Friedrich von Hayek, Peter Stein, Keynes,

In this I follow Friedrich Hayek, who wrote in The Pure Theory of Capital:
“It is self-contradictory to discuss a process [inflation] which could not take place without money and at the same time to assume that money is absent or has no effect.”
Jean-Claude Trichet, Financial Times 9/11 2006

Hayek – frihetens advokat
”Frihetens grundvalar” - ”The Constitution of Liberty”
Nils-Eric Sandberg, Kristianstadsbladet 8 april 2015

En central idé hos Hayek heter ”Spontaneous Order”, på svenska spontan ordning. Med det menar Hayek att viktiga institutioner inte uppstod av offentliga beslut utan spontant, därför att marknaden behövde dem.

Hayek har av vänstern kritiserats som reaktionär och konservativ, eftersom han ville att människor ska få leva i frihet
- just den tanke som vänstern avskyr mest av allt.

I boken ”Frihetens grundvalar” skriver Hayek ett viktigt kapitel som heter ”Varför jag inte är konservativ”.

ROBERT SOLOW: HAYEK, FRIEDMAN, AND THE ILLUSIONS OF CONSERVATIVE ECONOMICS
Brad DeLong August 10, 2014

Just as I finish writing up my office-hour thoughts on a framework for organizing one's thoughts on Friedrich A. von Hayek and twentieth century political economy, along comes the esteemed Lars P. Syll with a link to an excellent piece

Varje dag kan vi nu via medierna se hur konflikterna och problemen med EMU tydliggörs.
EMU-tvångströjan kommer bara i en storlek och den passar uppenbart inte alla.
Den här sortens förkeynesiansk deflationspolitik provades under 1920- och 1930-talen och var antagligen den främsta enskilda orsaken till depressionen.
Lars Pålsson Syll, Newsmill 2010-05-08

Before Lady Thatcher won her first election, she was asked at a meeting at Conservative Central Office whether it might be easier to pursue a “middle way”, a consensus driven approach more akin to the 1950s and 1960s (and which led ultimately to the failure of the 1970s).
She produced Mr Hayek’s The Constitution of Liberty from her handbag and, holding it up for all to see, said sternly: “This is what we believe,” before banging the book down on the table.
Kamal Ahmed, Daily Telegraph, 13 April 2013

As Tony Blair often said of being in power, critics set up a false argument between what is happening in reality and Shangri-La.
The correct comparison is of course between what is happening in reality and the alternative.

The alternative in 1979 was Jim Callaghan and a Labour Party that had run out of intellectual ideas and was in danger of being overrun by factions
(famously described by Neil Kinnock as “toytown revolutionaries”) who genuinely thought of themselves as “anti-capitalist”.

It is not too far fetched to suggest that the very economic and business future of the UK was at stake in a battle between collectivism and free markets.

It is against such a backdrop that Lady Thatcher’s achievements and missteps must be seen, a backdrop which makes the former much more important than the latter.

Hayek Versus Keynes
During World War Two, John Maynard Keynes and Friedrich Hayek spent all night together, alone, on the roof of the chapel of King’s College, Cambridge.
“It was, perhaps, the most unusual episode in the long running duel between the two giants of twentieth century economic thought.
John Mauldin, 3 September 2015

During World War Two, John Maynard Keynes and Friedrich Hayek spent all night together, alone, on the roof of the chapel of King’s College, Cambridge. Their task was to gaze at the skies and watch for German bombers aiming to pour incendiary bombs upon the picturesque small cities of England…. according to Nicholas Wapshot in Keynes Hayek: The Clash That Defined Modern Economics

At its very core, GDP is John Keynes versus Friedrich Hayek writ large. And their debate explains a great deal of the current tension between those who would make final consumption – or what we call consumer spending – the be-all and end-all of economic policy, and those who feel that productivity and income should instead be the focus. The very act of measuring GDP as we do gives the high and easy intellectual ground to those of the Keynesian persuasion.

The truth, although nobody on the right will ever admit it, is that
Friedman was basically a Keynesian — or, if you like, a Hicksian.
Paul Krugman, NYT blog 14 March 2012

Keynes Versus Hayek, 1932
It’s deeply tragic that we’re having to have this debate all over again,
as the world economy slides into deflation and stagnation
Paul Krugman July 9, 2010

A spectacular find: dueling letters from Keynes and associates, on one side, and Hayek and associates, on the other. Read them here (pdf).

