> http://www.campaignforliberty.com/article.php?view=15
where the following is found:
> pro-stimulus thinkers show remarkably little curiosity about why the
> so-called idle resources are idle in the first place. They are idle
> because of some previous entrepreneurial miscalculation. What might
> have caused systemic miscalculation of this kind? Could it be the
> Federal Reserve's manipulation of interest rates, which leads
> investors to make incorrect assessments of profitability and
> provokes false economic booms, as F.A. Hayek won the Nobel Prize for
> showing in 1974?
>
> Consider a circus that comes to town for a few weeks. A restaurant
> owner may expand his seating capacity in the false expectation that
> the circus and the related demand for his food that it brings in its
> wake will last forever. But when the circus leaves town, he'll find
> he has "idle resources" on his hands. We should not want to put
> these idle resources to work. Doing so would only draw labor and
> other resources away from other sectors of the economy, where they
> are employed in the satisfaction of real consumer demand. The
> expansion of the restaurant should not have occurred in the first
> place. We should want this bubble activity to shrink back down to
> size, in order that other, non-bubble activities in the economy can
> be correspondingly strengthened.
>
> In the wake of a previous, unsustainable boom brought about by the
> central bank's credit expansion, the market economy and its price
> system, left to their own devices, will adopt another arrangement of
> resources that employs available factors in the service of producing
> goods and services that correspond to real consumer demand. During
> the bust, free individuals interacting within the market nexus sort
> out which projects and business ventures are healthy and
> sustainable, and which are bubble activities that cannot survive
> without a constant artificial increase in the money supply, and
> cannot (and should not) survive now that reality has reasserted
> itself.
>
> That's what the market was allowed to do in the long-forgotten
> depression of 1920-21. Instead of a "fiscal stimulus" package, the
> government cut its budget. The Fed, for its part, did little.
> Meanwhile, the economy was allowed to clean out the malinvestments
> of the false boom of previous years, thereby making a robust
> recovery possible.
I previously pointed to Keynes's analysis of these mistaken ideas in terms of the psychoanalytic idea of psychopathology.
In the General Theory, he has recourse to literature, via a reference to Ibsen's The Wild Duck, as a source of similar insights.
He uses a metaphor drawn from the play to explain the policy conclusion Hayek drew from the mistaken idea that “there must be two sources of supply to meet the investment demand-schedule; namely, savings proper, which are the savings dealt with by the classical school, plus the sum made available by any increase in the quantity of money (this being balanced by some species of levy on the public, called ‘forced saving’ or the like).”
He then goes on to say of the policy conclusion Hayek derived from this “muddle”,
"namely, that, if the quantity of money could only be kept constant in all circumstances, none of these complications would arise, since the evils supposed to result from the supposed excess of investment over savings proper would cease to be possible"
that:
"at this point we are in deep water. ‘The wild duck has dived down to the bottom – as deep as she can get – and bitten fast hold of the weed and tangle and all the rubbish that is down there, and it would need an extraordinarily clever dog to dive after and fish her up again.’" <http://www.marxists.org/reference/subject/economics/keynes/general-theory/ch14.htm
>
In an unsigned introduction to the program for a series of four Ibsen plays staged at the Cambridge Arts Theatre to mark its opening in February 1936, Keynes, having referred to Ibsen’s "reputation as the greatest dramatist of the nineteenth century." claimed that, "as is usually the case with the greatest plays," these four "can be understood and enjoyed, and are indeed in a sense complete, from several distinct aspects and on planes of varying depth below the surface." (XXVIII, 326-7)
At the deepest level
"they can be seen sub specie eternitatis, remote from contemporary moods and problems, as tragedies of character, exploring the depths and often the crannies of human motive with the imagination of a poet and the insight of a novelist. If the plays have sometimes been felt to be painful, it is because Ibsen can penetrate too deeply into regions which we prefer to keep concealed even from ourselves." (Keynes, Collected Writings, vol. XXVIII, pp. 326-7)
Ted