But was Keynes right? Is it correct that an increase in the budget deficit leads to higher output? In his own day, Keynes was resisted by the top officials in the UK Treasury, particularly by Ralph Hawtrey, in effect the government's chief economic adviser. Hawtrey was the leading protagonist of the so-called "Treasury view", the guts of which were that an increase in the budget deficit would fail to boost demand if it were financed by debt sales to non-banks and so did not affect the quantity of money.

Hawtrey accepted that a budget deficit financed from the banks would create more money, and so boost expenditure and incomes. But he believed that the amount of money in the economy could be increased without the government running a vast budget deficit. Like his many stuffy and cautious civil service contemporaries, Hawtrey had a Victorian aversion to waste and excessive public debt. He was on cordial terms with Keynes, but was suspicious of Keynesian economics.

Nowadays, little is heard of Hawtrey, whereas Keynes is revered as if he had been an intellectual pop star in his lifetime. The true story of the Hawtrey/Keynes tussle is complicated, interesting and more even-handed than is generally supposed.

For all his subsequent fame, Keynes's reputation in the Treasury during the 1930s was mixed. Hawtrey and others obstructed his pressure for more public works, emphasising instead the effectiveness of monetary measures in stimulating demand. Not only were interest rates lowered sharply (with the bank rate at two per cent from 1932 onwards), but the Treasury and Bank of England deliberately altered the terms of government debt issues in order to boost the quantity of money.