Category Archives: Money

What President Trump and the West Can Learn from China

Trump Trip China

Instead of a demonstration of its overwhelming military might intended to intimidate tiny North Korea and pressure China to lean on its defiant communist neighbor, President Trump and the West should try to learn a few things from China.

The President’s trip to the Far East came on the heels of the completion of China’s 19th National Congress where the current president, Xi Jinping, has cunningly positioned himself as China’s unchallenged leader.  In an address at the opening of the Congress, Xi cautioned that the country faced “challenges” that are “extremely grim” yet, despite these, the nation’s future is “extremely bright.”*

While Western politicos and pundits bemoan the lack of political pluralism that exists within China and President Trump complained about bad trade “deals,” they miss an important factor as to why China has transformed itself from a socialist basket case some three decades ago into an economic powerhouse which now boasts over a third of the world’s billionaires!

China’s economic ascendancy can be attributed not only to the implementation of market reforms in the 1990s, but also its lack of “political competition.”  As a one-party state, resources, time, energy, and capital are not allowed to be channeled into wasteful political processes, but instead are used and “invested” in wealth-creation activities – construction, factories, plants, equipment, research, technology – all of which leads to more and cheaper consumer goods.

The US and the West spend too much on elections, campaigns, polling, political consultation, etc., which diverts scarce resources away from the private wealth sectors of society.  For example, in her last failed presidential campaign run, the Wicked Witch of Chappaqua alone spent over a half of billion dollars.

Under Western democratic pluralism, public debt and state spending have increased to unsustainable levels.  In the US alone – history’s greatest debtor nation – the national debt is in excess of $20 trillion, while its total debt officially is $68 billion with a federal deficit (GAAP) running yearly at $5 ½ trillion.

Such staggering numbers are the result, in part, from political parties seeking public office and once elected exploiting their position to enrich themselves, their constituents, and create dependent classes among the ever shrinking productive segments of society.

China’s foreign policy – an extension of politics – has also been conducive for wealth creation.  Instead of wasteful spending on military hardware, the maintenance of a far-flung global empire, and involvement in incessant wars, China has a rather meek military compared to its national income and has conducted a pretty much non-interventionist foreign policy – witness its diplomacy with North Korea.

The US is almost the polar opposite.  It spends more on “defense” than the next eight countries combined.** Instead of the production of useful consumer goods, billions are siphoned off into the military/security industrial complex.  Not only does this impoverish Americans at home, but it leads to never ending involvement in wars, conflicts, and disputes, most of which are created or exacerbated by US spy organizations.

Def spending

After meeting with Chinese leadership, President Trump tweeted:

I don’t blame China, I blame the incompetence

of past Admins for allowing China to take advantage

of the U.S. on trade leading up to a point where the

U.S. is losing $100’s of billions.  How can you blame

China for taking advantage of people that had no clue?

I would’ve done the same!

Making better trade deals will not revitalize the moribund US economy.  Instead, there should be less politicization of society and adoption of market reforms as China has done.  The most important plank of such a policy would be the encouragement of real savings – not the creation of bank credit – through the normalization of interest rates.  This would begin the arduous process of capital accumulation, the basis upon which any economy can be built.

Another sign of the divergence between the two is China’s continued push to make the yuan the world’s reserve currency with apparently some sort of gold backing to it.  Contrarily, the Trump Administration has continued the same disastrous policies of its predecessors and has chosen a Janet Yellen clone to head the Federal Reserve with a continuation, no doubt, of the suppression of interest rates.  On the other hand, China continues to import massive quantities of gold and encourages its citizens to own the yellow metal while the West is in the midst of a crypto currency mania, another fraudulent monetary scheme.

China’s economic miracle, while certainly impressive, would not look as astounding if Western economies had not been in a state of stagnation and decline over the past half century.  It was not political liberalization that led to China’s phenomenal growth, but economic freedom which used to be a staple of Western life.  The lesson that should be taken from President Trump’s trip is less politics domestically and more free markets.

