John Maynard Keynes: The Damage Still Done by a Defunct Economist
Keynes Provided a Rationale for Government Spending and Pandering to Special Interests
Seventy years ago, on February 4, 1936, the English economist John Maynard Keynes (1883–1946) published what soon became his most famous work, The General Theory of Employment, Interest, and Money. Few books, in so short a time, have gained such wide influence and generated so destructive an impact on public policy. What Keynes succeeded in doing was to provide a rationale for what governments always like to do: spend money and pander to special interests.
In the process Keynes helped undermine what had been three of the essential institutional ingredients of a free-market economy: the gold standard, balanced government budgets, and open competitive markets. In their place Keynes’s legacy has given us paper-money inflation, government deficit spending, and more political intervention throughout the market.
It would, of course, be an exaggeration to claim that without Keynes and the Keynesian revolution inflation, deficit spending, and interventionism would not have occurred. For decades before the appearance of Keynes’s book, the political and ideological climate had been shifting toward ever-greater government involvement in social and economic affairs, due to the growing influence of collectivist ideas among intellectuals and policy-makers.
But before the appearance of The General Theory, many of the advocates of such collectivist policies had to get around the main body of economic thinking which still argued that in general the best course was for government to keep its hands off the market, maintain a stable currency backed by gold, and restrain its own taxing and spending policies.
The classical economists of the eighteenth and nineteenth centuries had persuasively demonstrated that government intervention prevented the smooth functioning of the market. They constructed a body of economic theory which clearly showed that governments have neither the knowledge nor the ability to direct economic affairs. Freedom and prosperity are best assured when government is, in general, limited to protecting people’s lives and property, with the competitive forces of supply and demand bringing about the necessary incentives and coordination of people’s activities.
During the Napoleonic wars of the early nineteenth century, many European countries experienced serious inflations as governments resorted to the printing press to fund their war expenditures. The lesson the classical economists learned was that the hand of the government had to be removed from the handle of that printing press if monetary stability was to be maintained. The best way of doing this was to link a nation’s currency to a commodity like gold, require banks to redeem their notes for gold on demand at a fixed rate of exchange, and limit any increases in the amount of such bank notes in circulation to additional deposits of gold left in the banks by their depositors.
They also concluded that deficit spending was a dangerous means of funding government programs. It enabled governments to create the illusion that they could spend without imposing a cost on society in the form of higher taxes; they could borrow and spend today, and defer the tax cost until some tomorrow when the loans would have to be repaid. The classical economists called for annually balanced budgets, enabling the electorate to see more clearly the cost of government spending. If a national emergency, such as a war, were to force the government to borrow, then when the crisis passed, the government should run budget surpluses to pay off the debt.
These were considered the tried and true policies for a healthy society. And these were the policies that Keynes did his best to try to overthrow in the pages of The General Theory. He argued that a market economy was inherently unstable, open to swings of irrational investor optimism and pessimism, which resulted in unpredictable and wide fluctuations in output, employment, and prices. Only government, he believed, could take the long view and rationally keep the economy on an even keel by running deficits to stimulate the economy during depressions and surpluses to rein it in during inflationary booms. He therefore attacked the notion of annual balanced budgets; instead, government should balance its budget over the “business cycle.”
To do this job, Keynes said, governments could not be hamstrung by the “barbarous relic” of the gold standard. Wise politicians, guided by brilliant economists like himself, had to have the flexibility to increase the money supply, manipulate interest rates, and change the foreign-exchange rates at which currencies traded for each other. They required this power so they could generate any amount of spending needed to put people back to work through public-works projects and government-stimulated private investments. Limiting increases in the money supply to the quantity of gold would only get in the way, Keynes insisted.
Keynes believed not only that the market economy could not keep itself on an even keel, he also believed that it would be undesirable to allow the market to work. He once said that to have the market determine prices and wages to balance supply and demand was to submit society to a cruel and unjust “economic juggernaut.” Instead, he wanted wages and prices to be politically fixed on the basis of “what is ‘fair’ and ‘reasonable’ as between the [social] classes.”
