Keynesian theory of macroeconomics
Lord Keynes, the celebrated British economist and author of the Keynesian theory of macroeconomics, wrote these prophetic words in 1919, a mere two years after the October Bolshevik Revolution in Russia and only one year following the end of the Great War. Astonishingly, this was a time in American history when the U.S. government didn’t have the first clue about how to cause inflation.
And why shouldn’t he have so promised? Isn’t it true that Keynes’ virginal economic theory supported everything Roosevelt was doing? Sadly, yes. Essentially, Keynes, and the preponderance of elite “economics” scholars at the time (and since), signed a blank check for Roosevelt and every succeeding American President, enshrining the populist and popular delusion that somebody
else would always pay for the free lunch.
How is it that Keynes was so damaging and how does this relate to you and your pocketbook? Keynes’ theory permitted governments to trot out sophisticated theories in support of their indelible aptitude for mucking about with the economy.
For the first time in history, government did not have to exert itself to justify its meddling in the affairs of free individuals and free markets. On the contrary, governments could now prance about with a golden hall pass allowing them as many sleazy financial manipulations as they could imagine – and they have imagined a lot.
Prior to Keynes, the State meddled with national economies but had no academic ‘expert’ justification for doing so. No more! Since Keynes – garrulous government hacks and economics professors have paraded together, lock-step, around the public square, newfound brothers in arms.
Curiously, even when Keynesian Theory was proven wrong in the stagflation of the mid-1960’s,
both the political and economics gangs joined together to create “modified” Keynesian theory, all brands of which
still dictate Statist interventions into a country’s economy just so.
Perhaps one explanation for such idiocy from Academe (assuming we’d ever have to explain such a thing) is the fact that for the first time in history, the political elite actually invited the otherwise socially ostracized economics nerds into their councils and their parties, as long as the nerds continued to justify what the political elites were already doing – screwing with the economy.
At all times prior, (other than for Marx and Russia), the notion of central control of an economy was cast aside as unrealistic and unsellable. Who in their right mind would vote to allow a bunch of partisan politicians to wield control over a nation’s lifeblood – its economy?
Following in the wake of Keynes and his followers, however, American voters voted for just this – to empower government to take comprehensive control of the nation’s economy. Geez. They should be able to trust the Professors, shouldn’t they?
Nowadays, even though Keynesian theory has been refuted on virtually all grounds, as have its “fellow traveler” theories, government apparatchiks persist in trading upon it to justify their every political whim. And, woe be to the political analyst foolish enough to suggest that government control might not be such a great idea on a priori grounds alone. Such a one is pilloried and marginalized immediately following his first talk-show appearance.
Moreover, in a Society where free speech is flaunted, any questioning of the reigning macroeconomic Statist-in-charge doctrine is met with punishment both swift and severe, if unseen. How could it be otherwise? What else would likely happen to someone who questions BOTH the political elites AND the academic elites of our country at the same time?
Complicit Media’s death-grip upon the flow of ideas in the U.S
Given the Complicit Media’s death-grip upon the flow of ideas in the U.S., most people don’t know that “Keynesian,” “Classical,” “Neo-Keynesian,” and “Monetarist” economic theories, the ones justifying government mucking about with the economy, are NOT the only economic theories germane to Western democratic economies. These theories are NOT the only rigorously derived theories, i.e. the kind that use confusing mathematics to support their claims.
On the contrary, there exists a body of research and writing entirely foreign to Keynesian postulates. It is known as the ‘Austrian School’ (of economics). It has also been referred to as the supply side or free markets school of economics. Essentially, the Austrian School proposes that even though common sense is not so common it nevertheless applies to economic systems: a) Letting any power, especially the State, control ANY aspect of the economy is no better than letting the fox guard the henhouse. b) Lord Acton was right: “Power corrupts…” In other words, even if one were to permit only
honorable politicians (oxymoron?) to manipulate the economy, the siren songs of such power would inevitably corrupt them anyway. c) Freedom Works. In other words, government’s role in an economy is best limited to staying out of the way and enforcing legal transactions, and that’s it.
