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The Power of Economic Ideas

The Power of Economic Ideas: The origins of Keynesian macroeconomic management in interwar Australia 1929-39

Copyright Date: 2010
Published by: ANU Press
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  • Book Info
    The Power of Economic Ideas
    Book Description:

    Economics, Keynes once wrote, can be a 'very dangerous science'. Sometimes, though, it can be moulded to further the common good though it might need a leap in mental outlook, a whole new zeitgeist to be able do do. This book is about a transformation in Australian economists' thought and ideas during the interwar period. It focuses upon the interplay between economic ideas, players and policy sometimes in the public arena. In a decade marked by depression, recovery and international political turbulence Australian economists moved from a classical orthodox economic position to that of a cautious Keynesianism by 1939. We look at how a small collective of economists tried to influence policy-making in the nineteen-thirties. Economists felt obliged to seek changes to the parameters as economic conditions altered but, more importantly, as their insights about economic management changed. There are three related themes that underscore this book. Firstly, the professionalisation of Australian economics took a gigantic leap in this period, aided in part, by the adverse circumstances confronting the economy but also by the aspirations economists held for their discipline. A second theme relates to the rather unflattering reputation foisted upon interwar economists after 1945. That transition underlies a third theme of this book, namely, how Australian economists were emboldened by Keynes's General Theory to confidently push for greater management of economic activity. By 1939 Australian economists conceptualized from a new theoretic framework and from one which they advanced comment and policy advice. This book therefore will rehabilitate the works of Australian interwar economists, arguing that they not only had an enviable international reputation but also facilitated the acceptance of Keynes's General Theory among policymakers before most of their counterparts elsewhere.

    eISBN: 978-1-921666-27-8
    Subjects: Economics

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. Acknowledgments
    (pp. ix-x)
  4. List of abbreviations
    (pp. xi-xii)
  5. A word on the artwork
    (pp. xiii-xiv)
  6. Preface
    (pp. xv-xvi)
  7. 1. The triumph of the economists?
    (pp. 1-10)

    In 1981, Colin Clark wrote to the Cambridge economist Joan Robinson suggesting that he had found a telling insight into J. M. Keynes and the evolution of some of his thought that was later embedded in The General Theory.¹ In 1932, Keynes had written an appraisal of the economic response by Australian authorities to the Depression. Somewhat uniquely guided by economics expertise, the authorities had responded with an orchestrated mix of cost-cutting, fiscal austerity and a modest form of monetary expansion. Asked to review Australian economic policy, Keynes demurred on the idea of further wage cuts or indeed devaluation, suggesting...

  8. Part I. Backing into the Limelight:: the Interwar Australian Economics Profession

    • 2. Economic ideas and an assessment of Australian economists in the 1930s
      (pp. 13-30)

      This chapter briefly reviews the existing literature on two areas central to the ambit of this book. First, we briefly examine, in the form of a backdrop, the problematic issue of the relationship between economic ideas and policy. While Keynesʹs oft-quoted and noble peroration about the power of economic ideas marks the start of this discussion, there is no simple, linear relationship between ideas and policy. Indeed, the whole gamut of policymaking is enveloped by a fog of disparate influences, interests and entanglements, many of which could detract from the ambition of this thesis. If anything, we might say that...

    • 3. The Australian economy during the Depression decade
      (pp. 31-42)

      The Australian-based Douglas Copland, who assumes a key role in this story, once noted ʹ[r]arely, if ever, has the economy of a country been subject to such penetrating scrutiny as was the Australian economy in the years 1927 to 1939ʹ (Palmer 1940:224–5). The same could not be said, however, of Australian economists, particularly of their advice to combat the Depression and promote economic recovery in the 1930s. The purpose of this chapter is to undertake a survey of the Australian economy during the 1930s, using contemporaneous and revisionist accounts of the traverse from slump to recovery. This will entail...

