We have in recent years witnessed a spectacular revival of a doctrine which most economists had presumed to be dead, buried and thoroughly discredited. This is a doctrine which came to be known as the Treasury View. In brief the Treasury View stated that all attempts to stimulate employment by means of bond‐financed budget deficits (what Keynes called “loan expenditure”) were doomed to ignominious failure. The grounds for this belief varied somewhat, but underlying it was the view that the successful sale of government debt on the capital market would deprive private investors of access to an equal quantity of funds with which they might otherwise have purchased capital equipment. Nor would matters be materially improved if the increased competition for “investible funds” raised the level of savings via a rise in the rate of interest, for the rise in savings would, by definition; be accompanied by an equal fall in consumption expenditure. In other words, a rise in one form of expenditure would be exactly offset by reductions in the other components of aggregate spending.
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