Thomas Tooke

Keynes repeating the nonsense of war stimulation which had already been debunked by Thomas Tooke.

In United Kingdom Bank restriction from February 27th 1797 to May 1st 1821 on August 4, 2012 at 10:31 pm

In 1838 Thomas Tooke wrote:

“Those persons who consider the range of high prices which prevailed from 1793 to 1814, as being fully accounted for by the war, independently of its attendant taxation, proceed on the assumed operation of the following causes :—.
1. An extra demand or consumption arising out of a state of war in general.
2. The extra demand or consumption peculiarly characterising the last war.                                                                                                                       3. The monopoly of trade enjoyed by this country (United Kingdom).And,                                                                                                                           4. The stimulus or excitement to increased population, production, and consumption, occasioned by the profuse government expenditure during the above period.

Section 1. — Extra Demand or Consumption arising out of a state of War in general.

The reasoning in support of the opinion, that the principal phenomena of high prices may be ascribed to the effects of war in general, through the medium of extra demand, independently of any reference to circumstances affecting the supply, may be stated in substance as follows : —

That the whole of the government expenditure for naval and military purposes may be regarded as creating a new source of demand for the articles constituting that expenditure, and consequently as tending to raise the price of such articles. That not only the price of those commodities, which come directly under the description of naval and military stores, must experience an advance in
consequence of the increased demand, but that the price of corn and other necessaries must likewise be affected in a considerable degree by the additional consumption occasioned by the maintenance of the men composing the fleets and armies. That not only the demand for seamen and soldiers must tend directly to raise the rate of wages of that description of labourers from among whom these men are taken, and indirectly the rate of wages generally; but that the increased demand for various kinds of manufactured articles requisite for the equipment of fleets and armies, is calculated further to raise the rate of wages ; and that this increased demand for labour, and the consequent advance of wages in general, naturally occasion increased population and increased consumption by the labouring classes.

Thus the government expenditure in all its ramifications is thought to extend the sphere and increase the activity of demand for  necessaries, to operate directly or indirectly in promoting briskness of circulation, to vivify every branch of industry, and consequently to stimulate exertion to an increase of every kind of production.

The cessation, by the peace, of all such extra demand, the great customer war being withdrawn, (when by the stimulus of previous high prices there was a general increase of production,) would naturally, it is supposed, account for falling markets and consequent distress among the producing classes, and for reduced wages and diminished consumption ; these leading, through a long course
of suffering, to the only remedy, viz. a diminished production.

The fallacy of this doctrine, which represents a  general elevation of prices, both of commodities and labour, to be a necessary consequence of a state of war, proceeds (and cannot otherwise than so proceed) on the supposition that the money expended by the government consists of funds distinct from and over and above any that before existed ; whereas, it is perfectly demonstrable, that an expenditure by government, whether defrayed by immediate taxes to the whole amount, or by loan on the anticipation of taxes to be levied, is nothing but a change in the mode of laying out the same sum of money ; and that what is expended by government would and must have been laid out by individuals upon objects of consumption, productive or unproductive.”

Some might argue that printing new money is not included in Thomas Tooke´s objections, to which one would answer obviously that diluted capital is not the same as new capital. One would have to remember the definition of money and capital by Adam Smith.

Tooke continues:

“I am here supposing that, both on the part of government and on that of individuals, the habit of hoarding to any extent is out of the question. If government were in the practice of collecting a surplus revenue in coin in time of peace, and of accumulating it as treasure to be expended on the occurrence of a war, then indeed there would be a marked difference in general prices on the transition from peace to war; but even this addition to the circulating medium would be limited in its effect on prices to the time within which the treasure was in a course of progressive outlay, until its natural distribution into other countries was effected.

A similar effect would follow, if individuals were in the habit of hoarding, and if, for the purposes of war, they were obliged to give up their hoards to the use of government. These suppositions, however, are quite foreign to the practice of the times which are under consideration. ”  Is he referring to government taxes on the rich, the ones able to hoard? As for government expenditures outlaid out of previous hoarding from the government, it is from a timing perspective the opposite of borrowing, it is time shifting some drag on the economic activity, nothing more, nothing less. Where there is no more capacity to shift some present economic drag to the future, and this burden shifted in the future refuses to move forward, that is the point of insolvency.

 

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