Yes, as the title of this posting demonstrates, we're still picking on defunct economists and those who give them slavish obedience. For those of you not familiar with Keynes' General Theory — and your state is more blessed — that is a reference to Keynes' snide comment at the close of his turgid tome that, "Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slave 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." (General Theory, Bk. VI, Ch. 24, § v.) Today's most serious problem is that the defunct economist in question, and the source of the voice to which "madmen in authority" defer, is Keynes himself. Anyway, here's today's letter to the Wall Street Journal.
Congratulations on Oliver Hart's and Luigi Zingales' editorial, "Economists Have Abandoned Principle" (WSJ, 12/03/08, A17). I would, however, quibble a little with Messrs. Hart and Zingales on one thing. The problem is not that economists have abandoned principle. Trapped in a Keynesian paradigm, and consistent with Keynes' principles, they keep trying to force the financial system to do the impossible: create something out of nothing. Keynes believed that it is impossible to create money through the banking system for financially sound, self-liquidating capital investment, but perfectly feasible for the State to print money without an asset backing to stimulate demand and redistribute wealth through inflation.
To anyone with even a modicum of common sense or basic knowledge of property, money, credit, and banking, Keynesian dogma comes across as financial insanity — or abandonment of principle. It is not, however, abandonment of principle (except essential principles of ethics and morality that should support and justify all human behavior), but slavish obedience to the wrong principles. To create money backed only by the State's promise to pay, for bailouts and other extremely speculative goals, is to debauch the currency and achieve Lenin's goal of the destruction of the capitalist system without a shot being fired.
A more realistic solution to the current financial panic can be found in a program called Capital Homesteading, detailed in the book, Capital Homesteading for Every Citizen. Capital Homesteading involves granting democratic access to capital credit to every citizen. Money is not created until and unless a financially sound investment has been identified and properly vetted. Capital Homesteading would result in an asset-backed currency, and a final release from false Keynesian principles that run counter to common sense.
Donations to CESJ support our Capital Homesteading projects and Just Third Way initiatives, and are tax deductible in the United States under IRC § 501(c)(3).