The level of wages imposed by trade unions, for example, was to be viewed as sacrosanct, even if many workers were priced out of the market because the level was higher than potential employers thought those workers were worth. The government, instead, was to print money, run deficits, and push up prices to any level needed to make it again profitable for employers to hire workers. In other words, perpetual price inflation was to be the means to assure “full employment” in the face of aggressive trade unions.
No Check on Spending
In addition, when the balanced-budget rule was overthrown there was no longer any check on government spending. As James M. Buchanan and Richard E. Wagner pointed out in Democracy in Deficit (1977), once government is freed from the restraint of making taxpayers directly and immediately pay for what it spends, every conceivable special-interest group can appeal to the politicians to feed their wants. The politicians, desiring votes and campaign contributions, happily offer to satisfy the gluttony of favored groups. At the same time, the taxpayers easily fall prey to the delusion that government can give something for nothing to virtually everyone at no cost to them.
Indeed, politicians can now play the game of offering more and more dollars to special interests, while lowering taxes. The government simply fills the gap by borrowing, imposing a greater debt burden on future generations. Either taxes will have to go up in the years ahead or the government will turn to the printing press to pay what it owes, all the while claiming that it’s being done to generate “national prosperity” and fund the “socially necessary” programs of the welfare state.
In one of the most famous passages in The General Theory, Keynes said that “the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.”
Seventy years after the appearance of The General Theory, many practical men of affairs and politicians in authority remain the slaves of defunct economists and academic scribblers. The tragedy for our times is that among the voices they still hear in the air as they corruptly mismanage everything they touch is that of John Maynard Keynes.
Comment by d daxx on 30 December 2008:
Keynes did neither create nor cause the financial crisis that has existed for centuries but now exists way beyond imagination. The bankers have caused the crisis by fractional-reserve, fiat money transactions and the people are truly at fault for not making themselves aware that the bankers are the true enemy of the free market society!
Comment by Miles on 30 December 2008:
Dude, the article does not say Keynes created or caused anything except a book stating his philosiphies. These philosophies and others “helped undermine” a free market and free society. Regarding bankers: Wake up. Bankers are merely businessmen, responding to the market. When the market is distorted by government intervention, banking itself becomes distorted because the businessmen have to react to survive. So are you one of those “big business” haters?
Comment by Scott on 30 December 2008:
The comments by d dax above are interesting. The fractional reserve banking system is certainly without much merit. However, blaming it for all our current financial troubles is going a bit overboard. Deficit spending, high tax rates, and government sponsored inflation certainly deserve most of the blame for our current crisis.
Keynes believed that governments could spend their way out of a economic crisis. That is like telling someone who is deeply in debt to go out and get additional credit cards.
Comment by larryo on 30 December 2008:
The current crisis is the direct and obvious result of the kinds of ideas Ebeling espouses in this article, and there is no way around that. Insertion of the REMIC (Real Estate Mortgage Investment Conduit) provisions in the Internal Revenue Code set the stage, and abandonment of the Glass-Steagal Acts sealed the deal. All this was done at the behest of Republican deregulators, who taught, as does Ebeling, that the unrestrained “free market” is God. We are suffering the perfectly foreseeable (and widely foreseen) consequences of that mythology at present, but Ebeling doesn’t seem to notice.
You want to know the truth? Google Ellen Brown, and read what she has to say.
Comment by Matt on 30 December 2008:
Keynes’ theories were great until the politicians got a hold of them. Keynesian policies aren’t about just deficit spending willy-nilly. They are for deficit spending in the short term during points of economic turmoil, and, when output becomes positive again, reducing spending to pre-crisis levels–tax surpluses and “rainy day funds”, a hallmark of the state of Georgia’s budget, are examples of Keynesian policy during peacetime. It’s not the government’s following of Keynesian policy prescriptions that caused to debt; it was the government’s deviation from those policies.
We would have lost the metallic standard with or without Keynes. The American currency was being used as a de facto gold standard by Europe, and the standard was busted by the French… Our currency was massively inflated even with the gold standard, and when the French called our bluff, we lost the standard!
