This is not to say that Giblin did not raise multiplier issues with Keynes in the years of writing the General theory. He did so, twice.
In April 1932 Giblin was acting as Commonwealth Statistician and informal economic advisor to the Commonwealth Government. In that month Giblin sent Keynes a copy of a confidential letter he had sent to his patron, and fellow Tasmanian, the Prime Minister Joseph Lyons.
13 April 1932
CONFIDENTIAL
Dear Mr Lyons
I have signed the Report of the Committee on unemployment with some hesitation …
The conclusions of the Report are that money can be reasonably and safely be raised by Treasury-bills for public works … provided that the money so expanded shall earn interest.
The criterion of earning interest must be interpreted with some latitude … I suggest, therefore, that expenditure of Loan money might be held open for consideration if it earned ultimately something less than full interest, say four percent, or perhaps as little as three percent.
Our direct loss of income from the lower price of exports, relative to the cost of imports and interest payments, probably about £30m p.a; from cessation of oversea loans it is not more than £30m, making a total of £60m. But the total loss of income is well over £200m. Much the greater part of the total loss of income and employment is due to the indirect effects of the direct loss of purchasing power spread through the community. The total loss is three to four times the direct loss.
Conversely any increase of purchasing power directly by government expenditure or otherwise would result in a total purchasing power of three to four times the original amount. If any number of unemployed were put into employment of any kind at average rates of pay, the added number reabsorbed as a consequence in ordinary industry would be two or three times that number, so long as the original expansion continued.
An extreme case may be stated. If an additional £20m was raised by Treasury Bills without seriously disturbing general confidence, and used during one year to employ men at shifting sand at Federal award rates, the result would be the direct employment of more than 100,000 men and the rapid reabsorption into ordinary industry of the whole of the unemployed … [24] obviously such a policy could not be continued without a … currency collapse. But if we were sure of a great increase in export prices a year hence, it would be a reasonable policy.
This articulates a very drastic Keynesianism. Was any government in 1932 receiving recommendations to adopt so strenuous a fiscal expansion from such a high-placed and ‘official’ source? Was anyone conjuring with a multiplier of three or four?
And mark the massive change since Australia, 1930 in Giblin’s confidence in multiplier analysis. Was the ‘appalling’ prospect that the multiplier analysis Australia, 1930 conjured up – and which had so alarmed and perplexed him – now vindicated in 1932 as an extraordinary premonition of the Depression? Did this give him intellectual confidence?[25]
Whatever the case, Giblin was boldly pressing multiplier logic at a very significant time in the development of the General theory. During that summer of 1932 Keynes was still thinking in terms of correcting and completing the Treatise on money. In fact, he was poised to leave it behind and set out on the road to the General theory. In 5 April 1932 Keynes had written: ‘I propose … to publish a short book extending and correcting’ the Treatise. On 8 May 1932 he rebuffed Joan Robinson’s more radical proposals with the words: ‘I lack at present sufficient evidence to the contrary to induce me to scrap all my present half-forged weapons’. On 1 June, the day before he replied to Giblin, he wrote that he planned his new book to ‘fill in the gap’ in the Treatise (see Kahn 1984, pp. 112–13).
So: in June 1932 Keynes is dissatisfied with the Treatise, but not completely dissatisfied. He learns that Giblin has been urging the Australian Prime Minister that paying men to ‘shift sand’ would lead to ‘the rapid reabsorption into ordinary industry of the whole of the unemployed’. How does Keynes respond?
2 June [1932]
Dear Giblin
I have been extremely interested in your supplementary confidential letter to Mr Lyons … If I understand you rightly, I am very much in agreement with you. I am all in favour of pushing public works programs to the limits of prudence … In my judgement anything that looked liked earning three percent should surely be eligible.
There is something anticlimatic about this reply. Keynes is keen to give his support for public works that earn three per cent. But surely the key item in Giblin’s ‘supplementary confidential letter’ was Giblin’s favourable assessment of useless public works (such as shifting sand), which would have a conventionally measured rate of return of minus 100 per cent. But Keynes ignores Giblin’s favourable assessment of these.[26]
Nevertheless, most historians of the General theory agree that over the next nine months – the autumn and winter of 1932 – the critical transition to the General theory occurred.
