0

Schumpeter's Opinion of Budget Deficits

I let the following quote speak for itself, and hope to return soon to draw out more substantive points relating to policy during a recession. Schumpeter was writing in 1941.

Note in passing, Barry Eichengreen’s remark that Schumpeter “was a skeptic of all things Keynesian, given his self-conscious competition with Keynes for the mantle of greatest economist of the 20th century”.

The readiness to let a budget run into a deficit in a depression by keeping up expenditures in the face of shrinking revenues is a policy which will alleviate much suffering and keep many things going which would otherwise crash. This is so and cannot be denied, and action along these lines has been taken consciously or unconsciously for more than a hundred years…

The interesting thing is not so much the degree to which remedial effects can be attained in that way; the interesting fact is the spirit in which the policy was entered into… and the way in which it was made permanent. I shall put aside the question, for want of time, whether there is something in the ruthless principle that the budget ought to be balanced under any circumstances. Action on that principle makes things worse in a depression, but who knows whether the patient is not healthier when he gets along without it than with it…