Sean O'Grady: Keynes, the man to get the Government out of a crisis

"Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist."

Still by far the most quoted and quotable of economists, it is perhaps appropriate that John Maynard Keynes himself should have thus foretold the return of his own ideas to the centre of British economic and political policy making. He would have been pleased by the distinctly Keynesian noises emanating from the Government yesterday. For ministers are apparently ready to revisit Keynes' ideas, formed 70 years ago and more, to deal with a slump and spend their way out of trouble.

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New Aircraft carriers for the Royal Navy, the 2012 Olympics, Crossrail, and an unprecedented expansion of nuclear power – all are being enlisted to pump spending power into the economy, just as Keynes would have suggested. In the 1930s, Keynes tried and failed to get the British government to adopt just such a type of remedy for the Great Depression. Then, the theology of balancing the budget and allowing the market to take care of mass unemployment held sway, even among many Labour politicians, until the imperatives of fighting Hitler at last dissolved these dangerous and rigid dogmas.

Now, the practical men and women at the Treasury are showing more imagination. The Treasury view is encompassing Keynesian orthodoxy for the first time in three decades. It is quite a little revolution for New Labour.

Mr Darling and Mr Brown seem intent on tossing away their suddenly inconvenient "fiscal rules" about balancing the Government budget over the economic cycle. Having spent so many years adjusting and accepting Thatcherism, New Labour is, without much ceremony, preparing to be enslaved once again by Keynesianism.

Remember Gordon Brown's most notorious soundbite, the one penned by his amanuensis, Ed Balls, about the role of "neo-classical endogenous growth theory". That said it all. Translated, it meant that governments could only reliably stimulate economic growth by ensuring the "supply side" of the economy worked well – plenty of scope for entrepreneurs, weak unions, free trade and so on. Forget trying to manage aggregate demand in the economy, as Keynes taught.

Yet now we're back to that old, but eminently serviceable idea. Keynes saw that an economy could perfectly well settle down to an "equilibrium" with mass unemployment, and that only the state could inject the necessary demand.

Attempts to "clear" the labour market by cutting wages only result in reducing demand again, by depressing spending. Not that wage cuts were realistic in the 1930s. That was the precious insight that Keynes offered the world. It is needed now more than ever.

And if Alistair Darling is looking for some novel method to get spending quickly into the economy, he could do worse than flick through Keynes' works for inspiration.

Here's one recipe, in Keynes' own words: "If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coal mines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of repercussions, the real income of the community, and its capital wealth, would probably become a good deal greater than it actually is."