History
In the late 1920s and early 1930s, during the height of the Great Depression, many economists (most prominently John Maynard Keynes) tried to persuade governments that increased government spending would mitigate the situation and reduce unemployment. In the United Kingdom, the staff of the Chancellor of the Exchequer, notably Ralph George Hawtrey and Frederick Leith-Ross, argued against increased spending by putting forward the "Treasury view". Simply put, the Treasury view was the view that fiscal policy could only move resources from one use to another, and would not affect the total flow of economic activity. Therefore, neither government spending nor tax cuts could boost employment and economic activity. This view can historically be traced back to various statements of Say's law.
Keynes argued against this position, and particularly in The General Theory of Employment, Interest, and Money, provided a theoretical foundation for how fiscal stimulus can increase economic activity during recessions.
Opinions are currently sharply divided on the Treasury view, with different schools of economic thought holding contradicting views. Many in the "freshwater" Chicago school of economics advocate a form of the Treasury view, whereas economists from saltwater schools reject the view as incorrect.
A number of prominent financial economists (including Eugene Fama) have recently advocated the strong form of this view – that of no possible impact. However, it is categorically rejected by Keynesian macroeconomics, which holds that economic activity depends on aggregate spending (at least in the short run). It is related to, and at times equated with, theories of Say's law, Ricardian equivalence, and the Policy Ineffectiveness Proposition.
Noted macroeconomists such as Milton Friedman and Robert Barro have advocated a weak form of this view, that fiscal policy has temporary and limited effects. Such a view is not incompatible with Keynesian macroeconomics.
Read more about this topic: Treasury View
Famous quotes containing the word history:
“In the history of the United States, there is no continuity at all. You can cut through it anywhere and nothing on this side of the cut has anything to do with anything on the other side.”
—Henry Brooks Adams (1838–1918)
“The myth of independence from the mother is abandoned in mid- life as women learn new routes around the mother—both the mother without and the mother within. A mid-life daughter may reengage with a mother or put new controls on care and set limits to love. But whatever she does, her child’s history is never finished.”
—Terri Apter (20th century)
“I am ashamed to see what a shallow village tale our so-called History is. How many times must we say Rome, and Paris, and Constantinople! What does Rome know of rat and lizard? What are Olympiads and Consulates to these neighboring systems of being? Nay, what food or experience or succor have they for the Esquimaux seal-hunter, or the Kanaka in his canoe, for the fisherman, the stevedore, the porter?”
—Ralph Waldo Emerson (1803–1882)