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Joan Robinson on public sector deficits and debt

V. Ramanan

The Late Prof Joan Robinson. Source:

Here are some extracted quotes from Joan Robinson on deficits and debt in Introduction To The Theory Of Employ- ment, Chapter 5, Change In Thriftiness, in the section A Budget Deficit (1937): .

“The idea that a budget deficit is good for trade is often found to be shocking, but it is a fact which has become obvious to the governments of the world since the great depression began in 1929. An argument (commonly used in England) was that a budget deficit will upset the confidence of entrepreneurs, and so will do more indirect harm to employment than direct good. But this is a case where “thinking makes it so”, and it is found nowadays that a budget deficit accompanied by appropriate propaganda can have a very beneficial effect.“

In The Problem Of Full Employment, Chapter 9, Some Fallacies (1943):

“ 1. The Treasury view

During the great slump it was the official view that Government investment can not increase employment. The argument ran: there is a certain amount of saving going on at any time, and if more savings are invested by the government then less will be available for private enterprise. This overlooks the fact that if there is more investment there will be a higher level of activity and of incomes and consequently more saving. The argument is so childish that it would not deceive anyone who had not a strong wish to believe it. Nevertheless, it was for many years the basis of government policy, and was set out in as such in a famous White Paper in 1929.

“ 2. Economy

The National Government which was formed in 1931 went in for a great economy campaign. Local authorities were compelled to cease work on building schemes, roads, fen drainage, and so forth. An emergency budget was introduced, increasing taxation, cutting unemployment allowances and reducing the pay of public servants, such as teachers and the armed forces. Private citizens felt it was patriotic to spend less. Some Cambridge Colleges gave up their traditional feasts as a recognition of the crisis. All this helped to increase unemployment and make the economic situation of the country still more depressed.

Nowadays there is considerably more understanding of how things work and it is unlikely that such a completely idiotic policy will be tried again.

“ 3. The burden of the national debt

The National Debt (Treasury securities – Ed.) is often brought forward as an argument against public spending to create employment. There is a good deal of confusion between the National Debt and the debt of an individual. An individual who is in debt has to pay the interest to someone else, and will be obliged to return the sum borrowed to the lender. A nation which is in debt has to pay interest to its own citizens (foreign debt is different, and much

more like a private debt). In other words, the government has to raise taxes from Paul and Peter and pay interest to Peter and Paul. Taking the country as a whole, there is no burden of the debt. Moreover the debt need never be repaid. As one lot of bonds fall due to be redeemed a fresh lot can be sold to the public. If the debt were ever to be repaid, it would be repaid out of the wealth of the citizens of the country, and this, like the interest payments, is merely a swap round among the members of the community.

At the same time there are genuine objections to a large National Debt. It means that there is a large volume of rentier income (the interest on government securities), so that the active part of the population has to allot a large share of the proceeds of production to the mere owners of wealth. This object- ion is all the stronger if the holders of the National Debt are mainly the richer part of the community, while taxes to pay their interest are raised from the population as a whole. This drawback can be kept within bounds, firstly by having low interest rates, and secondly by arranging the tax system so that the same class which gets the interest has to pay extra taxes. But however well the national finances are managed, some objection must remain.

This does not mean that fear of increasing the National Debt is a sound objection to having a full employment policy. The drawback of a swollen rentier class is trivial compared to the loss of wealth and of happiness, and of life itself, that is entailed by unemployment. “

This entry was posted in Uncategorized and tagged fiscal policy, joan robinson on May 23, 2020, by V. Ramanan.


Editorial comment:

In section 3 (The burden of the National Debt) unfortunately no consideration was given to (a) whether it is appropriate to use the term “the National Debt”, in circumstances where that so-called debt is in reality a form of broad state fiat money issued by the monetary sovereign, or (b) whether it would be desirable to arrange for deficit spending via the route of overt monetary financing (that is, financing of deficit spending via direct borrowing by Treasury from its own central bank, which of course is not really borrowing at all).

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