A frequent complaint against political economists is that they hide their vision of how the world works behind complex models. This could hardly be said of John Maynard Keynes, who first burst forth on the wider public with his 1919 polemic, The Economic Consequences of the Peace.
What remained in the memory of readers who were not particularly interested in the German reparations problem was his preliminary chapter on Europe before the first world war. He described it as an “economic Eldorado” where “it was possible for any man of capacity or character at all exceeding the average, to rise into the middle and upper classes, for whom life offered, at a low cost and with the least trouble, conveniences, comforts and amenities beyond the compass of the richest and most powerful monarchs of other ages”.
By the 1930s his view of the pre-1914 order had darkened. His stark conclusion was that full employment had rarely been achieved in peacetime except in rare periods of exuberance. He formulated a “psychological law” that savings tended to rise more than in proportion to income and tended to outrun investment opportunities. Some American economists called the doctrine “secular stagnation” and braced themselves for a big slump following the second world war.