Keynes’ ideas for government intrusion in the market were meant to be applied on a short-term basis, and only with the deficit spending of government, once again, the policy-makers screwed the pooch…
Comment by Ralph Musgrave on 30 December 2008:
Richard Ebeling’ is right to point to the big dangers in giving governments access to the printing press, but he goes too far, and his article is riddled with inaccuracies. I don’t believe he has actually read Keynes’s “General Theory”: he certainly doesn’t cite any passages from Keynes’s work to back up some of the more extreme ideas he attributes to Keynes, of which the following are just a few.
Keynes did not advocate “more political intervention throughout the market”. He was concerned primarily with trying to ensure full employment by one particular form of what might be called “political intervention” i.e. raising government spending during recessions.
Nowhere, as far as I know, did Keynes claim that “wages imposed by trade unions were to be viewed as sacrosanct”. Although he did point out, rightly, that wages are “sticky downwards” i.e. it is difficult to lower wages.
Re Richard Ebeling’s concern that “every conceivable special-interest group can appeal to the politicians to feed their wants”, this evil occurs regardless of whether a government is adopting Keynsian policies or resorting to the printing press.
To summarise, we have a choice: 1, do nothing about the recession and enjoy another 1930s, or a Japanese style lost decade, or 2, have the printing presses minimise the recession and shout loud and clear when it looks as though government is making a hash of it, which governments certainly will in various respects. It strikes me that European and North American governments are nowhere near as irresponsible as Mugabwe, thus I prefer option 2, even though it involves the risk of inflation in two years time.
Comment by David S. McQueen on 30 December 2008:
Keynes essentially advocated government control of the economy. FDR thought the world of Keynes’ ideas and implemented as many as he could. It prolonged the Great Depression.
Richard Nixon was a Keynesian. His wage and price controls were a disaster.
History has proven Keynes wrong. Read Hayek’s “The Road to Serfdom”. Or better yet, don’t. You’ll be living it soon enough.
Comment by Sheldon Richman on 31 December 2008:
“Keynes’ theories were great until the politicians got a hold of them.” Uh, no. Not true. See Henry Hazlitt’s devastating “The Failure of the ‘New Economics,’” a chapter-by-chapter demolition of “The General Theory,” surely shoddiest piece of writing in the economic literature. Had he submitted it as a student it should have gotten him thrown out of school.
Comment by David S. McQueen on 31 December 2008:
Hazlitt also takes exception to the government becoming a lender, as all money lent by the government is actually the taxpayers’ money.
In the current “crisis”, the government coerced private lenders to make bad loans. Hazlitt addresses this in 1946 (!) except that he used the federal farm loans as an example.
Hazlitt’s tome on economic fallacies is a terrific read and very pertinent to what Obama wants to do to America.
Comment by Stephen Grossman on 1 January 2009:
>[Matt]Keynes’ theories were great until the politicians got a hold of them.
Ie, they were great inside of Keynes’ imagination, where they should have stayed.
Comment by David S. McQueen on 1 January 2009:
Ralph Musgrave wrote, “have the printing presses minimise the recession and shout loud and clear when it looks as though government is making a hash of it . . . it involves the risk of inflation in two years time.”
One thing that most economists have stated (well, except maybe Keynes) is that government intervention (or whatever word suits you) is BAD. Hayek pointed out that even when government didn’t intially intend to control the economy, eventually it would reach a point where it simply HAD to control it or the entire system would collapse.
Remember that government is coercion. Roy Cordato wrote that when government is a hammer, all problems become nails.
Comment by Gerard on 22 January 2009:
I find it fascinating that a theory of government stimulus spending exists in the mind of any thinking person. It makes no logical sense what-so-ever, even if short term.
It is like winning a bet with my wife for a million dollars!
Comment by Republicae on 24 January 2009:
The Socialist John Strachey stated that “Keynesian Economics was an indispensable step in the right direction. The fact that the loss of objectivity, and the intrinsic value of the currency which is involved (i.e., inflation) will sooner or later make necessary, on pain of ever- increasing dislocation, a growing degree of social control . . . for the partial character of the policy will itself lead on to further measures. The very fact that no stability, no permanently workable solution can be found within the limits of this policy will ensure that once a community has been driven by events to tackle its problems, in this way, it cannot halt at the first stage, but must of necessity push on to more thorough going measures of re-organization.”
