Notes
To the best of my knowledge, Keynes never used the term secular stagnation.
I do not mean that there were no important innovations in the interwar period in the USA and Britain.
In fact, there were a number of important new industries created or further developed during this period. However, their impact on output and employment was too small to overcome the long list of impediments to growth mentioned here. They were not sufficiently system transforming, at least in this era.The neoclassical theory of the firm has a similar property. A rising capital-to- labor ratio will reduce the marginal product of capital, which, ceteris paribus, will lower the rate of profit on capital.
Even with a nationalized central bank, a persistently low interest rate could not be achieved without the use of capital controls.
Thomas Piketty's widely read book, Capital in the Twenty First Century (Piketty 2014), has again raised the question of whether rising inequality is the natural or normal state of capitalism.
"From dawn to dusk - European democracy enters dangerous times." Readers without an interest in this topic can skip Appendix 2.
We should bear in mind that Minsky and other Golden Age "Keynesian" economists were uncomfortable about being associated with Keynes's commitment to the theory of secular stagnation in an era of seemingly endless prosperity. In this period, it was almost universally believed that, with big government, activist monetary and fiscal policy, financial market regulation designed to end casino capitalism in America, huge defense budgets, and large social welfare spending, secular stagnation could not happen again.
The reader should keep in mind that Keynes defines "money" as cash plus short, safe financial assets such as savings accounts and Treasury bills that pay interest, but normally at a much lower rate than is paid on long-term bonds. Adherence to the belief that the "moon is made of green cheese" is a sign of credulity or dim-wittedness.
In periods of high inflation, of course, money is a terrible store of value, normally far inferior to gold or land or works of art, and so on. Keynes was certainly aware of this fact. But inflation was not on the horizon when Keynes wrote The General Theory. Britain experienced serious deflation in every year from 1921 through 1933 and relative price stability in the three years that followed. Moderate price inflation did not return until after 1936 when Britain began its military buildup in anticipation of its likely participation in war in Europe.
14