Evening star., 1934-06-24
Keynes' Plan Is Assailed

| granted, and it still does not follow
that a dead point" will result.
Suppose that John Jones, having
been employed on the public works
projects advocated by DR.. Keynes, re-
ceives his monthly salary from the
Government, and decides to pay over
due rent or other long standing bills.
While the transfer of that sum of
money to John Jones creditors does
not in itself result in larger volume
of business, the money will presum-
ably be spent by those creditors in
one way or another. His landlord, for
example, if he is fortunate in receiving
overdue rents from a member of
tenants, may use the money involved
for the purchase of a new car.
In other words, it is perfectly clear
that the use of these founds for the
/ payment of old debts does not retire
the money from circulation, but, on
the contrary, permits 1t to continue in
circulation and have a stimulating
effect on business, exactly as though
John Jones himself had used that
amount to buy goods
The second dead point" visualized
by DR.. Keynes is due to. the fact (ac-
cording to HIM that business will not
expand its present capital facilities
until such time as those now in exist
ence are used to capacity. This view
| point pre-suppoSes that the only ex-
pansion in capital equipment possible
, is in that which is directly concerned
with the production of other goods
and services. AS matter of fact. this
is not the case. The more availability
of savings-that is to say, of capital
funds at low rate of Interestingly in
itself be sufficient reason for the ex-
pansion of existing plant facilities on
the part of some concerns already in
business. Even in the same industry
costs are highly variable between the
different companies, with the result
that even in the worst of times, it will
be found that some organizations are
expanding their equipment.
A popularity of DR.. Keynes reason
ing is revealed by his statement that
when industry again starts to spend
money on repairs and renewal of
I plant, We shall once more have in
creased incomes in circulation from
business causes. He apparently over
looks the fact that increased produc-
ton of automobiles, for example. is
accompanied by increased credit eX-
| tensions by the banking system (based
on the commercial paper involved, ,
and that this increased credit exten-
sion appears in the form of demand
| deposits subject to check, which be-
come increased national income. as
| they are paid out in the form Of
wages, salaries, interest, dividends,
| taxes, etc.
AnaIyzing the Agenda.
| Certain "agenda for the President"
form the concluding portion Of the
article under consideration. 1t is not
| clear whether the advice therein
summarized has actually been given
| to President Roosevelt other than
| through the press. However, there
are certain aspects of these recon-
mendations which should be carefully
| considered.
Mr. Keynes suggests that the treas
urer and the Federal Reserve System
should exert continuous pressure in
order to bring down the long term
{ Idlt VI lIlJtIbol lit lAdL oCsNCA t4'iAA
is made that lit asSuredly lies in
! their power That it is possible for
/ the treasurer and the Federal Reserve
/ banks to create a temporary ease Of
money rates. which may for a time
/ affect the long-term interest rate. is
widely known. However, it is a fact
| that, in the long run. savings are
the only safe source OF capital funds,
| Therefore, it follows that a genuine
reduction in long-term rates of in
terest can result only when there is
increased saving relatively to the de-
mand for capital funds. Any arti-
| ficially lowered rates which, for a
| time, give the impression that long
| term funds are abundantly available
! can only result in deceiving business
enterprise and encouraging overex-
pansion which will later have to be
| liquidated.
Another suggestion, that ''it would
be disastrous error and an instru-
ment of strong defiation to attempt
to cover capital expenditures out of
current revenue" shows how easy it
/ is for even an economist like DR..
/ Keynes to forget his own definitions
Obviously. a balanced budget-that is