Additionally, Strachey stated: “Was not a horrid possibility visible behind and beyond [Keynes'] proposals, each of which looked so innocuous when taken separately? If once it were admitted that capitalism could be regulated and controlled in this way, might not the wage-earning majority of the population come sooner or later to the conclusion that the thing to do was neither to put up with things as they were nor to go through the fiery furnace of social revolution, in order to establish a wholly new system, but to harness – to bit and to bridle – capitalism in its own interest? Was it not apparent that Keynesism had only to be pushed a little further and a state of things might emerge in which the nominal owners of the means of production, although left in full possession of the legal title to their property, would in reality be working not for themselves, but for whatever hands had grasped the central levers of social control?”
Keynes was a Socialist, he was well aware of the doctrine of Lenin for subverting a country through the debauching of the currency. If you read Keynes, along with the other Socialists he surrounded himself with, then it becomes very clear that we are seeing the intended effects those theories.
Comment by Rom on 16 February 2009:
“Regarding bankers: Wake up. Bankers are merely businessmen, responding to the market. When the market is distorted by government intervention, banking itself becomes distorted because the businessmen have to react to survive.”
No bankers are not just business men responding to the market. The money supply business is a cartel and monopoly controlled by the Central Bankers, they determine money supply and are in bed with politicians and the financial industry insiders. Keynes just offered ‘ a philosophical’ justification for the system
Comment by zoro on 25 February 2009:
The creation of the Keynsian mixed economy accompanied with the creation of labour unions created the middle class and mass denocracy societiy we live in. During the last 30 years of unfettered capitalism and ‘reforms’ real wages stagnated the share of labour in total product fell dramatically. Fortunately, after the last systemic crisis of laissez faire capitalism the world will return to mixed economy greater equality and greater regulation. It is an an era…
Comment by Barry on 26 February 2009:
From “Liberalism: History and Future” Http://ABCDunlimited.com/ideas/liberalism.html
To be capitalist or to be socialist? — that is the question. Precisely what is the mix of the mixed economy? When is it capitalist and when is it socialist? When does it protect property and when does it confiscate it? When does it leave people alone and when does it coerce them? When does it adhere to the ethics of individualism and when does it obey the code of collectivism? And just which is the metaphysical primary — the individual or the collective (e.g., the nation, the race, the class)? The fundamental truth about the mixed economy is that mixed practices imply mixed principles, which in turn imply mixed premises — i.e., an incoherent grasp of reality. With socialism, the chaos was economic; with “social democracy,” it’s epistemological. Ultimately, the latter can no more generate rational policies than the former could generate rational prices. The mixed economy doesn’t present us with a mosaic portrait of the just society, but with a jigsaw of pieces taken from different puzzles.
Comment by Rob Berriman on 4 March 2009:
There’s nothing that shows a person’s lack of intelligence more than that person holding the idea that we’ve had ‘unfettered capitalism’ anywhere in this world at any time. It’s mind-boggling.
Comment by MBA on 8 March 2009:
For those who argue that the gold standard was going to be lost, with or without Keynes, I agree. Going back to a gold standard will not help the root problem. This started with the nationalization of private currencies. Private currencies don’t need to be on a gold standard. They could be, but those who create the currencies will decide on the standard that makes them the most stable. Might be gold, might not be. Who really cares. I don’t think it’s useful to talk about going back to a gold standard. When private currencies were nationalized, of course it was inevitable that eventually they would lose any standard, whether gold or silver or platinum or sheep. We don’t need to go back to a “gold standard.” We need to go back to free banking and private currencies.
Comment by Richard D. Cushing on 8 March 2009:
Much of the damage that Keynesian economics is able to do to an economy is effective only because of an unsound underlying monetary policy. What is sadly lacking in the U.S. economy is any REAL MONEY for measuring economic transactions.
REAL MONEY is something of REAL VALUE (e.g., gold, silver, precious stones or metals). CURRENCIES are supposed to be a MONEY substitute and, under sound monetary policies, currencies are self-liquidating. For example, a personal check is a form of CURRENCY. It is intended to substitute for REAL MONEY only until it is liquidated when it clears the paying bank.