*Chris Buckley, “Xi Jinping Opens China’s Party Congress, His Hold Tighter Than Ever.”  The New York Times, 17 October 2017.   https://www.nytimes.com/2017/10/17/world/asia/xi-jinping-communist-party-china.html

**Peter G. Peterson Foundation.  “US Defense Spending Compared to Other Countries.”  1 June 2017.  https://www.pgpf.org/chart-archive/0053_defense-comparison

Antonius Aquinas@AntoniusAquinas

https://antoniusaquinas.com

Bitcoin: A Tower of Monetary Babel

Bitcoin Fiat Currency

The promoters of crypto currencies have gushingly touted them as the mechanism by which the present central banking cabal and the system of nation states which derive much of their power from will be brought down and replaced by digital money.  Despite their meteoric rise as speculative “assets,” there are fundamental economic reasons why they will never act as a general medium of exchange despite the wild enthusiasm for them by the crypto-currency cultists.

Money – a general medium of exchange – is the most marketable (exchangeable) commodity in an economy.  As a good, money is not sought after for its direct use – to satisfy individual wants – but to satisfy wants indirectly through exchange for other goods.  Over time, one good becomes money since it possesses qualities superior to all other goods as a money.  When gold became demanded not for its “use value,” but for its “exchange value,” it became a general medium of exchange – money.

As a consumer good, gold possessed a value or a “price” prior to it becoming a money, as the eminent monetary theorist Murray Rothbard explains:

. . . embedded in the demand for money is knowledge

of the money-prices of the immediate past; in contrast

to directly-used consumers’ or producers’ goods, money

must have pre-existing prices on which to ground a demand.

But the only way this can happen is by beginning with a useful

commodity under barter, and then adding demand for a

medium to the previous demand for direct use (e.g., for

ornaments in the case of gold.)*

Thus, Bitcoin’s “price” is not in terms of its original commodity price, but its price is in terms of dollars, Euros, yuan, etc.  In the dollar’s case, it was at one time linked to gold, but has since been severed from it while Bitcoin has had no such relationship.

Once money is established, then prices are expressed in terms of it and thus economic calculation can rationally take place and the division of labor and specialization can be expanded.  Rothbard continues:

       The establishment of money conveys another great

benefit.  Since all exchanges are made in money, all the

exchange-ratios are expressed in money, and so people

can now compare the market worth of each good to that

of every other good.**

Once gold became money, the price of goods became expressed in gold not in other elements – nickel, zinc, lead, etc.  With the proliferation of crypto currencies, there will be a myriad of different price ratios for each good.  There will be a Bitcoin price for a car, an Ethereum price for a car, a Dogecoin price of a car, and so on.  This is the antithesis of the purpose of money – one unit of account that reflect prices for all commodities as Rothbard shows:

 

Because gold is a general medium it is most marketable,

it can be stored to serve as a medium in the future as well

as the present, and all prices are expressed in its terms.

Because gold is a commodity medium for all exchanges,

it can serve as a unit of account for present, and expected

future, prices.  It is important to realize that money cannot

be an abstract unit of account or claim, except insofar as it

serves as a medium of exchange.***  [my emphasis]

Crypto currencies, therefore, directly violate one of the main principles of monetary theory.  The vast array of digital money, all with unique price ratios (to say the least of their volatility), would make economic calculation and rational planning next to impossible.  In this sense, the current world of fiat dollars would be preferable to a Tower of Monetary Babel that digital currencies would create.

Central banks and governments do not fear crypto currency challengers to their monetary hegemony.  They, of course, jealously monitor the crypto market worried that any gains accrued may not be subject to tax.  Central banksters do fear gold for it remains, despite being demonetized, the last check on profligate central bank monetary expansion.  And, because countries who wisely understand gold’s importance and seek to get out from under the yoke of King Dollar (most notably China and Russia), continue to voraciously accumulate the yellow metal.

The return of true prosperity will only come about when gold is once again at the center of the monetary order and fiat currencies such as the dollar, Euro, and now Bitcoin are forgettable memories of a misguided and corrupt age.

