Keynes was not a Keynesian
By Andrew McCleese
“I work for a Government I despise for ends I think criminal.” - John Maynard Keynes
If I was to present the quote above without reference, I wonder how many on the political Left would be able to attribute it to Keynes absent a quick Google search. Few I imagine would actually know who spoke these words, yet on the Left in America you will find no shortage of self-professed Keynesian experts. These so called biographical experts on Keynes range from T.V. pundits who scream that “the stimulus was too small to work and Keynesian theory calls for more” to the disaffected neo-socialists youths in their Che Guevara T-Shirts who believe Keynes taught that the government needed to redistribute wealth in a time of economic crisis. The fact of the matter is, John Maynard Keynes was a capitalist, albeit a slightly misguided capitalist at times. However, if one was to believe the words of Keynes’ intellectual kryptonite and personal friend Friedrich von Hayek, then Keynes by the time of his death had rejected basically everything that the governments of Western civilization had done in the name of his macroeconomic theory.
So how did the theories of Keynes get so distorted in the eyes of mother culture? The simple answer is the political establishment distorted his theories for personal and political gain. Like always, most of what the political class believes and utilizes in their decision making is largely popularized myths. These myths were constructed as justification for violent government action. Keynes supposedly provides the scientific basis for forceful government theft through inflation, taxation and in the case of FDR, asset confiscation (gold). As Keynes states in the preface of his seminal work “The General Theory of Employment, Interest and Money”, his theory is best suited for the aims of autocrats:
“Nevertheless the theory of output as a whole, which is what the following book purports to provide, is much more easily adapted to the conditions of a totalitarian state, than is the theory of the production and distribution of a given output produced under conditions of free competition and a large measure of laissez-faire.”
The recognition by Keynes that tyrants are the most equipped to turn his theories into policy portends further misuse of his ideas. He demonstrated an awareness of how his thoughts would eventually be twisted by governments simply to justify spending whether or not the economic conditions warranted government intervention:
“To dig holes in the ground”, paid for out of savings, will increase, not only employment, but the real national dividend of useful goods and services. It is not reasonable, however, that a sensible community should be content to remain dependent on such fortuitous and often wasteful mitigations when once we understand the influences upon which effective demand depends.”
Let’s not forget that the Federal Reserve was happy to go along with these government fables as Keynesianism also provided the basis and justification for excessive currency manipulation and “price stabilization.” This all equals more power for the Fed as well. This is very ironic since Keynes was an opponent of monetary policy as a solution to unemployment. He, like many other professed economic and financial thinkers failed to realize that monetary and fiscal policy are connected. But again, Keynes was hardly in the intellectual camp of the price fixing inflationists at the Fed. Don’t take my word for it, you can read it from the mind of Keynes in the following quote:
“Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become ‘profiteers,’ who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.
Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”
Does this sound like the revised history of the Left which paints Keynes as a Pinko or a Red redistributionist (note, a central bank is a plank of Communism and is antithetical to a free market capitalist system)? The preceding quote is not an aberration; it is perfectly in line with the rest of Keynes beliefs on socialist/communist economic systems as the following quotes further prove:
“Leninism is a combination of two things which Europeans have kept for some centuries in different compartments of the soul — religion and business. We are shocked because the religion is new, and contemptuous because the business, being subordinated to the religion instead of the other way round, is highly inefficient.”
“How can I adopt a creed which, preferring the mud to the fish, exalts the boorish proletariat above the bourgeois and the intelligentsia who, with whatever faults, are the quality in life and surely carry the seeds of all human advancement?”
“I can be influenced by what seems to me to be justice and good sense; but the class war will find me on the side of the educated bourgeoisie.”
“Marxian Socialism must always remain a portent to the historians of Opinion — how a doctrine so illogical and so dull can have exercised so powerful and enduring an influence over the minds of men, and, through them, the events of history.”
“For my part I think that capitalism, wisely managed, can probably be made more efficient for attaining economic ends than any alternative system yet in sight, but that in itself it is in many ways extremely objectionable.”
Keynes understood the easiest way to collapse a society, anger the electorate and destroy the efficiencies of the price mechanism in matching producers with consumers, is to have a central bank distort prices through inflation (or conversely disinflation). If only Keynes would have recognized that fiscal and monetary policy go hand and hand, history could have avoided his curse since his realization would have been that government spending is financed through inflation and monetary policy.
Many highly educated people with degrees and careers pertaining to finance and economics actually make the mistake of compartmentalizing the two, believing monetary policy is apolitical and has nothing to do with fiscal policy. This fallacy is highly rampant in the Modern Monetary Theorist school of thought. This negates a key fact of who supplies the currency, at interest, in exchange for government assets (bonds)? That would be the Federal Reserve or those in charge of monetary policy. Government can not spend one dime until the Fed provides them the credit or currency to do so. In fact, the reason the U.S. has not yet faced the music as much of the Eurozone now must is simply our ability to create money out of nothing as the world’s only reserve currency. These days are clearly numbered because of our hubris in regards to spending and “American Exceptionalism.” We have been financing such debts with inflation for some time now and our foreign creditors are growing tired of that song and dance.
Keynes was a capitalist, a dismal capitalist but a capitalist none the less. He did not believe as Adam Smith did in rational self-interest being the only regulatory force needed in markets. Keynes did not believe most of what the media and politicians on the Left now ascribe to his theories. Keynes did not believe in a centrally planned economy, funded and kept functioning through wealth redistribution and public works. In that regard Keynes was not a Keynesian.
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