By disconnecting the U.S. currency from any real money — when we went off the gold standard — we allowed the banking system to create an unlimited quantity of “fiat money” (i.e., currency declared to have real value, but not actually having any intrinsic value). The market is not fooled long by the presence of “fiat money” that is well beyond the REAL VALUE of capital backing it.
What gives U.S. currency value today is, primarily, that the U.S. government is willing to take its own currency as payment for debts due the government. Consider, for example, what the value of the currency in your pocket or bank accounts would be if the U.S. government announced tomorrow that it would no longer accept U.S. currency in payment of taxes due. If, instead, the federal government would only accept precious metals or real property as payment of taxes, almost no business in the U.S. would any longer accept your U.S. dollars in trade.
While some argue (and may be correct) that it would not be possible to conduct business in the world today with a U.S. currency tied to a gold standard, that should NOT become an excuse for the U.S. to have a monetary policy that is not backed by reason. (When the Czech Republic was emerging from the ashes of a collapsed communist regime, they employed a carefully managed monetary policy to help counteract the price to be paid by various groups within their nation as their economy went through the upheavals caused by deregulation and trade liberalization. This is an example of how monetary policy can be made rational and sound without necessarily being tied to a REAL MONEY underlying value.) A sound and reasonable monetary policy would be managed in a non-Keynesian way with strict avoidance of any action that would lead to a hyper-inflationary cycle.
Comment by MBA on 8 March 2009:
I am not an economist, so I mashed up the terminology, I admit. My point was more that restoring a “reasonable monetary policy” may not be possible at all if that policy is managed by a government.
Of course I am in favor of money being backed by something with an underlying value. My argument is that once the government has the sole right to produce money, it is a short step for them to remove it from whatever standard previously gave it its value, and that this is inevitable, since governments have an insatiable desire for revenue and are (at least from their perspective) shielded from the effects of the resulting inflation. So we should not be so surprised that the gold standard was removed, nor should we be very hopeful of a return to the gold standard as long as government still has the sole right to produce money. The gold standard may be relatively better, but it is necessarily short lived and would slip back to fiat money anyway (at least, this is my argument). Governments cannot resist the enormous temptations to create inflationary monetary policy, regardless of whether we have fiat money or gold standard money. The only way to prevent it is to have privately run businesses, such as banks, produce money competitively in a free market environment. In this way, the forces of the free market would compel them to base their money on the most stable standard available. And who cares whether that is gold or sheep? Let them work out the relative value of different standards. If it’s not a stable standard, their money won’t survive in the free market. But so what? There would be other options. So my point is that arguing for a gold standard misses the point. It doesn’t address the underlying problem of the government preventing the formation of a sound money through private industry.
Government money can never be sound money, as it will always have an underlying inflation, with periods of hyper-inflation followed by more inflation. Whereas, it does not seem unreasonable to me to assume that with a sound private money, one could potentially save some under a mattress for 30 or 60 years and it would retain most of its purchasing power. Of course, that’s not possible with any money that exists today that I know of.
Comment by ActNow on 6 April 2009:
The logical conclusion from the lead article is that a) the government should not intervene or interfere in the current crisis, and should give the banks and business absolutely nothing. All that money that was given should be returned to government to maintain the integrity of the free market. b) the banks should return to the gold standard and prove how much money they have. The free market should sort out its own problems and let the chips fall as they may. If the article is correct, the campaign/demand now should be for a retraction of all bail out packages and a return to the gold standard. Otherwise the free market will be irrevocably compromised.
Comment by aware on 7 April 2009:
The General Theory is the dominant mind set of the State and its Pavlovian cheerleaders for the simple reason that it requires a massive, interventionist, and monopolistic State. As an economic theory it\’s a bust, but as a justification for political power it\’s solid gold.
Keynesianism, by giving the State the dominant role in the market, allows government to operate at a level formally known only in times of major war. All encompassing, arbitrary, and controlling. Unstoppable. It is the economics of the State and justification for the professional political class and the career politicians.
So there is no way it goes away, in spite of its failures economically. Power is better than money when it comes right down to it. It provides intellectual cover to massive, wicked corruption of the first order.
