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Published online by Cambridge University Press: 22 December 2023
Keynes's letters to President Franklin D. Roosevelt clearly illustrate Keynes's firm belief that the main policy to help the US economy recover in a sustained way from the Great Depression was through increased public investment. In 1938 Keynes wrote to Roosevelt:
It is true that the existing policies will prevent the slump from proceeding to such a disastrous degree as last time. But they will not by themselves maintain prosperity at a reasonable level – not without a large-scale recourse to the public works and other investments aided by Government funds or guarantees; … namely increased (public) investment in durable goods such as housing, public utilities, and transport.
In an earlier letter to the president, in 1933, Keynes had written,
In the field of domestic policy, I put in the forefront, a large volume of loan-expenditures under government auspices. It is beyond my province to choose particular objects of expenditure. But preference should be given to those which can be made to mature quickly on a large scale, as for example the rehabilitation of the physical condition of the railroads … I lay overwhelming emphasis on the increase of national purchasing power resulting from governmental expenditure, which is financed by loans. Nothing else counts in comparison with this.
This is still, or even more, the case now. It was, to an important extent, true after the so-called Global Financial Crisis of 2007–09 and the subsequent eurozone debt crisis; it is also true in what seems to be, unfortunately the far worse current Covid-19 crisis.
One of the modern ways of increasing public, as well as private, investment is through funding by public development banks. By working with private banks and private capital markets, as well as other public institutions, public development banks can add leverage to public resources. Such leverage, facilitating a counter-cyclical response, is particularly valuable in times of economic crisis. Second, and crucially, public development banks provide valuable policy steering to help channel significant financial resources to key priority areas, such as the urgent green transformation and more inclusive growth.
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