Clever metaphors from Keynes

I liked this part, even though I don't think AD is always the key factor:

Some people seem to infer from this that output and income can be raised by increasing the quantity of money.  But this is like trying to get fat by buying a larger belt.  In the United States to-day your belt is plenty big enough for your belly.  It is a most misleading thing to stress the quantity of money, which is only a limiting factor, rather than the volume of expenditure, which is the operative factor.

That's Keynes, writing to Roosevelt.  The letter is interesting throughout, how about this part:

I put in the second place [as a priority] the maintenance of cheap and abundant credit
and in particular the reduction of the long-term rates of interest. The
turn of the tide in great Britain is largely attributable to the
reduction in the long-term rate of interest which ensued on the success
of the conversion of the War Loan. This was deliberately engineered by
means of the open-market policy of the Bank of England. I see no reason
why you should not reduce the rate of interest on your long-term
Government Bonds to 2½ per cent or less with favourable repercussions
on the whole bond market, if only the Federal Reserve System would
replace its present holdings of short-dated Treasury issues by
purchasing long-dated issues in exchange. Such a policy might become
effective in the course of a few months, and I attach great importance
to it.

That's exactly what the Fed has been stressing and what Robert Lucas has advocated as well.


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