Comment by Henry Jack on 18 April 2009:
I am surprised by this debate, though then again the paradigms of American economic discussions always seem extreme (and narrow) to someone living in Europe. I would just like to venture, if I may, that Keynes was not a socialist, or a communist, but actually a liberal. His concern was that the excesses of the market actually damaged the economic and social wellbeing of a country, and that government intervention could soften the harsh economic cycle.
America, which embraces free-market economics like no other country, has high inequality, relative poverty, a large number of social problems and a shocking healthcare system (not in quality, but in accessibility) that are a direct result of it\’s economic neo-liberalism.
The current economic crisis is evidence of too little government intervention, as clearly without regulation the banking sector morphed into an uncontrollable mess. Keynes is looking more right to me than Friedman, especially when you consider the developing world.
Comment by TQ on 2 May 2009:
Henry Jack I\’m curious as to what the \’large number of social problems\’ are in America? I\’m also curious as to how you figure there is a problem with accessibility in healthcare. If we factor out illegal immigrants, something like 90% of American citizens actually have health coverage. Of the 10% that don\’t, some fraction of those have the financial means to purchase health coverage but opt not to. We certainly have a problem with health care insofar as we cannot afford our current socialized healthcare programs. But it is something of a myth that there is lack of access to health care. Even the people who are not covered are able to make use of public hospitals (while the public picks up the tab). I\’m also curious as to the notion of relative poverty. I wonder if you have spent much time in relatively poor neighborhoods in the US? The standard of living of even the poor is the US is pretty ridiculous compared to the rest of the world. Many of them have cars–and even cars that have been customized considerably as this is something of a status symbol among various groups in the US. They have televisions, even nice flatscreens, and cable and internet and cell phones and an embarrassing excess of calories. This is not to say there isn\’t real poverty in the US and people with real needs that are not met, but, having spent my fair share of time in poor neighborhoods in many major US cities, I have not seen anything that approaches the poverty of say our southern neighbor. And I\’m confused as to why inequality is an issue. The standard of living of the poor in the US is very high. The standard of the very wealthy is ridiculous. The standard of everyone in between is pretty much better than just about everyone else in the world. So the top 1% have a majority of the assets. And? There isn\’t actually anything really stopping anyone from also amassing huge fortunes. The majority of very wealthy people in the US did not come from generational money–they made it themselves. Warren Buffet? Self-made. Bill Gates? Came from a pretty well off family, but built a company on his own. Sam Walton? He was a poor farm boy. I could go on through the list of billionaires and it\’s pretty much the same. You get wealthy by an insane drive and work ethic, intelligence, and a lot of luck. Social standing can grease the wheels a little and give you a head start. But, given a free economy, wealth is built by discipline and drive. Period. So of course there is an inequality. The ability to make money is a normal distribution, like just about all humans traits. At the far right end of the tail are your Warren Buffets and Sam Waltons. At the far left end of the tail are your homeless. Left to their own devices, humans will naturally sort into economic inequality based on innate ability. There is equal opportunity, but of course people who are really good at making money are going to make gobs and gobs of it and the rest of us normal folks won\’t have so much. You can truncate the tails by removing the opportunity for people to sort themselves according to ability. That\’s what statists try to do. But it\’s ridiculous. It\’s like saying it isn\’t fair that only exceedingly tall, superhumanly athletic individuals can play in the NBA and that NBA teams need to start employing unathletic, regular sized individuals, along with the genetic freaks. Then what happens? The genetic freaks will steamroll the normals. You can tie Warren Buffets hands behind his back and handicap him in various ways, but he\’s going to win the game no matter what. It\’s what he does. Creating wealth is a skill, much like basketball, or chess, or physics, or mathematics–we don\’t cry foul in other realms of human endeavor, but we want to cry foul when other people are just better at making money? Yeah, this makes sense how?