*Murray N. Rothard, What Has Government Done to Our Money?  Novato, CA.: Libertarian Publishers, 8th printing, January 1981.

**Ibid., 4-5.

***Ibid., 5.

Antonius Aquinas@AntoniusAquinas

https://antoniusaquinas.com

Bitcoin in an Illusionary Age

Bitcoin III

It is altogether fitting that crypto currencies, in particular Bitcoin, have witnessed a meteoric rise in this illusionary age.  Not only has their monetary value gone to dizzying heights, but they are now being touted as the destroyer of the current, crumbling monetary order and the next paradigm upon which a new money and banking system will emerge.

In an era where sacrifice, hard work, loyalty, ingenuity, tradition, and independent thought are considered anathemas, while affirmative action, sloth, effeminacy, office seeking, and something-for-nothing schemes are endemic in every walk of life, it is not surprising that non-tangible, computer-generated currencies would become a “natural” feature of such a world.

While it has always been a haven for charlatans, traitors, cheats, thieves, liars, and serial adulterers, contemporary political life has become even more of a sham.  The most glaring example of politics’ utter corruption can be seen in the recent departed chief executive officer of the US.  Unless one abandons all critical thinking, Obummer was unqualified to be president because of the obvious fact that he was not born on American soil.  Not only did this disqualify him, but his educational and professional backgrounds have not been verified.  Neither his collegiate records nor his supposed teaching career at the University of Chicago Law School have ever been exposed to public scrutiny.  From the few utterances he has made about his supposed specialty – constitutional law – it appears that he has only a rudimentary knowledge of the subject.

Cultural life has descended to the basest of levels and has abandoned nearly all of Western Civilization’s glorious achievements.  Consider music.  The dominant form of what passes as music today is not the works of the great maestros of the past – Bach, Mozart, Beethoven – but instead, noise in the form of rock, hip hop, rap, grunge, or whatever the latest degenerate trend is in vogue.

Modern democracy is also a fallacy.  Being sold to the masses as a system where the people rule and personal liberties are guaranteed, democratic governance is anything but, and has instead been craftily used by the elites to amass state power to an unprecedented extent not witnessed in human history.  The much maligned monarchial age even during its “absolutist phase” could not come close to the scope and intrusiveness that democratic governments possess today.

Religion, too, is not immune from its share of hypocrisy.  Not only is the supposed head of the Catholic Church a manifest heretic who almost daily blasphemies the Divine Majesty, but he is not qualified to occupy the august chair in which he sits.  Jorge Bergoglio was neither ordained as a priest nor consecrated as a bishop in the traditional, Apostolic rite of Holy Orders.  He is, therefore, an imposter not a priest, nor the bishop of Rome, and scandalously not a true pope.

Now enter crypto currencies.  Not only will they never become money – a general medium of exchange – as gold and silver once were and will become once again, but cryptos lack the necessary requirements to be money.  Yet, their “development” is systematic of the times.  Cryptos are another variant of fiat currencies which digitally can be created by a stroke of a computer key or in cryptos’ case, a code.

Gold and silver – real money – must be mined from the ground, minted and “marketed” before they can be used to facilitate exchange.  This is an arduous, capital-intensive process which takes resources, labor, and time to accomplish.  Something as important as money should require an elaborate procedure not be created out of thin air as are all fiat currencies as well as cryptos.

Money must originate as a tangible, sought-after commodity – the great Misesian insight that crypto enthusiasts do not know or do not understand – then, over time, be recognized as having a “second feature” as a good sought after for “exchange value.”  Once a good is demanded for its use primarily to facilitate exchange, it then becomes a “money.”

In a fundamental sense, crypto currency cultists are rebelling against the natural order of things.  The precious metals were created in their quantity and quality by Divine Wisdom for a purpose – to act as money.  While governments have habitually corrupted the monetary order through coin clipping, fractional-reserve banking, and other nefarious schemes, it does not undo this primordial fact.  It is for the intellectually honest opponents of monetary chicanery to point this out and decry all governments and banksters’ attempts to eradicate gold and silver as money, not attempt to create another unnatural and false monetary order that mirrors the current fiat system.

