Monetary Stabilization Policies and Keynesian Theory
SO FAR AS it may be possible within this short space and from so near a view, it is the purpose of this paper to examine Canadian postwar stabilization policies and to relate these to theory and empirical evidence. In the pursuit of low interest rate policies through a series of years characterized by price inflation, what seems to have been overlooked in Canada and elsewhere have been the conditions set out in Section VI of Chapter 211 of the General Theory and the nature of the confirmation of that position in the last published article of Lord Keynes. It is the essence of this position that while the "classical medicine" may not "work by itself" in the fashion expected by laissez-faire theorists, nevertheless it is the proper object of policy to attempt "to use what we have learnt from modern experience and modern analysis, not to defeat, but to implement the wisdom of Adam Smith." 2 If this view be accepted, policy makers must unite two quite different approaches to economic problems. For if the main problem of Keynesian economics has been the stabilization of output and employment at high levels, the main problem of neoclassical economics has been the proper allocation of resources. If we are to unite the two approaches, the reconciliation of these two ends, so far as they may be reconcilable, is the question set for economists and policy makers.