John Maynard Keynes’s 1936 ‘General Theory of Employment’ has provided intellectual cover for generations of theft by states trying to discourage saving and eradicate savers.
John Maynard Keynes’s 1936 ‘General Theory of Employment’ has provided intellectual cover for generations of theft by states trying to discourage saving and eradicate savers. Yet this book offers little justification for the inflationist money printing that Keynes may have promoted for other reasons.
I think Keynes’s wish to see savers pillaged and destroyed is simply a reflection of the inter-war intellectual atmosphere pervading his world, notably the interwar Bloomsbury set, the universities and many government circles. It was wholly imbued with Socialism as propounded by Karl Marx. He is a typical of the intellectuals and indeed politicians with no skin in the game. They were truly ‘intellectuals yet idiots’ (IYIs) in Nicolas Taleb’s classic. They betrayed the West through their support for the ideal of the illiberal all-powerful state.
In particular they nearly all steadfastly ignored or even suppressed the gathering evidence about the disaster in the shiny new Marxist Soviet Union. The world’s first Marxist revolution was already showing itself a to be a moral evil, a bloodbath, and an economic graveyard. So much for the bright, naive hopes of sheltered socialist intellectuals everywhere. Not that this was ever admitted by more than a very few. And one should not ignore the establishment’s and academia’s disdain for the ‘tradesmen’ whose exertions made their comfortable lives possible.
Political power grabbers everywhere love Keynes as they loved Marx, because both provide a narrative enabling them as predators (‘the state’) to steal productive people’s assets and boss them about. The game begins as follows. You kick off by identifying a minority of highly productive people who have something worth stealing, ‘capitalists’ for Marx, or ‘savers’ for Keynes. You label them ‘oppressors’. And you provide intellectual cover for less savoury types to rob them.
Marxism therefore attracted, among others, adventurers at all levels drawn to the opportunities offered by the initial ‘dictatorship of the proletariat’ phase of the revolution. In this phase, self-appointed representatives of ‘the people’ would ‘liquidate’ - loot, rape and murder - ‘capitalist’ or ‘class enemy’ families. They could get to live in their houses afterwards too. Of course, such deeply un-likeable people are very often killed by even more ruthless individuals like Stalin or Robespierre. But they typically don’t know much history, so that tends to come as a complete, sudden surprise.
The full horrors of the dictatorship of the proletariat have been unleashed many times. For more information look into the fate of millions of Kulaks, prosperous farmers in Russia. There are good descriptions by Jordan Peterson in a number of his Youtube videos. Or the fate of up to a third of the population of Cambodia under the Khmer Rouge. That was yet another triumph indeed for the French intellectuals who spread socialist ideas so assiduously, even after Gulag Archipelago blew Totalitarian Socialism’s cover nearly everywhere else.
Of course, the establishment of the new political class lording it over productive people under Democratic Socialism has been more genteel. But plunder and destruction of wealth there has most certainly been. And similar human types have been involved. The justification for the looting of savers and the deification of consumers was provided by Keynes.
Keynes is almost a modified version of Karl Marx. He serves to underpin the subtler kleptocracy (‘rule by thieves’) of Democratic Socialism rather than its bloody Totalitarian Socialist sibling which is Marx’s offspring. His idea of taxing and inflating savers to extinction is arguably less cruel than Marx’s idea of murdering capitalists. But it is still wrong and dumb.
In Marxist theory, the initial bloodshed would usher in the Marxist ‘new man’, ready to inhabit the ultimate utopian phase of Marxism. These re-modelled human beings would work selflessly to create material abundance without reverting to any ‘bourgeois notions of property or propriety. Such soulless shells resemble more than anything Winston Smith in ‘1984’ after his trip to Room 101. (All you need to know about the nature and viability of ‘real’ socialism is contained in Mises’s ‘Impossibility of Socialist Economic Calculation’, Orwell’s ‘1984’, and ‘Animal Farm’, and ‘The Gulag Archipelago’ by Solzhenitsyn.)
Democratic Socialism has its own schemes for creating rootless ‘new men’. There is a direct line between inter-war socialists like Keynes and the post-war cultural Marxist ‘educationalist’ agenda. State controlled education has achieved a certain success in terms of cutting the population off from its historical traditions. Does that make it capable of being moulded into ‘new men and women’, now known as the ‘politically correct’. Maybe not. Perhaps that’s why so-called ‘educators’ dislike any demonstration - for example by Jordan Peterson - that human nature is not easily altered. If the ‘new man’ or ‘new woman’ cannot in fact be created by them, then Marx’s utopia, pointlessly bloody in the making, is unrealisable.