Keynes pretty much had the policy implications of the General Theory down long before he actually worked out the detailed analysis. I’m especially struck by the way he grasped, right from the start, the point that if higher private spending expands employment in a slump, so does higher public spending.

Speech by Professor Otmar Issing, Annual Hayek Memorial Lecture hosted by the Institute of Economics affairs, London, 27 May 1999

As a young student I read "The Road to Serfdom". It was the first book written by Hayek I came across, and it has left a deep and lasting influence on me.
Only eleven years after the Hitler regime and the war I suddenly started to understand the interdependence between totalitarianism and economic policy.
Since then I have read most of Hayek's publications. Many left their marks, only to mention the impressive "The Constitution of Liberty".

But, perhaps more than anything else, it was the perception of "competition as a discovery process" which has shaped my thinking. This approach is of extreme relevance for economics but, goes far beyond this. Related to this "discovery" is "pretence of knowledge" as a permanent danger for societies.
All those in public office responsible for making decisions should never forget this message.

Friedrich Hayek once said that he knew few people who had made money from acting on economic forecasts, but a good many who had made it from selling them.
It is difficult for those in any profession to stand out against the spirit of the times,
Samuel Brittan FT 2007

Keynes och moral hazard
Min hypotes är att det finns en makroekonomisk moral hazard (ung trygghetsrisktagande) som innebär att själva föreställningen, att det finns en kraftfull stabiliseringspolitik att ta till om det skulle gå snett, kan leda till stora obalanser.
Danne Nordling 4 mars 2010

Även om deras slutsatser skiljer sig åt är både Hayeks och Keynes teorier födda ur rädsla.
De är inte utopiska, de utlovar inget framtida lyckorike. De säger bara att den som följer deras läror har en god chans att undvika social kollaps, anarki och diktatur.
DN-ledare 4 mars 2010 signerad Henrik Berggren

In the 1930s, two opposing ideological visions were on offer: the Austrian; and the socialist.
The Austrians – Ludwig von Mises and Friedrich von Hayek – argued that a purging of the excesses of the 1920s was required.
Socialists argued that socialism needed to replace failed capitalism, outright.
These views were grounded in alternative secular religions: the former in the view that individual self-seeking behaviour guaranteed a stable economic order; the latter in the idea that the identical motivation could lead only to exploitation, instability and crisis.
Keynes offers us the best way to think about the financial crisis
Martin Wolf, Financial Times, December 23 2008
Highly recommended

Jag ägnade några dagar i förra veckan åt att läsa om delar av Hayeks stora verk Frihetens grundvalar
Men hur skall statens omfattning bestämmas? Hayek lanserar inget principiellt resonemang för detta.
Danne Nordling 2008-05-08

Hayeks huvudteser är att det ekonomiskt och socialt framgångsrika systemet har utvecklats evolutionärt genom framväxten av olika institutioner som bygger på viss frihet och rättsstatlig styrning.
Det tvång som ofrånkomligen måste utövas är opersonligt och förutsägbart - dvs inte godtyckligt.
Den spontana ordningen är samhällsnyttig och inskränkningar destruktiva för den ekonomiska utvecklingen.

När nu sovjetsystemet fallit ihop och den kinesiska kommunismen blivit kapitalistisk finns det ingen som på allvar företräder en stor systemförändring som bygger på konstruktivistiskt tvång. Hayek har segrat i diskursen med Galbraith, Heilbroner, Myrdal och Meidner m fl samt delvis också med Keynes.

John Maynard Keynes and Milton Friedman were the most influential economists of the 20th century.
Their differences were, indeed, profound. But so was what they shared. More interesting, neither won and neither lost:
today’s policy orthodoxies are a synthesis of their two approaches.
Martin Wolf, Financial Times, November 22 2006

Keynes concluded from the great depression that the free market had failed; Friedman decided, instead, that the Federal Reserve had failed. Keynes trusted in discretion for sophisticated mandarins like himself; Friedman believed the only safe government was one bound by tight rules. Keynes thought that capitalism needed to be in fetters; Friedman thought it would behave if left alone.