Money, like all other institutions of society, will reflect its belief system.  Decaying cultures will most likely have debased monetary units.  A turnabout in the status of money will only happen when Western Civilization returns to what money is – gold and silver – and abstains from trying to create illusions of it through computer software schemes.

Antonius Aquinas@AntoniusAquinas

https://antoniusaquinas.com

 

 

The Ultimate Regulatory Reform: Abolish Fractional Reserve Banking!

fractional reserve banking II

The Trump Administration has presented the first part of its plan to overhaul a number of Wall Street financial regulations, many of which were enacted in the wake of the 2008 financial crisis.  The report is in response to Executive Order 13772 in which the US Treasury Department is to provide findings “examining the United States’ financial regulatory system and detailing executive actions and regulatory changes that can be immediately undertaken to provide much-needed relief.”*

In release of the first phase of the report, Treasury Secretary Steven T. Mnuchin stated: “Properly structuring regulation of the U.S. financial system is critical to achieve the administration’s goal of sustained economic growth and to create opportunities for all Americans to benefit from a stronger economy.  We are focused on encouraging a market environment where consumers have more choices, access to capital and safe loan products – while ensuring taxpayer-funded bailouts are truly a thing of the past.”**

Some of its highlights include:

  • Community financial institutions – banks and credit unions – are critically important to serve many Americans
  • Capital, liquidity and leverage rules can be simplified to increase the flow of credit
  • We must ensure our banks are globally competitive
  • Improving market liquidity is critical for the U.S. economy
  • The Consumer Financial Protection Bureau must be reformed
  • Regulations need to be better tailored, more efficient and effective
  • Congress should review the organization and mandates of the independent banking regulators to improve accountability***

 

Not surprisingly, most of the banking industry expressed support for the report, critics (mostly Democrats) pointed out that it would lead to the type of practices that produced the 2008 panic in the first place.  Both opponents and those in favor as well as the clueless financial press fail to grasp the underlying cause of not only the recent crisis, but the majority of those which have occurred for the past century.

Quite simply: the fundamental cause of the 2008 financial crisis was fractional-reserve banking (FRB).  FRB is the practice whereby banks keep a “fraction” of the funds deposited by customers in their vaults lending out the rest at interest and “profit.”  Banks are thus inherently unstable since if all depositors came at once and demanded their money (a “bank run”), banks could not be able to redeem their deposits.  Moreover, FRB encourages banks to engage in exceedingly speculative and risky behavior which creates unsustainable bubbles throughout the economy.

The nation’s central bank, the Federal Reserve, was created by the banksters and politicos to enshrine this immoral and economically ruinous practice into the heart of the American financial landscape.  Any “reform” of Wall Street’s financial practices that does not address FRB by doing away with it and the institution (the Fed) which enables it to exist, is doomed.

The banks in collusion with the Fed are able to expand the money supply through this process while enriching the banksters’ balance sheet.  On the macro level, the creation of money through FRB is the genesis of the destructive boom-bust cycle.

This is why banks and the entire financial system are so prone to reoccurring crisis and no regulation, reform, or Treasury Department “findings,” can make such a system “stable.”  The only true reform is to abolish FRB and establish a monetary order that requires all financial institutions to keep 100% reserves of depositors’ assets.

The Treasury Department’s recommendations are mere window dressing by the very banksters whose opulent livelihoods are predicated on FRB.

The elimination of FRB would go beyond a beneficial financial revolution, but would affect the foreign policy of the USSA.  Without the ability to create money via FRB, the murderous American Empire could simply not exist, nor would the nation’s draconian domestic security state.

With his selection of crony capitalists and members of Goldman Sachs to his economic team, it is apparent that President Trump does not understand the true nature of the nation’s financial woes or what precipitated the last financial crisis and what will assuredly lead to a far bigger mess down the road.  If he did, his next Executive Order would be to implement steps and procedures to eliminate the scourge of fractional reserve banking forever.