    • 4. The interwar Australian economics profession
      (pp. 43-76)

      The purpose of this chapter is to discuss the development of the Australian economics profession and how the Depression played a part in its elevation. The opening part of the chapter briefly recounts the onset of depression within Australia. How the interwar economists perceived the origins of the Depression and their initial responses to it are discussed later. Australian economists had already made a start in advising state and federal governments on economic matters and this chapter draws out that early relationship. The main part of the chapter deals with the nature of the Australian economics profession at the time,...

  9. Part II. Triumph and Tribulation

    • 5. The Premiersʹ Plan and the economists
      (pp. 79-116)

      Australian economists played a key role in developing the policy alternatives to deal with the nationʹs economic crisis. Contrary to Schedvinʹs view that economists played only a superficial role in the Depression, Copland (1934:29) saw it as a defining moment for the economics profession. The purpose of this chapter is to recount how economists responded to the economic crisis of 1930–31. While Neville Cain has undertaken an exacting study of the origins of the Premiersʹ Plan, this account, using new archival material, will attempt to retrace the subtlety and nuance of the path towards economic reconstruction. When reviewing Schedvinʹs...

    • 6. The agonistes of the economists, 1931–1932
      (pp. 117-148)

      In his account of Australiaʹs travail through the Depression, Schedvin (1970:225) was dismissive of the efforts of economists in formulating policy dealing with the crisis but also, more importantly for our purposes, in putting forward alternative economic policies.¹ Apart from his main contention that the Premiersʹ Plan had a comparatively minor effect on the course of recovery, Schedvin suggested that the economic policy decided on in July 1931 retarded, more than promoted, economic recovery. The interwar economists would have concurred; official economic policy in 1932 took a deflationary bias. The purpose of this chapter, however, and those following, is to...

    • 7. The Australian recovery, 1933–1936
      (pp. 149-190)

      In September 1932, a year in which unemployment peaked at 28 per cent of the available workforce, Lyons told Parliament of a growing return in business confidence now that the Premiersʹ Plan was being implemented. Lyons relentlessly played on the psychological comfort of having a conservative government in power (Lloyd 1984). It was, as the economists knew, barely enough. At one point, Lyons was reduced to enumerating the number of new telephone connections as proof of the green shoots of recovery.¹ In another instance, he made an appeal reminiscent of Keynesʹs public broadcasts:

      What we need now is not to...

  10. Part III. The March of Keynesian Ideas

    • 8. The Royal Commission on Monetary and Banking Systems
      (pp. 193-224)

      One of the ironies of the 1936–37 Royal Commission on Banking and Monetary Systems was that while the input of professional economists dominated the commissionʹs findings they were barely influential in pushing for the inquiry in the first place. Not perhaps since the 1930 Macmillan Committee on Finance and Industry in Britain had a gallery of economists been afforded a public forum to express their views on economic policy. The evidence given by economists advanced the key issues on which the commission would deliberate. That evidence, among a sea of words, was impressive, representing the state of the art...

    • 9. Australia, 1936–1938: the nascent Keynesian state?
      (pp. 225-248)

      The two grand themes of this monograph are, to repeat, the influence of economistsʹ ideas on Australian public policy in the 1930s and whether their assimilation of Keynesian economics made any imprint on official policy. In this, and the following chapter, these two themes coalesce as we inquire into whether there is any indication of what might be called a ʹKeynesian revolutionʹ in Australian economic policy before and just after the outbreak of World War II. It is not an unrealistic prospect since Australian economists had already assumed a position of considerable influence by the late 1930s. On the other...

    • 10. The economics of near-war
      (pp. 249-268)

      The last year of peacetime in Australia was marked by difficult economic choices and political turbulence. The necessity to divert resources into defence as the security environment grew darker was jeopardised by the system of political federation and traditional ideas about public finance. By the end of 1939, there came, however, a moment of economic revelation. As Copland (1945:8) styled it: ʹThe lesson of the war is unmistakable in its demonstration that, given a clear and generally accepted objective, we can erect an economic structure far superior to that which we knew during the dark days of the thirties.ʹ


  11. Dramatis personae
    (pp. 269-276)
  12. Bibliography
    (pp. 277-310)