In March 1933 at about the close of this transition, Giblin’s multiplier arrived, after a three-year lag, to Cambridge. It does in the doctoral thesis of E. Ronald Walker, an Australian student at Cambridge, entitled ‘Australia in the world Depression’, and published as a book under the same title. In Chapter 6, ‘The theory of repercussions’, Walker draws attention to Giblin’s theory of the multiplier, and repeats its algebra. He adds in the foreword that: ‘these pages owe much to Mr D. H. Robertson, who read and discussed the whole of the ms … On several points I have had the benefit of the criticism of A. C. Pigou, Professor T. E. Gregory and Mr C. W. Guillebaud’. Thus we may conclude that Robertson, and perhaps some other Cambridge names, had became acquainted with Giblin’s theory. These are, however, the ‘wrong’ Cambridge names – Roberston and Pigou – not Keynes and Kahn. And Walker’s college was ‘the wrong college’ – St John’s, not King’s. [27]
And by March 1933 it was all over, anyway. Keynes had finalised his conception of the multiplier, and published it as The means to prosperity (Keynes 1933). This publication was the occasion of a second, more resolute attempt by Giblin to draw Keynes into discussion of the multiplier. In September 1933 he sent Keynes, with apologetic noises, some criticisms of Keynes’ multiplier, in particular, its closed economy character. He adds modestly in brackets:
(I have at times made similar computations here, e.g. on the total increase in income following from a given increase in export production).[28]
He appends four pages of comment and algebra. The day after he sent it, he posts Keynes another note.
27/10/33
I must apologise for having sent off to you yesterday – thinking the mail closed then, – a hasty and ill considered scrap[?] on the ‘multiplier’. It was done hurriedly in [?] time and I should not have sent it off without more deliberations.
This is, perhaps, not quite the way to market one’s thoughts.
Keynes replied:
Pages 32 and 3 of your typewritten letter are very interesting, but go rather beyond what I was attempting in this short pamphlet … When I come to write about the multiplier in my next book, I shall deal very thoroughly with the principles on which one should try to arrive at the best possible estimate.
Keynes was not interested in discussing the multiplier with Giblin.[29]
Nevertheless, Giblin may have succeeded in leaving one foot print on the General theory. Upon his appointment to the Commonwealth Bank Board in 1935, Giblin declined to accept two-thirds of his director’s fee of £600, and instead allocated £400 it to the establishment of a two-year research fellowship in economics at the University of Melbourne. On 17 September 1935 he wrote to Keynes asking if E. A. G. Robinson – the most senior Cambridge economist with any likelihood of accepting – might be available.[30] He sought to assure Keynes that this new environment would provide Robinson with a valuable intellectual stimulus. For example, in Australia industrial tribunals fixed – or sought to fix – the real wage by law. It is plausible that this observation prompted Keynes to conclude Chapter 19 of the General theory, ‘Changes in money wages’, with a query: what would ensue ‘if, as in Australia, an attempt was made to fix by law the real wage’ (Keynes 1936, p. 298)? In the absence of such legislation, Keynes’ theory implied that the real wage would equal the marginal productivity of labour at that level of output at which aggregate demand equalled aggregate supply. But what if the law attempts to fix the real wage at some magnitude higher than that marginal productivity of labour?
In Chapter 19 Keynes argues that in the attempt to obtain the legislated real wage, nominal wages would be raised. That would produce, however, an equal-sized rise in prices, nullifying any initial increase in real wages. Nominal wages would rise again in a second attempt to increase the real wage, and a wage-price spiral would ensue. The one terminus to this wage-price spiral would lie in an increase in the interest rate, occasioned by the decline in the real money supply, occasioned in turn by the rise in nominal wages. Such a rise in the interest rate would reduce investment, and so aggregated demand, such that the real wage implied by an equality of aggregate demand with aggregate supply is lifted to equality with the legislated real wage.
Whatever the possible impact Giblin’s attempt to recruit Robinson had on the General theory, Robinson was unavailable for Melbourne, so Keynes suggested that one of his prized pupils, Brian Reddaway, go instead.[31] Reddaway was the chosen apostle sent forth to preach the new gospel. In the words of Alex Millmow:
Reddaway carried the galley proofs of the General Theory on his trip out to Australia. The voyage presented the ideal opportunity to digest the import of Keynes’ forthcoming book. Two months after arrival on April 28, Reddaway presented his interpretation of Keynes’ theoretical system before the Shillings club, a discussion group of economists, founded by Giblin and similar to Keynes’ political economy club. His presentation, oddly entitled ‘Is the idea of a fair rate of interest a mere convention?’ was rushed into print in the June 1936 issue of the Economic Record. (Millmow 2003).
On 10 March 1936 Giblin wrote to Keynes that Reddaway had been a great success. Two days later Reddaway wrote to Keynes: ‘Altogether the outlook seems quite bright, especially as Giblin is such an extremely likable man’ (KCLA BR 12 March 1936).[32]
At about the same time Giblin organised study leave in Cambridge for 1938. The voyage to Britain occasioned, wrote Giblin to Eilean, ‘a leisurely reading in one piece of Keynes’ General theory – with not much more definite result than the need to read it again’.