Lastly, I\’m not sure how you figure America embraces free market economics. The government has meddled massively in the economy at least since the last depression. We haven\’t a truly free market in the US for over 80 years. All of our industries are massively regulated and we are massively taxed. I don\’t really follow how this current economic crisis is really a result of too little government intervention. The housing bubble is a direct result of too much government intervention. And I\’m not even sure there was much of a crisis to begin with. There was a lot of hysteria mongering, but, if Goldman Sachs or Citibank lost their shirts because they made bad bets, ok, what\’s the problem? There\’s no economic collapse. Financially responsible banks jump in to the fill the place of failed financial institutions. And I\’m especially perplexed how you could blame the mess of the US auto industry on too little government regulation. Again, it is quite the opposite. And again, if Chrysler and GM went under, so what? Toyota and Honda and Ford jump in.
The idea that you can control the economy and people is just insanity of the highest order. Humans and their interactions with one another are an exceedingly complex system, but a self-organized one. We are not smart enough to control complex and chaotic systems. Your language says it all–\"an uncontrollable mess.\" Have you looked at how the brain works? Or biochemical pathways? Or weather? Uncontrollable messes. That\’s life. It\’s a sick person that thinks they both can and need to control things that are both entirely out of their power and comprehension. Regulation of cellular metabolism is insanely complex, it isn\’t centrally organized, and it works amazingly well. All levels of biological organization–of which economics is one–work like this. Let it go. People are going to get hurt. It will be \’unfair\’. That is life. Utopia and fairness are for children. You can\’t change the human condition anymore than you can change the cosmological constants of the universe. Which is why statism fails every single time. And that too is part of the human condition.
But hey, we\’re going to see again that Keynesian economic policies and social engineering will fail on an epic scale. Again. Which is why it\’s madness. I know if I jump from the top of a building that gravity is going to win every single time. And we all know that when a politician tries to do anything, the laws of nature win every single time.
Comment by Jeremiah on 2 June 2009:
I bet not one of the bloggers above who intend to be anti-Keynes (ad Keynes of their imagination) has read any of Keynes\’s works on eoncomics, including The General Theory of Employment, Interest and Money. That would be hard work so they should try a somewhat more entertaining reading session or three with Vol.2 of Skidelsky\’s great biography of Keynes which will show how litle influence he had on Roosevelt\’s hotchpotch of policies taken from this and that amateur adviser\’s grabbag of panaceas and how he criticised Roosevelt\’s very evident failures, including the total unwinding of the federal deficit from 1936 which lead to 1938\’s severe recession.
Comment by Michael on 2 June 2009:
I\’m going to mostly go with Jeremiah here: A lot of posters (and the article\’s author) seem not to understand Keynes. That\’s not that big a crime, however, very few people understood Keynes. Keynes himself didn\’t get the time (he died early) to puzzle out the exact implications of his work. Had he not done it in the middle of the Great Depression, he probably would have been a tad bit more reluctant to suggest some of the things he did.
Regardless, Keynes\’ actual method of analysis is spot on. The man single-handedly invented macro-economics as a science. However, the work he did was very, very specific, and it runs into the problem that he couldn\’t figure out the long-run consequences of his policy prescriptions. That those consequences have turned out to be detrimental is unfortunate, because there was so much promise in his original theory. It just goes to show: You can\’t beat the market. You can hold it off for a while, but it always wins in the end because all the market really is is the real world. We can live in fantasy land for a time, but eventually we must return to reality. The post-war Keynesian Consensus unraveled as inflation unhinged in the 60\’s and 70\’s. Japan went and proved that pop-Keynesian economics cannot drive long-run growth in the 90\’s.
Right now economics as a science is going through a sort of crisis of faith. We\’ve found our Newtonian Mechanics don\’t really describe the real world, but no Einstein has showed up to solve the problem for us. So, the best option is to throw control of the economy to the market and provide the necessary basic services to ease any pain that might cause in the medium term. Oh, and shoot all the econo-journalists there are out there. Best way to end our economic doldrums, yep.
Comment by Michael on 5 June 2009:
I am currently taking an economic course, Keynes\’ work is, of course, highly regarded, in fact, taught as absolute truth. I don\’t know as much as some of you who have posted here, but it sure seems to me that if what we are living now is any indication of what his philosophy produces it will amount to servitude to some debtor which will inevetibly be some foreign power not to sympathetic to the sufferings of our populace.