Is it any wonder that Austrian economics is NOT the most popular dinner topic at government or academic functions? Compliance with Austrian principles would at once eliminate at least 50% of the Economics Departments in the U.S., eliminate 95% of the government bureaucracy’s power, and, worst of all, it would strand almost all of Academe’s economists in the foyer, all dressed up and no place to go.
It is notable that Austrian economic theory arrived on the scene in 1922 (Mises’
Socialism), fully eleven years before Keynes’ magnum opus and only five years after the Russian Revolution of 1917. Admittedly, Marx, and his
Communist Manifesto, went public in 1848. Nevertheless, Austrian economics was in large measure based upon the far earlier work of Adam Smith, (
Wealth of Nations, 1776). Smith is commonly referred to as the Father of Capitalism and free markets.
“Hey, wait a second!” you’re likely thinking, “didn’t the Founders envision free markets for America?” Yes! You get an A! In fact, the Founders
intended that our government be permitted the
least possible entrée into America’s economy and markets. The Founders were well-acquainted with governments that did otherwise, say, for example, Great Britain, and did not wish for America to fall prey to the same wealth-destroying structures plaguing most every other country at the time. Hmmm. Where did we go wrong?!
To be clear, the Austrian School of economics advocates for the central tenet of our nation’s founding – FREEDOM. It declares that economic liberty is not merely Liberty- it is the surest path to the enrichment of the entire society. On the contrary, it declares that government intervention, whether Communist, Socialist, or any color in between, is the surest path to impoverishment – for all.
What about INFLATION? Inflation is the inevitable result of government intervention, any government intervention, into the economy. Why? Because when our government spends money (from taxes, selling Treasury Bills, or by printing dollars), it provides a
net loss to the economy. By subtracting value from the economy, or by injecting unearned dollars into the economy, our economy ends up with less “product” and more dollars – hence the price of
everything goes up.
Inflation eats up the value of pensions and retirement savings
Like radioactivity after the nuke, inflation eats up the value of pensions and retirement savings. The 10% “real” inflation rate we have now means that your grandmother’s likely going to be dining on cat food next year because the $500.00 per month she spends on groceries now will cost $550.00 next year; everything will cost more next year. If a person lives on a “fixed income,” say, like Social Security, (and without the COLA’s) inflation is a knife to the heart.
We’ve come full circle. We know that inflation destroys an economy - and we know how – just as Lenin and Keynes predicted it would. We also know that paradoxically (for the Keynesian), any government intervention into an economy causes inflation, and at best provides a net loss for the economy. We also know that in the 1930’s, Keynes unwittingly sponsored the unholy union of politicians and economists that got us where we are today: Perpetually bending over and hoping the spanking won’t be so bad this time.
Regardless, politicians, economists, and media cheerleaders are nowadays so brazen in their own self-interest as to mouth the words, “Stimulus,” “Jobs Bill,” “Bail-Out,” “QE II and “QE III,” as if these words actually meant something. Instead, these shills mislead the electorate and every sophist creature plays along.
There is no subtler, no surer means of overturning the existing…society than…inflation
Finally, we return to Keynes’ prophetic words: “
There is no subtler, no surer means of overturning the existing…society than…inflation.” So, why would our political, academic and media elites want to cause inflation and destroy our Society? Take your pick: Greed (“it’s always about the money”), avarice, ambition, idealism, malice, “good intentions,” whatever. Regardless of the reason, the result is still the same: Destruction of our Society. Because of such phenomena, Lord Acton concluded that, in addition to power corrupting, “absolute power corrupts absolutely.”
So, the next time you see someone smirk superciliously about the necessity of Quantitative Easing or of having the Fed lower interest rates below market levels, or a “Stimulus,” or even a “Jobs Bill,” simply smirk back and ask, “So you agree with Lenin, do you?”
Inflation destroys economies, societies and freedoms. All governments are inflationary. Some government functions are necessary. Accordingly, some inflation is necessary – unavoidable - but not by much.
