How to Pay for the War

Abstract

MACROECONOMIC management, based on a national accounting analytical framework, was introduced in Britain with the 1941 budget. This budget was described by Keynes as ‘a revolution in public finance’ [85: 353–4] in that, together with an accompanying White Paper on national income and expenditure, it dealt with aggregate demand and supply, and was no longer simply a cash balance sheet of central government income and expenditure. However, it was a revolution brought about by the problem of inflation, not unemployment. Government’s war expenditure had taken up the slack in the economy by late 1940, and at full employment the differences between Keynes and pre-Keynesian economists disappeared [78: 378–9]. It is not really surprising therefore that, as Tomlinson [142: 131–2] has noted, pre-war critics of Keynes such as Hayek, should agree with him on the economics of scarcity. Moreover, the balance-of-payments problem was removed for the duration of the war by the willingness of the United States, from 1941, to supply essential goods under Lend Lease. Thus there is reason to doubt Feinstein’s claim [37: 12–13] that the 1941 budget was the first to show acceptance of Keynes’s theories and that ‘it was but a short step’ from wartime budgetary policy to the government’s acceptance in 1944 of a commitment to maintain high and stable employment after the war.