*U.S. Department of the Treasury, “A Financial System That Creates Economic Opportunities.”  6 June 2017.  https://www.treasury.gov/press-center/press-releases/Pages/sm0106.aspx

**Ibid.

***Ibid.

Antonius Aquinas@AntoniusAquinas

https://antoniusaquinas.com

Donald & the Dollar

donald-dollar

John Connally, President Nixon’s Secretary of the Treasury, once remarked to the consternation of Europe’s financial elites over America’s inflationary monetary policy, that the dollar “is our currency, but your problem.”  Times have certainly changed and it now appears that the dollar has become an American problem.

In a recent interview with the Wall Street Journal, the soon to be 45th President of the United States believes that the greenback’s strength – up some 25% against a broad basket of currencies since 2014 – is now “too strong,” “killing us,” and has hurt companies trying to compete overseas.* A top Trump economics advisor, Anthony Scaramucci, reinforced his boss’ sentiment adding that “we must be careful of a rising dollar.”

Apparently, making America great again does not include the nation’s monetary standard.  Trump’s belief that the dollar is too strong also shows a distinct lack of historical understanding.  Every great nation and empire (which Trump promises to restore America to) had a sound monetary system.  It is no coincidence that the pound sterling was the world’s “reserve currency” at the time when the British Empire was at its height.  Debasement of it to finance Britain’s insane decision to enter World War I led, in large part, to the eventual loss of its empire.  If Trump truly seeks to restore American greatness at home and its prestige throughout the world, devaluating the currency is not the way to go.

Nor does a weakened dollar benefit the middle class whom the president elect throughout the campaign has pledged to help.  In fact, it has been the fall in the purchasing power of the dollar due to the inflationary policies of the Federal Reserve which have decimated the living standard of the middle class.  And, while the proposed Trumpian middle class tax cuts will help, just as important is a sound monetary system if Middle America is to become a creditor class once again.

Pensioners and retirees, another group that Trump has promised to help, would continue to see their financial condition decline under a policy to weaken the dollar. A fall in the purchasing power of money would devastate the income stream of pensions and social security payments.

While a weaker dollar policy would hurt the middle class, retirees, and savers, it would benefit the most responsible for the continued economic doldrums of America – banksters and the government.  A weaker dollar would allow the government to continue to borrow and maintain its profligate spending.  Financial houses and the banksters would receive credit at nearly zero cost which would allow them to continue to blow bubbles in the asset markets.  Export firms, too, would benefit at least for a while, but would more than likely face retribution from foreign governments and central banks which would retaliate with their own devaluations sparking potential currency wars.

Talk of “currency manipulation,” “weakening the dollar,” “trade deals,” and the like do not address what lies at the heart of not only America, but the Western world’s economic problem – too much debt.  The reason why the West has been able to incur its current gargantuan level of debt is not because of a “weak” or a “strong” dollar, but because the dollar is a fiat currency not backed by any commodity.  A true gold standard, where each currency unit represents either gold or silver, provides monetary discipline which prevents politicians and banksters from incurring ruinous levels of debt.

Since money is the lifeblood of an economy, any hope that one can be turned around without a stable monetary order is, to say the least, delusional.  If president-elect Trump and his policy makers do not realize this, they will be severely disappointed in the years to come.  Sound money allows for the accumulation of savings and capital formation, the essential elements of the market economy and the only basis upon which real economic growth can occur.  More savings and capital are needed to boost production and create employment, not supposedly wiser and more competent international trade negotiators.

Talk of currency devaluation is what is typically heard from banana republics, it should not be advocated by those who have aspirations of making their country great again.

*Tyler Durden, “Dollar Tumbles After Trump Calls Currency ‘Too Strong,’ Slams Border-Adjustment Tax.”  Zero Hedge.  17 January 2017.

