Editing Keynesian economics (section)

===Views on trade imbalance===

In the last few years of his life, [[John Maynard Keynes|Keynes]] was much preoccupied with the question of balance in international trade. He was the leader of the British delegation to the [[United Nations Monetary and Financial Conference]] in 1944 that established the [[Bretton Woods system]] of international currency management.
He was the principal author of a proposal – the so-called Keynes Plan – for an [[International Clearing Union]]. The two governing principles of the plan were that the problem of settling outstanding balances should be solved by 'creating' additional 'international money', and that debtor and creditor should be treated almost alike as disturbers of equilibrium. In the event, though, the plans were rejected, in part because "American opinion was naturally reluctant to accept the principle of equality of treatment so novel in debtor-creditor relationships".<ref>
{{cite book|author=Crowther, Geoffrey|title=An Outline of Money|version=Second Edition|publisher= Thomas Nelson and Sons|year=1948|pages=326–29}}</ref>

The new system is not founded on free trade (liberalization<ref>{{cite web|url=http://www.investopedia.com/terms/d/deregulate.asp|title=Deregulation|author=Investopedia Staff|date=25 November 2003|access-date=30 June 2017|archive-date=2 July 2017|archive-url=https://web.archive.org/web/20170702012600/http://www.investopedia.com/terms/d/deregulate.asp|url-status=live}}</ref> of foreign trade<ref>{{cite web|url=http://www.investopedia.com/terms/t/trade-liberalization.asp|title=Trade Liberalization|author=Investopedia Staff|date=3 April 2010|access-date=30 June 2017|archive-date=23 June 2017|archive-url=https://web.archive.org/web/20170623034035/http://www.investopedia.com/terms/t/trade-liberalization.asp|url-status=live}}</ref>) but rather on regulating international trade to eliminate trade imbalances. Nations with a surplus would have a powerful incentive to get rid of it, which would automatically clear other nations' deficits.<ref>{{cite web | url=https://scholarworks.umass.edu/cgi/viewcontent.cgi?referer=https://en.wikipedia.org/&httpsredir=1&article=1127&context=peri_workingpapers | title=Current Global Imbalances and the Keynes Plan | first=Lilia | last=Costabile | date=December 2007 | publisher=Political Economy Research Institute | access-date=8 November 2020 | archive-date=20 January 2021 | archive-url=https://web.archive.org/web/20210120101918/https://scholarworks.umass.edu/cgi/viewcontent.cgi?referer=https%3A%2F%2Fen.wikipedia.org%2F&httpsredir=1&article=1127&context=peri_workingpapers | url-status=live }}</ref> Keynes proposed a global bank that would issue its own currency—the ''bancor''—which was exchangeable with national currencies at fixed rates of exchange and would become the unit of account between nations, which means it would be used to measure a country's trade deficit or trade surplus. Every country would have an overdraft facility in its bancor account at the International Clearing Union. He pointed out that surpluses lead to weak global aggregate demand – countries running surpluses exert a "negative externality" on trading partners, and posed far more than those in deficit, a threat to global prosperity. Keynes thought that surplus countries should be taxed to avoid trade imbalances.<ref>{{cite web |url=https://www.theguardian.com/commentisfree/2010/may/05/reform-euro-or-bin-it-greece-germany |title=Reform the euro or bin it |author=Joseph Stiglitz |date=5 May 2010 |website=www.theguardian.com |access-date=30 June 2017 |archive-date=30 August 2017 |archive-url=https://web.archive.org/web/20170830234718/https://www.theguardian.com/commentisfree/2010/may/05/reform-euro-or-bin-it-greece-germany |url-status=live }}</ref>
In ''"National Self-Sufficiency" The Yale Review, Vol. 22, no. 4 (June 1933)'',<ref>{{Cite web | url=http://www.uam.es/personal_pdi/economicas/jsanchez/documentos/1601%20KEYNES%20National%20Self-sufficiency%201933.pdf | title=Inicio | access-date=30 June 2017 | archive-date=9 December 2017 | archive-url=https://web.archive.org/web/20171209065022/http://www.uam.es/personal_pdi/economicas/jsanchez/documentos/1601%20KEYNES%20National%20Self-sufficiency%201933.pdf | url-status=live }}</ref><ref>{{cite web|url=http://www.india-seminar.com/2009/601/601_david_singh_grewali.htm|title=601 David Singh Grewal, What Keynes warned about globalization|website=www.india-seminar.com|access-date=30 June 2017|archive-date=1 May 2017|archive-url=https://web.archive.org/web/20170501115139/http://www.india-seminar.com/2009/601/601_david_singh_grewali.htm|url-status=live}}</ref> he already highlighted the problems created by free trade.

His view, supported by many economists and commentators at the time, was that creditor nations may be just as responsible as debtor nations for disequilibrium in exchanges and that both should be under an obligation to bring trade back into a state of balance. Failure for them to do so could have serious consequences. In the words of [[Geoffrey Crowther, Baron Crowther|Geoffrey Crowther]], then editor of [[The Economist|''The Economist'']], "If the economic relationships between nations are not, by one means or another, brought fairly close to balance, then there is no set of financial arrangements that can rescue the world from the impoverishing results of chaos."<ref>{{cite book|author= Crowther, Geoffrey|title=An Outline of Money|version=Second Edition|publisher=Thomas Nelson and Sons
|year=1948|page=336}}</ref>

These ideas were informed by events prior to the [[Great Depression]] when – in the opinion of Keynes and others – international lending, primarily by the U.S., exceeded the capacity of sound investment and so got diverted into non-productive and speculative uses, which in turn invited default and a sudden stop to the process of lending.<ref>{{cite book|author=Crowther, Geoffrey| title=An Outline of Money|version=Second Edition|publisher=Thomas Nelson and Sons|year=1948|pages= 368–72}}</ref>

Influenced by Keynes, economic texts in the immediate post-war period put a significant emphasis on balance in trade. For example, the second edition of the popular introductory textbook, ''An Outline of Money'',<ref>{{cite book|author=Crowther, Geoffrey|title=An Outline of Money|version= Second Edition|publisher=Thomas Nelson and Sons|year=1948}}</ref> devoted the last three of its ten chapters to questions of foreign exchange management and in particular the 'problem of balance'. However, in more recent years, since the end of the [[Bretton Woods system]] in 1971, with the increasing influence of [[Monetarist]] schools of thought in the 1980s, and particularly in the face of large sustained trade imbalances, these concerns – and particularly concerns about the destabilizing effects of large trade surpluses – have largely disappeared from [[mainstream economics]] discourse<ref>See for example, Krugman, P and Wells, R (2006). "Economics", Worth Publishers</ref> and Keynes' insights have slipped from view.<ref>although see Duncan, R (2005). "The Dollar Crisis: Causes, Consequences, Cures", Wiley</ref> They received attention again during the [[2008 financial crisis]].<ref>See for example,{{cite web|url= http://www.monbiot.com/archives/2008/11/18/clearing-up-this-mess/|title=Clearing Up This Mess| date=18 November 2008| archive-url= https://web.archive.org/web/20090123161345/http://www.monbiot.com/archives/2008/11/18/clearing-up-this-mess/| archive-date= 23 January 2009 | url-status= live}}</ref>