These differences are self-evident. Yet no less so are the similarities. Both were brilliant journalists, debaters and promoters of their own ideas; both saw the great depression as, at bottom, a crisis of inadequate aggregate demand; both wrote in favour of floating exchange rates and so of fiat (or government-made) money; and both were on the side of freedom in the great ideological struggle of the 20th century.

If it were not for the fact that the UK and US are two nations divided by a common language, one might even call both “liberals” in the 18th and 19th century English sense of that word.

Hayek & the intellectuals
Britain, Hayek warned, had already traveled far down the road of socialist abdication. “The unforeseen but inevitable consequences of socialist planning,” he wrote, “create a state of affairs in which … totalitarian forces will get the upper hand.” Hayek quotes numerous influential commentators who cheerfully advocate not only wholesale economic planning but the outright rejection of freedom. In 1932, for example, the influential political theorist Harold Laski argued that “defeat at the polls” must not be allowed to derail the glorious progress of socialism.
Roger Kimball The New Criterion

Benn Steil argues that floating exchange rates cause financial crises and Argentine devaluation opened the way for the kind of excessive state intervention Hayek warned against. Digital gold, backed by gold in storage, is a way to rectify the problem.

But floating currencies do not create financial crises. Rather countries that fix their exchange rates and lack the credibility to maintain them do. Balance of payments problems or negative risk perceptions lead investors to move against the central banks in such countries knowing they have limited reserves and borrowing capacity to defend the fixed exchange rate indefinitely.
Subsequently, capital flows out, reserves are depleted, the currency is freed and overshoots and the financial system suffers a shock. Argentina's situation is the result of (among other things) a failed fixed exchange rate, not a floating exchange rate regime.

The writer is director of international economics at the Council on Foreign Relations and co-author of Financial Statecraft

The fundamental difference between capital flows under indelibly (RE:Impossible to remove, erase, or wash away, permanent) fixed and flexible exchange rates was well known generations ago, decades before the modern era of globalisation.

As Friedrich Hayek noted in a 1937 lecture, under fixed rates “the effect of short-term capital movements will be on the whole to reduce the amplitude of the actual fluctuations...If exchanges, however, are variable, the capital movements will tend to work in the same direction as the original cause and thereby to intensify it.”

Even John Maynard Keynes, the arch-slayer of the last remnants of commodity money, was an adamant supporter of fixed exchange rates.

Digitised commodity money may then be in store for us. Gold banks already exist that allow clients to make and receive digital gold payments – a form of electronic money, backed by gold in storage – around the globe.

High inflation did not precede the great depression of the 1930s, Japan’s lost decade in the 1990s or the emerging market crises in east Asia in 1997 and 1998.
What preceded all these extreme events were credit-fuelled investment booms in an era of stable inflation.
This, argued Friedrich Hayek, the Austrian economist, in the 1930s, was also the cause of the great depression.

This approach disappeared from view in the environment of the 1950s and 1960s. But, argues Mr White, it is due for reconsideration.
Martin Wolf, Financial Times 24/5 2006

Austrian economics
Many economic commentators claim that trade deficits are never a problem.
They are perfectly correct, just as spots are never a problem when someone gets measles.
My point is that if a trade deficit is being driven by a loose monetary policy then recession tends to be unavoidable.
A monetary-induced deficit by the United States distorts the pattern of international trade as well as internal investment. Many of its enterprises will become excessively oriented toward the domestic market. The opposite holds true for foreign exporters.
Gerard Jackson, 17/10 2005

Marknadsekonomins intellektuella portalgestalt
Peter Stein, civilekonom och författare, Smedjan 2004-10-21

Recension: Bruce Caldwell Hayek's Challenge: An Intellectual Biography of F.A. Hayek

Enligt Keynes berodde 30-talsdepressionen på för låg total efterfrågan, varför han rekommenderade ökade offentliga utgifter. För Hayek avslöjade nedgången att centralbanker pumpat in för mycket likviditet vilket genererat ökade investeringar. Dessa kunde bara förbli lönsamma om centralbankerna fortsatte att ösa ut pengar. Expansiv penningpolitik riskerade hyperinflation, och för att parera detta var åtstramning oundviklig. Åtföljande nedgång i produktion och sysselsättning avslöjade vilka investeringar som inte klarat marknadens krav. Keynes vann många beslutsfattares öra och Hayeks karriär länkades in i nya banor.

