Our Costly Dalliance With Lord Keynes

In “The General Theory of Employment, Interest and Money”, Keynes virtually created macroeconomics. But Keynes was a mathematician, not an economist, and did not fully understand free markets, so he was hardly qualified to emerge as the most influential economist of the last century. His misconceptions still inform the establishment, comprising governments and their regulated financial sectors. Given that there is dawning acknowledgement that these policies are propelling leading nations into a common financial and economic crisis, a forensic dissection of Keynes’s errors and motivations is overdue. This essay is a brief attempt to rectify this omission.

Hayek’s assessment of Keynes

Perhaps we should have listened to Friedrich Hayek, when he said that his friend Lord Keynes was not an economist. This description of Keynes by Hayek is extracted from a video interview with Leo Rosten in 1975:

“He was a man with a great many ideas who knew very little about economics. He knew nothing but Marshallian economics. He was completely unaware of what was going on elsewhere. He even knew very little about nineteenth century economic history. His interests were very largely guided by aesthetic appeal, and he hated the nineteenth century and therefore knew very little about it, even about its scientific literature.”

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Keynes Was A Vicious Bastard

By Keith Weiner – Re-Blogged From Gold Eagle

My goal is to make you mad. Not at me (though I expect to ruffle a few feathers with this one). At the evil being wrought in the name of fighting inflation and maximizing employment. And at the aggressive indifference to this evil, exhibited by the capitalists, the gold bugs, and the otherwise-free-marketers.

So, today I am going to do something I have never done. I am going to rant! I am even going to use vulgar language (which is totally justified).

In researching several recent articles, I re-read old passages from Keynes. Consider these snippets:

“For a little reflection will show what enormous social changes would result from a gradual disappearance of a rate of return on accumulated wealth.”

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Why Bad Economic Theories Remain Popular

By Steve Saville – Re-Blogged From http://www.Silver-Phoenix500.com

Ludwig von Mises and Friedrich Hayek, the most prominent “Austrian” economists of the time, anticipated the 1929 stock market crash and correctly predicted the dire consequences of government attempts to artificially stimulate economic growth in the aftermath of the crash. John Maynard Keynes, on the other hand, was totally blindsided by the stock market crash and the economic disaster of the early 1930s. And yet, Keynes’s theories gained enormous popularity during the 1930s whereas the work of Mises and Hayek was largely ignored. Why was it so?

Keynes became popular because he told the politically powerful what they wanted to hear. In particular, he provided power-hungry politicians with intellectual support for the schemes they not only already had in mind, but in many cases were already putting into practice. Despite being riddled with errors, Keynes’ theories also appealed to many economists because the implementation of these theories would confer a lot more influence upon the economics fraternity. The fact is that in a free economy there wouldn’t be much for an economist to do other than teach economics. He/she would certainly never have the opportunity to be involved in the ‘management’ of the economy.

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Debts, Bastiat And Modern Economics

By Alasdair Macleod – Re-Blogged From http://www.Silver-Phoenix500.com

There is a well-worn conundrum told about a stranger, who walks into the hotel in a remote, sleepy village in Mexico, and reserves a room for the night, paying 1,000 pesos in advance. The innkeeper rejoices at this unexpected turn of events, for the village is remote, few people have any reason to go there, and there is very little money. The innkeeper goes to the village butcher, to whom he owes 1,000 pesos, and discharges his debt. The butcher takes the 1,000 pesos and pays it to the farmer, who supplies him with his meat for which he owes the same amount. The farmer hands this money over to Maria, which he in turn owes for her services. Maria, who is the entertainment centre for the village’s men, then goes to the innkeeper and pays off her bar bill, incurred as a necessary expense of her business, and which, as you might have guessed amounts to 1,000 pesos.

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The Mystery Behind Economic Growth

By Alasdair Macleod – Re-Blogged From http://www.Silver-Phoenix500.com

We learn, out of the blue, that “the Eurozone is performing well, but with opinions divided on the causes, doubts linger over whether it is a sustainable recovery” (Daily Telegraph, 19 April). We are also told that economic growth in the US is stalling, as evidenced by downward revisions by the Atlanta Fed, and the fact that the rate of increase in Loans and Leases by commercial banks is also stalling. The Bank of England was unable to forecast the strength of the UK economy in the wake of Brexit.

This article explains why this confusion occurs. It is clear the economics profession is ill-informed about the one thing it is paid to know about, and the commentary that trickles down to the ordinary person is accordingly incorrect. State-educated and paid-for economists always assume the private sector is the problem, when it is the burden of the state, and the state’s futile attempts to manage the consequences of its actions through the corruption of money.

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Capitalism, Socialism, and Pigs

cropped-bob-shapiro.jpg   By Bob Shapiro

240 years ago, Adam Smith wrote “The Wealth of Nations.” Largely, he described what he observed in the Economy, and provided a reasonable explanation. For example, Pigs.