Comment by Kipkirui K'Telwa on 16 June 2009:
There is an historical link between Obama’s election and FDR and their economic policies. We must also admit that politics is about selling and buying of ideas. Unfortunately, politician has to give out nothing of his own. So he gives out what belongs to all for no one, in particular, will complain. If Obama wants to remain electable in future he has to give to all what belongs to all in the name of saving industries and jobs. Even if it means rescuing firms that, in most stable conditions, would collapse.
I have never been among the people in lynch mob, especially if the target is a scholar. Keyne wrote a book at the most appropriate time and did not compel the President to read and use it.
Kipkirui K’Telwa
Comment by someguy on 16 June 2009:
you guys are all missing a very distinct root point
who profits ? who loses ? from the policy in the end ?
privately owned central banks = win
they print the money of which decreases the value of the money in exisistance like a tax more like treating the paper as if thier stocks dividing thier value and keeping a portion that is basiclly
robbery all buisnesses must then raise prices to eventually keep up
fiat money is a idea based on the idea of money as debt not money as value ie useing this money printed that has no value of its own the person who prints the money controls everything.
this is not a new idea look back to solon of greece and draco of crease this is were the word draconian comes from this is the post era of greace were this ideology lead to slave and master in the worst possible sence kennedy even quoted it in his last speach before he was assasinated the truth is in 1908 we switch from the federal gold standard to the privatly owned fiat system and we have been haveing serious problems ever since
gold cannot be inflated as some may argue
how can you inflate gold or silver ? alchemy ? it has a value all of its own gold is rare maluable it doesnt rust it has shine it is distinct paper is wood i can make it out of sawdust compare gold prices now and then
the whole concept of fiat is to give something worthless to take something of worth
for example:
as gold goes up in value it takes more dollars to buy it
were in the past if gold goes up
if all your money was made of coins containing gold or silver
the value of the money in hand went up that is the difference between money with value and money with debt get it !
everyone in the world needs american rescources yet we are getting poorer and poorer no we are being increasingly robed my freinds thru this monitary policy of fiat money
the fed which its name is as deceptive as possible
wont even submit m4 reports to the federal goverment anymore
Comment by Sonia on 4 August 2009:
Mr Richard M. Ebeling, you are an idiot. I have never seen such misleading conclutions from great theory. Feel free to write me so I can explain you what keynesian theory is about.
It is not about being right or wrong. Economist can have as many different opinions as people does. But your explanations do not rely in a good comprehension of the theory.
Study more. Speak less.
Comment by Al Brown on 16 August 2009:
I\’d like to see taxpayers get some real power over how their money is spent.
I\’m a big fan of proportional representation. It is more democratic and reduces the ability of lobbyists to influence.
But we also need a legislative house where taxpayers have a say on spending and borrowing in proportion to how much tax they pay. Its their money after all.
The people who\’ve earned the money aren\’t going to throw it away. We need some institutional protection against the desire to spend other people\’s money.
Comment by Steve Witham on 1 October 2009:
Michael on 2 June 2009 said: “Keynes’ actual method of analysis is spot on. The man single-handedly invented macro-economics as a science.”
(The phrase “macro-economics as a science” has me searching for a comparable monstrosity.)
“However, the work he did was very, very specific, and it runs into the problem that he couldn’t figure out the long-run consequences of his policy prescriptions. That those consequences have turned out to be detrimental is unfortunate, because there was so much promise in his original theory.”
By raiding the granary today, you can eat for today. That’s an economic theory whose long-term consequences haven’t been thought out. A theory that’s obviously false is annoying, but an impossible-to-understand but false theory that shows “so much promise” is infinitely worse. People sometimes criticize economists for looking at equilibria, but an equilibrium is at least a first approximation to sustainability.
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Comment by Sum Guy on 19 January 2012:
READ ARTICLE
For everyone that discredits Keynesian economics, he revolutionized economic thinking which influenced and expanded this social science. Here is an article from CNN exemplifying how his theories were incorrectly utilized under the Obama Administration but successfully used in other administrations.
http://money.cnn.com/2010/02/04/news/economy/meltzer_keynes.fortune/
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