Att läsa Hayek
1985 publicerade Timbro en introduktion till Hayeks tänkande, "Att läsa Hayek" , skriven av Peter Stein. Som introduktion är den fortfarande mycket läsvärd.
Det har emellertid hänt en del sedan 1985 som är värt att nämna. 1988 gav han ut sin sista bok, "The fatal conceit", där han sammanfattar sitt livsverk. Timbro gav ut boken på svenska 1990, med titeln "Det stora misstaget – socialismens felslut". I den beskriver han hur socialister sätter mänsklighetens framtid på spel genom sin tilltro till möjligheten att centralplanera mänsklig civilisation, och deras vilja att gång på gång göra nya försök. Men för att styra något så komplext krävs mycket mer kunskap än någon enskild människa eller grupp av människor någonsin kan nå. Varje försök är redan på förhand dömt att misslyckas, oavsett hur många människor regimen är beredd att offra för att nå sitt mål.
Året efter bokens publicering föll regimen i Östtyskland, och två år senare hela Sovjet-imperiet.
Hayek hann uppleva kollektivismens sönderfall. Han dog 1992, 93 år gammal.
Med dessa korta uppdateringar i åtanke, är Peter Steins text fortfarande en utmärkt introduktion till Hayek. De principer som Hayek beskriver är beständiga och står lika sanna i dag som den dag de formulerades
En bok av Peter Stein

F. A. Hayek: "The continuous injection of additional amounts of money at points of the economic system where it creates a temporary demand, which must cease when the increase of money stops or slows down, together with the expectation of a continuing rise in prices, draws labor and other resources into employments which can last only so long as the increase of the quantity of money continues at the same rate - or perhaps even only so long as it continues to accelerate at a given rate . . . would rapidly lead to a disorganization of all economic activity."
Empire of Debt, John Mauldin, December 2, 2005

Not Sustainable
1929, The Austrian school of economics and bubbels
Tim - The Mess That Greenspan Made - Iacono 4/10 2006

After the stock market crash of 1929. Dismal practitioners from the Austrian school, who had the ear of policy makers in the White House at the time, thought it would be best if things were left to work themselves out alone rather than printing up money in an attempt to fix what ailed the economy.
That decision sent the Austrians "back to school" for about seventy years, however, they seem to have recently completed their course work and are gaining new respect.

It's always a pleasure to read the writing of Dr. Kurt Richebacher. At around 80 years old, he still knows how to blast a Federal Reserve Chairman and, having been around so long and having seen so much, he takes great issue with what he's witnessed in the U.S. economy in the last couple decades. From the little noticed but resurgent Austrian school of economics, he maintains a point of view that seems to make obvious sense.

As he predicted, Keynes is dead in the long run, leaving bankers, businessmen, and politicians the world over to asses the long run impact of decades of problem solving facilitated by money printing and expanding credit. Dr. Richebacher's commentary from last week focused on (what else?) asset bubbles.

Let us start with a quote from Friedrich von Hayek:
"The means of perception employed in statistics are not the same as those employed in economic theory."
American economists think far too much in statistical terms, regardless of underlying economic processes. While the statistics do, indeed, show general enrichment, in reality, there is none at all. The homeowner has zero gain in his comfort of living or income.

This perception of wealth has its true basis in nothing but the famous "greater fool theory"; that is, in the expectation that there will be a greater fool to buy the acquired house later at a higher price. Deluded by this wealth chimera, private households have run down their savings and piled up astronomic debts to be repaid with future earned income.

If you think it over, you realize that in reality, such a borrowing/spending bubble adds nothing to economic growth. It only distorts the time pattern of spending in relation to its long-term trend, as in the case of the consumer determined by the underlying rate of income growth.

The second problem is that such a bubble distorts and deforms the direction of demand and production in the economy. Consider these grossly disproportionate increases in U.S. domestic spending since 2000: consumer durables +30.8%, residential building +29.5%, nonresidential investment +5.8%, imports +23.5%, exports +5.8%.

If you think all this over, you will realize that the American economic reality on the macro level is not record wealth creation, but national impoverishment, foreboding a declining living standard. Take the borrowed import surplus away, and U.S. living standards collapse.

On Dec. 5, 1996, when Alan Greenspan made his famous remark about possible "irrational exuberance" in the stock market, he asked a rhetorical question:
"How do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions, as they have in Japan over the past decade?"

