart an economy, they can use Keynesianism as some sort of a model and should most definitely consider it. Ultimately, though, the most important quality is to have a government that responds quickly and efficiently to problems that might arise. If a government does not quickly adapt or identify problems regarding its economy, its state is destined to struggle.
Hall, Peter. 1986. Governing the Economy: The Politics of State Intervention in Britain and France. New York: Oxford University Press. Chap. 6.
Hancock, M. Donald, et. al. 2018. Politics in Europe. Washington, DC: CQ Press. Heilbroner, Robert. 1986. “The Heresies of John Maynard Keynes,” in Idem., The Worldly Philosophers. New York: Simon and Schuster, pp. 249-87.
Elgie, Robert. 2013 “The French Presidency,” in Developments in French Politics 5. Palgrave Macmillan, chap. 2. Streeck, Wolfgang. 1991. “On the Institutional Conditions of Diversified Quality Production,” in Egon Matzner and Wolfgang Streeck (eds.), Beyond Keynesianism. Worcester: Edward Elgar, pp. 21-61.
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