In so many places I cannot get the convincing picture of things happening just so – there are so many alternatives and qualifications to be thought out. So much seems to require a careful statistical analysis and testing before one can feel it is safely based. K. is a bit off hand on that side – rather the amateur trusting to the impressions of a shrewd and sensitive intelligence than the professional seeker after facts – and not demanding and relying on the professional investigator as a necessary partner in the business. (NLA LFG c.1938).
On arriving, Keynes was not in Cambridge; he was still convalescing from the crippling ‘heart-attack’ he had suffered on 16 May 1937. Keynes’ absence enabled him to lend Giblin his fully furnished rooms in King’s College for the duration of Giblin’s stay. Giblin noted they are:
very magnificent, but a little overwhelming. Duncan Grant’s frescoes of nudes cover [the?] side of the long [?] room … The special merit of these rooms is having its own bathroom which is certainly a luxury … (NLA LFG 9 February 1938).
Our belongings got rather mixed up by the bed-maker, who had a fine commercial spirit, and for some years after I had socks and handkerchiefs marked J. M. K. (Giblin 1946, p. 2).
During the first part of 1938 Keynes was only to be in Cambridge between 10–14 March and three weeks in May, (during which time he stayed in his Cambridge Arts Theatre flat). So Giblin set out to visit Keynes at his Sussex farmhouse, ‘Tilton’, which neighboured ‘Charleston’, where Bunny Garnett had been living in 1918.[33]
Curiously the only other house within a mile – only 200 yards off – I recognised as the house where I first met Keynes 20 years ago. I ran into Lydia at the door, just returned from marketing, and showed me around while Maynard was in his bath. She really is first rate – very jolly and attractive, very sensible and efficient – I was allowed an hour of Maynard who was full of beans – on all things but particularly the inner life of King’s over the last 30 years. After an hour I was ejected, not without difficulty for M. was in full spate … His chauffeur, who is not in much use, spends most of his time experimenting with television, with good facilities provided.
Back in Cambridge, Giblin discovered, as others were to later, that key personalities were often inaccessible.
Dennis Robertson is here but in hiding. Austin Robinson is a bed and breakfast man, spending his days in London; and so on. (RBA LFG 18 July 1938).
Giblin seems to have been most impressed by other visitors, such as Frank Knight - ‘certainly anti-Keynes, but not pro anyone else’- one of his precepts being that ‘anyone who tried to teach anyone anything was or should be an outcast of society’. Another occasion for visitors was a conference on Tinbergen’s pioneering econometric analysis of the business cycle, of which Keynes was fiercely critical. The visiting Oxford economist Jacob Marschak wanted the League of Nations to publish it, but:
… R[obertson] and C[hampernowne] were rather dubious of its validity. It reaches practical conclusions – such as that interest rates had very little effect on inventory, but the possible errors swamp any certainty in conclusions. [R and C] thought it rather dangerous to publish it. (NLA LFG 18 July 1938).
Giblin arranged for others to visit King’s, including an attempt to arrange a meeting between R. G. Menzies and Keynes on the Australian deputy prime minister’s 1938 visit.[34]
Keynes did not neglect Giblin. They saw each other during Keynes’ brief visit to Cambridge in May of 1938. Keynes made him a supernumerary Fellow. Giblin’s King’s College obituarist (almost certainly Patrick Wilkinson) records that at this time Giblin ‘took the keenest interest in the business of the College, and had many fruitful talks with Keynes’. ‘Occasionally’, says this obituarist, ‘he was proud to think that he had converted Keynes on some points to his own view’ (Anon. 1951). But the impression one gets is that their real tie was King’s, rather than some shared realm of economic thought.
After Giblin’s return to Australia, he and Keynes continued to correspond in the 1940s. Perhaps half of this correspondence is concerned with war finance. In the remainder they share King’s College news, swap views on the wisdom of Bunny Garnett’s choice of wife, and discuss Giblin’s project to establish a National Theatre in Australia.
On Keynes’ death, Giblin recorded: ‘Keynes had, of all the men I have known, a personality and mind the most fully armed for all adventures’ (Giblin 1946). Paradoxically it was Giblin, the hero of the Klondike, who seemed unwilling to join Keynes in his mental adventures. Giblin wished to be the ‘professional investigator’ – devoted to ‘a careful statistical analysis and testing’.[35] The contrast between the Enquiry and the General theory illustrates the gulf: one a mass of measurement, the other almost free of fact. Keynes cast out into the open sea to pursue his intellectual argosies. Giblin, wishing to keep palpable truth firmly in view, hugged close to the coastline of fact, carefully mapping its shoals and harbours.