Anyway, back to Marx’s project for the world after the supposedly temporary ‘dictatorship of the proletariat’. This was to be a stateless hedonist paradise. Now, Keynes was a promiscuous homosexual. He did later also become somewhat interested in women, without giving up his male lovers, of course. He was a libertine - complete with that type’s undercurrent of irresponsible, predatory behaviour.
Unsurprisingly he had no children. His well-known comment that ‘in the long run we are all dead’ is of a piece with his general denial of responsibility.
(By the way I hope I need not point out, again, that in a libertarian society there can be no law that goes beyond the Non-Aggression Principle (NAP). Therefore, there could not be laws in principle against any consensual sexual acts between adults, or indeed against irresponsibility as such.)
The connection between Marx and Keynes the libertine, as well as Keynes the economist, is this. Marxism is a typical 19th century Anarchist creed devoted to achieving a permanently stateless society. The state would ostensibly just wither away once everyone who believed in ‘bourgeois’ institutions - money, law, private property, religion, marriage and the family – had been killed or re-educated. Dang, there’s that ‘education’ word again. In the new, ridiculous world of assumed material plenty achieved by the ‘new men’ there would be lots of ‘free love’ of all kinds. Seriously, I am not making this up. Though it never actually happened. For some strange reason Marx’s improbable paradise was never birthed by the power grabbers. They profited to much from the ‘dictatorship of the proletariat’.
In other words, Marx proposed a paradise for libertines and sexual predators like Keynes, many other ‘Bohemian’ members of his set, and indeed himself (Marx had an illegitimate child fathered on the maid which he neglected). The attractions of this fantasy future, conscious or subconscious, to intellectuals like Keynes are clear. For non-libertines, Marx’s final stateless, riskless bonkfest sounds dull and, er, limp. But it did animate, if that is the right word, much of the BBC’s light entertainment, and many post-war films.
Back to Keynes and his disdain for savers with their niggling, long time horizons. In his 1936 book ‘The General Theory of Employment’, he struggles to find some way of justifying his underlying interventionist, anti-bourgeois, and anti-saver, prejudices. It is a similar effort to Marx’s own pseudo-scientific economic notions designed to bolster his assertion about ‘capitalist’ oppression of the working class.
Very little time need be devoted to showing how Keynes’s economic theories justified his criticism of savings and savers. Why? Because there is so little substance to Keynes’ work. His ostensible contribution to economics is his ‘Paradox of Thrift’. The idea is that savings, which are necessary for prosperity, are paradoxically bad in his view. How so?
Keynes is nothing if not inconsistent. And for so intelligent a man, he must have realised deep down that he was talking nonsense. Inflationist cranks like Keynes had long since been discredited by classical economists. Perhaps accordingly, he is very hard to pin down as to what he is actually saying. He changes his story practically from chapter to chapter. (For a thorough analysis of Keynes’s ‘General Theory’ I recommend again Hazlitt’s ‘Failure of the New Economics’.)
Keynes was writing in the context of mass unemployment during the Great Depression. The Austrian School economists had explained that such slumps were inevitable whenever state sponsored banking systems created money out of thin air. Which unfortunately is almost constantly. Artificially supplied loanable funds in excess of real savings destabilise economies, and are doing so all the more now.
Unemployment during a slump reflects the liquidation and restructuring of ‘mal-investments’ mistakenly begun on the basis of misinformation - in the form of artificially low interst rates - about the resources available for investment projects. But this explanation is never popular with governments and politicians, not to mention bankers, obviously. It correctly fingers them as the culprits behind the recessions, mass unemployment and waves of bankruptcies we have suffered at their hands and quite needlessly.
Keynes offered savers as a scapegoat to the political class for its own deadly failings. He deemed that savers somehow reduced ‘demand’ for goods and services and therefore for labour, at least some of the time. He suggested that savers should be robbed and inflated out of existence, destroyed in fact just like Marx’s ‘capitalists’ would be. Keynes called it ‘the euthanasia of the rentier’. Thieves and politicians (but I repeat myself) and their apologists like to sound so reasonable. But the idea really is as dumb and nasty as that.
The classical economist position is that markets in goods and services always clear. There can be no deficiency of ‘demand‘, and so no mass unemployment stemming from it. ‘Demand’ itself is an idea of limited use. Classical analysis flatly denies Keynes’s notion of deficient demand. The key principle is called Say’s Law, named after Jean-Baptiste Say, one of two great French 19th Century economists. (A post on the other, Bastiat, and his ‘what is seen and unseen’ will follow.) Say explained that people cooperate to produce marketable goods or services. They exchange these for other goods and services. The act of producing ‘supply’ automatically makes it possible to exchange it for other people’s ‘supply’.
Mistakes by producers may create instances of unmarketable products, but not for long in a free society. Prices tell everybody what production is worthwhile. Changes in prices ensure that all goods and service markets clear. So do the underlying capital and labour markets. So there is no problem, no ‘demand’, insufficient or otherwise, no involuntary unemployment, and no need for state intervention.
