Column : Put away Das Kapital

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: When the crisis erupted last September after Lehman Brothers went bankrupt, the mood was apocalyptic. Many if not most analysts mentioned the Great Depression of 1930s. Some speculated about the end of free market ideology, of free market economy and indeed of capitalism. It was the end of laissez faire. It was noted with irony that the US was nationalising banks and George W Bush (remember him?) was turning the US into a socialist country.

The crisis was the most serious for some 20 years, without a doubt. It was also a double crisis with the meltdown of the financial system as well as a recession in real income and employment. Each had its separate trajectory, but intertwined as the financial meltdown impacted on the real economy by choking off the supply of credit. Asset values plunged, firstly of houses and then of equities. Banks had to be recapitalised by governments to stem the financial meltdown and massive fiscal stimulus packages were required for the real economy. In the absence of commercial credit, central banks had to innovate quantitative easing and become direct lenders to the market, bypassing the banks.

The result has been a big rise in debt burden of governments and a weakening of the balance sheets of central banks. The German Chancellor Angela Merkel has declared herself a sceptic on the policy of large Keynesian packages . Anglo Saxon economies—US and UK—have gone ultra Keynesian and borrowed without restraint. Niall Ferguson the Oxford historian clashed with Paul Krugman about the desirability of the borrowing, warning of a steep rise in interest rates . Krugman has accused him of being ignorant of any economics since the General Theory became available. Krugman holds that while the recession lasts, the economy being short of full employment, interest rates will stay easy. Robert Skidelsky, Keynes’s biographer agreed with Krugman .