Mr Keynes and the forgotten holocaust in Bengal, 1943–44: Or, the macroeconomics of extreme demand compression

Abstract

In 1943–44 in Bengal over three million people, all from the ranks of the poorest, perished owing to famine, caused not by drought but by high prices. The ‘profit inflation’ (Keynes) was generated by the British Government’s printing of money to pay for the maintenance of the British and the US troops and related military expenditure in India, against which frozen ‘Sterling Balances’ accumulated on paper. This caused ‘extreme demand compression’, which could have been eased by release of some British and US funds to import foodgrains, but that did not happen. Regrettably, Keynes was throughout on the other side.