What Would Keynes Say Now? Posted by John Cassidy In the latest edition of the magazine, I have a longish essay on John Maynard Keynes, whose magnum opus, "The General Theory of Employment, Interest, and Money," turns seventy-five this year, and who is the subject of several new books. (For the moment, the piece is behind a firewall.) Obviously, it's not exactly an unexplored subject, but Keynes is one of those pesky fellows who simply won't go away, despite the best efforts of Rick Perry and many other conservatives to consign him to history. – New Yorker
Dominant Social Theme: Sure Keynes is irritating, but he's stood the test of time.
Free-Market Analysis: Keynes is back. He's been down, but he's due for a fashionable reappraisal, and he's receiving one from the New Yorker's John Cassidy (see above). Cassidy admits he's always thought of himself as a Keynesian and he's frank about his apparent admiration for John Maynard Keynes.
Ensuring that Keynes retains some level of credibility is very important to the powers-that-be as without Keynes, there is no way to justify the constant interference of the State in private markets. It's a fundamental dominant social theme, that the top economist of the 20th century provided a rationale for such State involvement.
The problem is that because of the Internet, Keynes's reputation has taken a terrible beating. He was an econometric economist, justifying and "proving" his theories via mathematics, but his General Theory – his masterpiece – is fairly incomprehensible, and with good reason. Winnow his arguments and what remains doesn't stand up to scrutiny. But "Keynesians" keep trying. Here's some more from the article:
As somebody who was first taught economics in England, and who has written a lot about market failures, I have always thought of myself as a "Keynesian." But the task of rereading much of Keynes's writings and distilling them into five thousand words accessible to the general reader forced me to think hard about what the phrase really means, both in terms of economic theory and current policy applications.
Keynes wrote a lot, and over the years his views changed quite substantially. If you search his writings, you can find a quote here or there to back up all sorts of things, including even supply-side economics. (Thanks to Dr. Arthur Laffer for pointing out that one.)
But the real essence of Keynes, I eventually decided, can be expressed in these terms: 1. In the short-run, demand is what drives economies, not prices. 2. In a demand-driven economy, many types of unfavorable and selfsustaining outcomes are possible, including lengthy slumps. 3. The role of the government is to sustain demand and help the economy avoid such disastrous outcomes. I regard these statements as truisms, even though others would dispute them, to varying degrees.
We can see the problem in the points that Cassidy raises. Keynes is focused on demand and government can help stimulate demand. What Cassidy won't point out is that central banking is also involved in how economies operate. Keynes had a long-term public argument with the free-market Austrian economists over central banking. His theory doesn't include the business cycle, the idea that central banks overprint currency and cause first booms and then busts.
Keynes's ideas about "demand" hang in the air like murky balloons. The mainstream media anointed him the "winner" of the 20th century argument with Austrian economists over how the economy works, but in the 21st century, with the help of the Internet, the truth has emerged: Keynes's arguments on how economies work make little sense.
This article is fundamentally dishonest in our point of view. It leaves out Austrian economics arguments entirely. FA Hayek (Ludwig von Mises great disciple) may have been said to have lost the argument over money and banking in the 20th century, but in the 21st century, the Austrians have won it with a vengeance.
Thanks in part to think tanks like those founded by proponents of the free-market, Austrian school (such as Lew Rockwell and Murray Rothbard), Austrian economics has returned with a vengeance. There are are literally hundreds of millions of cites of von Mises on the 'Net these days. Fifteen years ago, you'd have been hard-pressed to find a thousand. At the same, Keynes's reputation is on the decline and has been for decades. That's the reason for this article, of course.
But in order to write about Keynes fulsomely, you have to leave out his Fabian connections and the way he palled around with the Bloomsbury Group. Fabian iconography included that of "a wolf in sheep's clothing" and this was reproduced in a stained glass window that hung in a Bloomsbury summer cottage and was recently purchased by London School of Economics. The clever wolves of course were Fabians and the sheep were everybody else.
The London School of Economics was a Fabian invention as was the Labour Party. The Fabians believed in advancing communism stealthily, bit by bit. Cooking the frog gradually. But it wasn't really communism, of course. The Fabians were merely an excrescence of the great central banking families and their enablers located in the square mile City of London. From here comes the endless pressure, then as now, for a "one-world" order.
Keynes' thus was a programmatic element of global government. He was a building block of international totalitarianism. This is true of most "great men" of the 20th century. The ambit of their lives was limned by Money Power. Their careers were celebrated to the degree that they supported the imposition of authoritarianism. Keynes was among the best at this.
Economies may work on "demand" – and Keynes's theories may indeed have something to recommend them. But the impetus of Keynes' economic creations was one that involved the support of greater and greater government involvement in private markets. He implicitly supported central banking by ignoring its effects.
He never grappled with the fundamental argument about central banking: It is price fixing, and price fixing never works. Price fixing distorts economies by transferring wealth from those who earn it to those who don't (and have no idea what to do with it). That Keynes still remains an iconic figure at Western Universities speaks only to general decrepitude of knowledge in the 21st century.
Keynes's theories have never actually much been used within high finance. These people use the fundamental insights of Austrian, free-market economics. It's just not talked about much. The public receives a steady diet of Keynesianism, thanks to the politicians who find in Keynes' General Theory the justifications they need to intervene massively with quantitative easing and other ridiculous programs that print more and more money at the expense of savers who find their wealth dwindling thanks to monetary inflation.
The "great economist" had feet of clay. He wrote thousands of incomprehensible pages to disguise the central lacunae of his logic. His thought process and argumentation was dishonest. To make his dishonest theory work, in fact, he had to ignore the central banking and its over-production of money. He had to accept man-made production of currency as opposed to the circulation of gold and silver which is put into the economy without debt after having been dug up out of the ground.
Keynes's stubborn refusal to grant that central banking and its creation of money stuff stood at the center of Western economies made the rest of his General Theory invalid. All the articles in the world can't recussitate his reputation, given his refusal to acknowledge the distortions of central banking. For this reason, Keynes has increasingly been seen as an apologist for government interference in the marketplace – and that works no better than his General Theory. Lord knows why the New Yorker is celebrating this man. He doesn't deserve it.