He observed that the production of pigs fluctuated, as did the price of pork. His explanation – the Pig Cycle – was that, if the production was low, the relative shortage caused prices to rise, which encouraged greater production. The higher production eventually might cause prices to fall, which led to reduced production.

All this unfolded irregularly over a 3-5 year period, and repeated. Prices for any individual product (or service) do not remain the same over time – they fluctuate.

Image result for pig

But there are other forces which affect prices. A pig farmer may develop better methods or adopt some new technology. All else being equal, he will produce more over time, meaning that pig prices will tend to decline over time – even though those prices will continue to fluctuate according to the Pig Cycle.

The farmer may choose to work longer hours (or shorter hours) causing increased (or decreased) production, and the changed supply will lower (raise) prices. Of course, this is self-limiting as the farmer has to sleep sometime.

The demand for pigs may go up (or down) as population and food preferences change. Demand also may appear to go up if more new money is printed. If the money supply change is a one shot deal, then any change to demand and prices is akin to the farmer working longer hours – but of course the result is opposite.

The greater demand will cause prices to rise, stimulating greater production. As the money supply increase works its way through the Economy, pushing prices for each and every product and service up somewhat, then the higher general Cost of Living will equalize the apparent demand, although at a higher nominal level. “Adjusted for Inflation,” the Pig Cycle will be back where it started before the money printing.

Image result for money printing

In today’s world, money printing certainly is NOT a one shot deal. The FED and other world Central Banks (and other banks through the fractional reserve banking system) continue printing indefinitely. Eventually, the expectation of future price increases due to the money printing will nullify the effects of the monetary inflation, and production will settle back in where it would have been without the money printing.

All the while, the FED et al benefit from getting the new money out of thin air, while everyone else is penalized from the increase in the general price level. As Keynes said, “By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”

Many times, the deliberate debasement of the country’s money leads to general price rises so high that the public demands that inflation be controlled. In response, the money supply increases are slowed (or even stopped!).

But the reduced apparent demand within the Economy then causes prices to fall, leading to a reduction in production – a Recession or a Depression. Yes there are natural price and production fluctuations within any Economy, and better methods and technology will lower prices continuously – but this money supply normalization is another animal altogether.

Bread Line

The Recession or Depression caused by a halt to money supply increases is totally artificial – totally outside the normal fluctuations of any dynamic Economy. The bad times are caused directly by the previous theft of purchasing power through money printing. Central banks benefit when they print, but when they stop printing, the rest of us suffer – sometimes mightily.

Another factor affecting our Economy wide Pig Cycle is taxes. There is an old saw which says, “If you want more of something subsidize it, and if you want less of it then tax it.”

Taxes take some of the price that the producer receives. His apparent lower price leads to lower production. The lower production leads to higher prices which restore the production level. Producer taxes – regardless of whether they are sales taxes, income taxes, or whatever, wind up being passed partly onto consumers. And with less revenue available, the employees also receive a smaller share of what’s generated by the private, productive sector of the Economy.

The price level reaches a new equilibrium, where profits, wages, and consumer prices all reflect what’s left after taxes. It makes no difference what the tax money goes to buy. That tax money is used to buy something other than what each one of us would have bought if we had been able to keep our money. The Economy is reduced by taxation.

The natural fluctuations of the Pig Cycle can’t be undone. They are… natural. They are part of Capitalism. The natural reductions to prices over time, through innovation and invention, also are part of Capitalism. All of us benefit by the efforts of others.

Money Supply manipulation and Taxation are not natural – they are man-made. They are part of Socialism, and they hurt everyone in the Economy except the favored few. You may want some of what Socialism offers, but still you should recognize that it is Socialism, and your benefit comes at someone else’s greater loss.

How Keynes Almost Prevented the Keynesian Revolution

By Mark Tovey – Re-Blogged From http://www.Mises.org

October 30, 1929. A brisk autumn’s day in Manhattan. The Savoy-Plaza Hotel’s thirty-three stories cast a long shadow over Central Park. At the base of the hotel a financier lies freshly fallen, motionless, while his last breath, wrenched from the lungs by force of impact, is now a red mist of gore in the air.

Sirens and uniforms. The suicide spot quickly becomes crowded by spectators, who form a vision-impairing ring-fence of backs, much to the annoyance of elbow-throwers at the periphery. Winston Churchill stands at his hotel window looking down on the mess. To nobody’s surprise, the police will find an empty wallet and five margin calls in the dead man’s pockets.1

Churchill’s curtains flutter shut, and we are left to wonder whether anyone — Churchill included — can yet see his clumsy, cigar-wielding hand in it all; whether anyone realizes that, had Churchill as Chancellor of the Exchequer only restored the gold standard at a lower exchange rate, as Keynes had recommended, the Wall Street Crash of 1929 could have been averted (or at least ameliorated).

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