Antonius Aquinas@AntoniusAquinas

https://antoniusaquinas.com/

Donald and the “Maestro”

trump-ii            greenspan-ii

Former Federal Reserve Chairman Alan Greenspan, who was once laudably referred to as “Maestro” for his supposed astute stewardship of U.S. monetary policy, commented last week on the nation’s current political and economic climate:

We’re not in a stable equilibrium.  I hope

we can all find a way out because this too

great a country to be undermined, by how should

I say it, crazies.*

Well, if there is anyone who knows how to “undermine” an economy, it is the Maestro, since it was his “crazed” policies that brought about the 2008 financial crisis which ushered in the Great Recession that continues to this very day.

In a demonstration of how truly clueless Greenspan is about economic conditions, he cautioned that the U.S. is “headed toward stagflation – a combination of weak demand and elevated inflation.” Memo to the Maestro: stagflation is already here and has been for quite a while, especially when real economic gauges are used instead of the phony baloney numbers routinely lied about by the BLS and other corrupt state agencies.

The “crazies” that Greenspan refers to are, of course, the “deplorable” Trump supporters and The Donald himself, who the Maestro contends is responsible for “the worst economic and political environment that I’ve ever been remotely related to.” Oh, poor Alan has to suffer through an election where one of the candidates has not been approved by the ruling class.  Too bad.

Instead of carping about the current state of political affairs which, at least financially, he and his successor, Helicopter Ben Bernanke, largely contributed to, Greenspan should be grateful that he has had no reprisals for the financial crimes, chaos, and misery that he has afflicted upon the world.  Instead of significant jail time or worse, Greenspan is free to pontificate on current events, receiving hefty financial remuneration, and just as important for top members of the governing elite, ego-enhancing hosannas!

While Ben Bernanke has been a lifelong committed Keynesian and inflationist, Alan Greenspan, at least in his younger days as a member of Ayn Rand’s circle, was a free marketer who spoke positively about the efficacy and moral soundness of a gold standard.  That he abandoned these beliefs to go over to the Dark Side is further cause for retributive justice.

Greenspan’s betrayal was similar to those economists of the 1930s (Lionel Robbins most notable) who were followers of the teachings of Mises and Hayek, yet were swept away by the fanciful Keynesian deluge of the day and abandoned their economic senses and conscious for similar allurements which seduced the Maestro.  Had these economists as well as Greenspan stuck to their original principles, the world may not be in its current financial mess.

While Greenspan was lamenting the state of political affairs, the head “crazy,” Donald Trump, commented on the Maestro’s former place of employment.  Unlike the Maestro, the financial media, and just about every other politician, Trump had some perceptive things to say about the nation’s central bank, showing again that the billionaire businessman’s political acumen is quite good:

The Fed is being totally controlled politically because

Obama wants to go out with no stock market disruptions.**

The Republican Presidential hopeful could have easily added that the Fed’s policy is being deliberately carried out to ensure his Democratic opponent’s victory this fall.  A booming stock market is perceived by most as an indication of a vibrant economy.

Trump does not buy the supposed “independence” of the Fed from political influence and the conduct of monetary policy solely for the well being of the economy:

If it was a choice between the right decision and a political

decision… The Fed would choose the political decision.

Throughout the campaign, Trump’s instincts on political and economic matters have been quite good and hopefully if he does become chief executive those instincts will translate into positive change.

A Clinton Presidency would assuredly mean a continuation of the ruinous policies of Greenspan and his successors.  The election of Donald Trump could not only mean a new direction in monetary policy, but the public demotion of the likes of Alan Greenspan who will hopefully fade into the sunset never to be heard or seen from again.

*Rich Miller, “Greenspan Worries That ‘Crazies’ Will Undermine the U.S. System.”  Bloomberg.  14 September 2016.  http://www.bloomberg.com/news/articles/2016-09-14/greenspan-worries-that-crazies-will-undermine-the-u-s-system

**Tyler Durden, “Trump Slams ‘Totally Politically Controlled’ Fed, Sees No Rate Hike Until Obama Has Left.”  Zero Hedge. 15 September 2016.  http://www.zerohedge.com/news/2016-09-15/trumps-slams-totally-politically-controlled-fed-sees-no-rate-hike-until-obama-has-le