Enter Keynes. He knows that he is trying to ride roughshod over Say’s Law. He starts by misquoting Say’s Law as ‘supply creates its own demand’. Did you see that pesky concept of ‘demand’ being reintroduced? he basic concept is that the economy is a kind of bath tub of ‘demand’ which must be constantly topped up with money created out of nothing. Otherwise it will drain away leaving a jobless mess. Nobody knows why.
To be fair to Keynes, it is not necessarily what the great man meant. But then it is often difficult to know. That is the point. Anyway, the license to create money out of nothing and pile on debt everywhere has been great for bankers, state officials, and crony corporates. They profit from money creation at our expense. But it has been bad for productive people. In the long term, for nearly everyone, it has been very bad, as we are about to see confirmed for ourselves.
There is a paragraph where Keynes actually mentions Say’s Law and tries refute it. It is a masterpiece of his obscure writing. If you can make head or tail of it do email me on awahstevens@gmail.com. Unfortunately it is by no means the only such instance of unhelpful obscurity in ‘The General Theory.’
Anyway, let me now attempt a summary of what Keynes might be trying to say, given all his inconsistencies and waffle. It won’t take long:
1) Keynes could have been saying that savings reduce the resources allocated to supplying consumer goods and therefore employment in the relevant consumer goods industries. This is true. But since savings and investment are two sides of the same coin, as Keynes agrees in various places, an increase in saved resources correspondingly increases employment in investment goods industries. So, no problem here it would seem.
2) He may be trying to assert that fundamental economic principles, for example Say’s Law, do not apply during exceptional downturns, requiring (now constant) money printing – the very thing that Austro-libertarians realise causes slumps. Well, he and governments everywhere are out of luck. Economic principles apply universally, otherwise they wouldn’t be true principles.
3) He says that people may hoard money, i.e. save outside the banking system by sticking cash, gold or silver under the proverbial mattress. This isn’t spent, even on investment goods, and so does not create employment. Of course, this is true too, as far as it goes. And that mattress strategy works better if the saver is armed, but I digress. Anyway, the banking system in the depths of recessionary adjustment is often bust (and should indeed be allowed to go bust for the health of society), so saving outside it may be better. It certainly is generally broke now but for central bank money printing.
However, as Mises said, the result of any net saving outside the banking system is simply to lower prices so that all (free) markets clear anyway at the same employment levels and living standards as before. So, actually there is no problem here either.
4) Keynes asserts that wages and other prices are sticky downwards. Wages in particular can’t adjust downwards. Inflationary money printing is therefore needed to push up prices. In this underhand way, wages make the needed downward adjustment in ‘real’ (i.e. inflation adjusted terms).
Now perhaps we are getting to the nub. In a free society the assertion that wages and other prices do not adjust downwards is simply not true. It demonstrably wasn’t the case under classical liberalism in the 19th Century. Changes in circumstances back then led to changes in prices so that markets cleared. Price changes upwards or downwards included wages increases or cuts.
But in our world of impaired freedom, where states deploy the threat of violence to prevent economic adjustments they don’t want, things are different. From the early 1900s, trades unions were legally privileged as though they were part of the state itself (from the Liberal & Labour Government’s 1906 Trade Disputes Act, in Britain). They used violence with near impunity against employers and against those who would otherwise have been willing to replace the striking workers. The result was attempts to use force to keep wages unchanged in the face of obvious needs to restructure industries in the 1920s, and during the Great Depression in the 1930s.
Prices fell 30% or more in the early 1930s. But politicised union resistance to wage cuts meant real wages actually rose when they should have fallen too. The result was permanent mass unemployment for a decade. But mass unemployment was due to unions’ and politicians’ desire to impose non-market wages. In short it is the state’s stupid fault. So too is the involuntary unemployment stemming from slumps which are created by state sponsored inflationary banking arrangements.
Keynes has no real contribution to make to economic theory. If he has anything to say at all as an economist, it may be that the more the Democratic Socialist state intervenes and so reduces liberty, the more it must retreat from sound money. And the more it must steal from savers and producers by exponentially debasing money. This is an insight that the Austro-libertarians have always fully understood.
After generations of growing monetary instability, abetted by Keynes’s disciples in central banks everywhere, we may now be looking at the endgame of the Keynesian Era. The Federal Reserve just created over a trillion dollars out of thin air last week. It expects to print much, much more over the next two years. That’s quite a lot of new money. $1 trillion is roughly the total annual output of the productive sectors in Italy or Britain. And trillions more in dollar look-alikes (Pounds, Yen, Euros etc), are also coming down the pike to destabilise an economy near you soon.