Let us start with a quotation from Friedrich Hayek, 'Monetary Theory and the Trade Cycle', London, 1933:
'….to combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection of production, we want to create further misdirection - a procedure which can only a lead to a much more severe crisis as soon as the credit expansion comes to an end.'
Housing bubbles and resource misallocation by Dr Marc Faber, June 25, 2005

Hayek, Currency Competition and European Monetary Union
April 2000 by Otmar Issing

It was the first book written by Hayek I came across, and it has left a deep and lasting influence on me. Only eleven years after the Hitler regime and the war I suddenly started to understand the interdependence between totalitarianism and economic policy. Since then I have read most of Hayek’s publications. Many left their marks,although I will only mention here his impressive work The Constitution of Liberty.

In the sequence of events on the road to the political integration of Europe, I once had a distinct preference for political union preceding monetary union. As I have argued elsewhere, (See Otmar Issing, Europe: Political Union through Common Money, IEA Occasional Paper 98, February 1996.) historical experience shows that national territories and monetary territories normally coincide.

Now, of course, the reality is that, if political union is ever to occur, monetary union will have preceded it. However, with the establishment of the ECB and the introduction of the single currency, intentionally or not, a process towards further political integration has been triggered. Although this process is not without risks, it nevertheless provides a golden opportunity for Europe to find its proper political shape.

Scientific American, in its November 2006 issue, reaches a "scientific judgment" that the great Nobel Prize-winning economist Friedrich Hayek "was wrong" about free markets and prosperity in his classic, "The Road to Serfdom."
The natural scientists' favorite economist -- Prof. Jeffrey Sachs of Columbia University -- announces this new scientific breakthrough in a column, saying "the evidence is now in." To dispel any remaining doubts, Mr. Sachs clarifies that anyone who disagrees with him "is clouded by vested interests and by ideology."
William Easterly, Wall Street Journal 15/11 2006

Mr. Easterly, professor of economics at New York University, is the author of "The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good" (Penguin, 2006).

Mr. Sachs's empirical analysis purports to show that Nordic welfare states are outperforming those states that follow the "English-speaking" tradition of laissez-faire, like the U.K. or the U.S. Poverty rates are indeed lower in the Nordic countries, although the skeptical reader (probably an ideologue) might wonder if the poverty outcome in, say, the U.S., with its tortured history of a black underclass and its de facto openness to impoverished but upwardly mobile immigrants, is really comparable to that of Nordic countries.

According to the English-speaking ideologues that composed the Heritage Foundation/Wall Street Journal Index of Economic Freedom, Denmark, Finland and Sweden were all included in the 20 countries classified as "free" in 2006 (with Denmark actually ranked ahead of the U.S.). Only Norway missed the cut -- barely.

Hayek's Challenge:
An Intellectual Biography of F.A. Hayek By Bruce Caldwell
Economist about the book 4/3 2004

FOR much of Friedrich von Hayek's career, mainstream economists tended to dismiss him as a free-market extremist who had lost the argument against Keynesianism in the 1930s and 1940s. Even anti-Keynesians patronised him as a venerable polymath with correctly anti-interventionist views who nevertheless belonged down the hall in the political-theory department. When in 1950 Hayek joined the University of Chicago, a stronghold of free-market theory, he taught in the newly created Committee on Social Thought, not as he had hoped in the economics faculty, which politely declined him a post.

Vindication, however, came to this dry, dogged Austrian in his 70s, by when academic economists and policymakers were belatedly taking note. In 1974 Hayek won the Nobel prize for economics. The theoretical idea he was proudest of—that only markets, not governments, could gather and disperse price knowledge effectively—helped inspire a wave of deregulation and privatisation. His chief political idea—that free markets and political liberty were indissociable—lent strength to the revival of classical liberalism. By his death in1992, Hayek had joined Milton Friedman and Robert Nozick as one of the three theoretical godfathers of the Thatcher-Reagan revolution.

Of all modern right-wing economic thinkers, Hayek is most like Karl Marx in trying to link everything to everything else. And that may be one reason why it is exaggerating only slightly to say that Hayek nowadays is more revered than read.