Antonius Aquinas@AntoniusAquinas

https://antoniusaquinas.com/

 

 

 

 

John Maynard Keynes’ “General Theory” Eighty Years Later

Keynes Gen Theory

To the economic and political detriment of the Western world and those economies beyond which have adopted its precepts, 2016 marks the eightieth anniversary of the publication of one of, if not, the most influential economics books ever penned, John Maynard Keynes’ The General Theory of Employment, Interest and Money.  Sadly, even to this day, despite its thorough refutation by lights such as Henry Hazlitt and other eminent scholars, The General Theory, which spawned “Keynesianism” and its later variants, remains supreme in academics, financial markets, and public policy.

Despite its outlandish theoretical flaws and nonsensical economic jargon and the catastrophic empirical evidence of its failure to prevent financial downturns or “stimulate” sustainable growth, Keynesianism remains the ruling paradigm of economic thought.

Why?

A number of trenchant reasons have been given for the General Theory’s continued dominance, however, one stands above all else: Keynesian economics provides the intellectual justification for economists, statisticians, technocrats, bureaucrats, and policy wonks in their exalted positions as “fine tuners” of economies the world over.  Since markets are to Keynes and his disciples inherently unstable from erratic investment spending and aggregate demand, it is up to these theoreticians steeped in the knowledge of their master’s teachings to ameliorate any economic fluctuations.

The General Theory came on the scene at a propitious time during the height (or more accurately the depth) of  the Great Depression, which in 1936, despite Roosevelt’s New Deal and other Western nation states’ initiatives, had not improved conditions.  Keynesianism was actually a “middle way” between all out Soviet-style central planning and that of laissez-faire capitalism.  Primarily through fiscal policy, the economy would be kept on an even keel under the astute management of Keynesian-trained economists.  Naturally, this appealed to academics and intellectuals the world over who correctly envisioned positions of power and influence in expanded state apparatuses.

As history has shown, Keynesianism was to become more than a remedy for the Depression, but would be applicable after the crisis dissipated.  The General Theory was based, in part, on the (false) notion that the capitalist system is inherently unstable and is, therefore, in need of state intervention.  Keynes  deliberately ignored the scholarship at the time, which demonstrated that the instability was not a “market failure,” but a monetary disorder caused by artificial credit expansion generated by the central banks, especially the Federal Reserve.

The enthusiasm for The General Theory came at first from younger economists while it was (rightly) dismissed by many of their elders as incomprehensible.  Yet, its lack of clarity was appealing to the novices, since they would become the Creed’s interpreters.

Not all, however, were entirely overwhelmed by their mentor’s magnum opus as Paul Samuelson candidly admitted:

[The General Theory] is a badly written book:

poorly organized. . . . It abounds in mares’ nests

of confusions. . . .  I think I am giving away no

secrets when I solemnly aver – upon the basis of

vivid personal recollection – that no one else in

Cambridge, Massachusetts, really knew what it

was all about for some twelve to eighteen months

after publication.*

Despite such an assessment, Keynesianism was never seriously challenged by its adherents, it opened too many lucrative policy making doors to be refuted.

That Keynesianism continues to reign supreme, despite its theoretical and empirical bankruptcy, speaks volumes of the state of Western intellectual and academic life.  Instead of the pursuit of truth and the refutation of error, Western intelligentsia is primarily concerned with securing privilege and power for itself.  At one time such status was gained by honest inquiry into social questions and issues, now it is obtained in the justification of the expansion of state power.  Very few turn down such enticements!

Societies are the product of ideas.  Since the release of The General Theory, the Western world has been under the destructive sway of Keynesianism, which has resulted in stagnation, financial turmoil, and eventual collapse.  Until Keynes and his nutty theories have been refuted, the economic malaise will continue.

Quoted in Murray N. Rothbard, “Keynes, the Man.” In Mark Skousen, ed., Dissent on Keynes: A Critical Appraisal of Keynesian Economics.  New York: Praeger Publishers, 1992, p.184

Antonius Aquinas@AntoniusAquinas

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