Obviously guides are needed, and Bruce Caldwell's “Hayek's Challenge” is a welcome introduction. It has several merits. As an editor of Hayek's collected works, Mr Caldwell knows his texts. Unlike many writers on Hayek, he does not treat him as a guru. He admits his obscurities and longueurs. He opens with the influences on Hayek: Carl Menger, the founder of the Austrian school of economics, and Ludwig von Mises, Hayek's mentor, who questioned the value of abstract model-making and urged economists to focus instead on how market decision-takers—which means all of us—really think and act.

Mr Caldwell takes us through Hayek's debate with Keynes about money and the business cycle, summarises his key article, “Economics and Knowledge” (1937), as well as his two best known books, “The Road to Serfdom” (1944) and “The Constitution of Liberty” (1960), before delving into his more philosophical endeavours.

Utdrag ur
Full Employment at Any Price? By F. A. HAYEK,
Nobel Laureate 1974,
(IEA) THE INSTITUTE OF ECONOMIC AFFAIRS, 1975

The policy of the recent decades, or the theory, which underlies it, had its origin, however, in the specific experiences of Great Britain during the 1920's and 1930's. Great Britain had after what now seems the very modest inflation of the First World War, returned to the gold standard in 1925, in my opinion very sensibly and honestly, but unfortunately and unwisely at the former parity.

This had in no way been required by classical doctrine: David Ricardo had in 1821 written to a friend that ‘I never should advise a government to restore a currency, which was depreciated 30 per cent, to par’. I ask myself often how different the economic history of the world might have been if, in the discussion of the years preceding 1925, even only one English economist had remembered and pointed out this long-published passage from Ricardo.

In the event, the unfortunate decision taken in 1925 made a prolonged process of deflation inevitable, which process might have been successful in maintaining the gold standard if it had been continued until a large part of the wages had been reduced. I believe this attempt was near success when in the world crisis of 1931 Britain abandoned it together with the gold standard, which was greatly discredited by this event.

It was during the period of extensive unemployment in Great Britain preceding the world-wide economic crisis of 1929-31 that John Maynard Keynes developed his basic ideas. It is important to note that this development of his economic thought happened in a very exceptional and almost unique position of his country.

It was a period when, as a result of the big appreciation of the international value of the pound sterling, the real wages of practically all British workers had been substantially increased compared with the rest of the world, and British exporters had in consequence become substantially unable successfully to compete with other countries.

In order to give employment to the unemployed it would therefore have been necessary either to reduce practically all wages or to raise the sterling prices of most commodities.

In the development of Keynes’ thought it is possible to distinguish three distinct phases.

The Keynes of 1919 (The Economic Consequences of the Peace (1919), reprinted in The Collected Writings of John Maynard Keynes, Macmillan for the Royal Economic Society, Vol. II, 1971, p. 149.) had still understood that:

His political judgement made him the inflationist, or at least avid anti-deflationist, of the 1930's. I have, however, good reason to believe that he would have disapproved of what his followers did in the post-war period. If he had not died so soon, he would have become one of the leaders in the fight against inflation.

It was in that unfortunate episode of English monetary history in which he became the intellectual leader that he gained acceptance for the fatal idea: that unemployment is predominantly due to an insufficiency of aggregate demand compared with the total of wages which would have to be paid if all workers were employed at current rates.

This formula of employment as a direct function of total demand proved so extraordinarily effective because it seemed to be confirmed in some degree by the results of quantitative empirical data. In contrast, the alternative explanations of unemployment which I regard as correct could make no such claims. The dangerous effects which the ‘scientistic’ prejudice has had in this diagnosis is the subject of my Nobel lecture at Stockholm (Part II).

I have to confess that 40 years ago I argued differently. I have since altered my opinion — not about the theoretical explanation of the events but about the practical possibility of removing the obstacles to the functioning of the system by allowing deflation to proceed for a while. (kurs här)

I then believed that a short process of deflation might break the rigidity of money wages (what economists have since come to call their ‘rigidity downwards’) or the resistance to the reduction of some particular money wages, and that in this way we could restore relative wages determined by the market.

This seems to me still an indispensable condition if the market mechanism is to function satisfactorily. But I no longer believe it is in practice possible to achieve it in this manner. I probably should have seen then that the last chance was lost after the British government in 1931 abandoned the attempt to bring costs down by deflation just when it seemed near success.