Wednesday, October 20, 2010

Halloween Horror Special X: Der Student von Keynes

It's considered one of the classic horror films of all time. In 1912 Paul Wegener produced Der Student von Prag — "The Student of Prague." It was remade in 1926 and again in the 1930s. According to my sources, the latter version was somehow turned into a Nazi propaganda film, and is consequently very difficult to obtain. My sources claim that there was some use of Das Horst Wessel Lied (lots of links, but it's too creepy even for a Halloween Horror Special), the anthem of the Nazi Party, and that the film was consequently banned in Germany, and nobody else really cares about it.

This is more than a little bizarre, for Wegener was using European Jewish legends as the foundation of his plot, as he would for Der Golem, stories of which he heard while working on location for Der Student von Prag. I found a very short clip from the 1935 version, though, here, and a recording of a song featured in the film here. You can't really compare the three versions from such a small clip, but the 1935 version comes across as pretty dull after seeing the remarkable 1912 and 1926 versions. It's . . . fluffy.

The outline of the story is familiar from folklore and from having been used endlessly by Hollywood. A poor student, Baldwin, will receive unlimited wealth, the girl of his dreams, and social success at a price to be determined by the sinister Scapinelli: whatever Scapinelli sees in Baldwin's rooms that Scapinelli wants. Since Baldwin figures he has nothing worth a halbpfennig to his name, he agrees. The deal seems even better when the object chosen by Scapinelli turns out to be Baldwin's reflection in the mirror — hardly something on which one can put a value.

You know what's coming. The reflection turns out to be Baldwin's soul. Naturally (natürlich), Baldwin's soul is now under the demonic Scapinelli's control (and, of course, Baldwin no longer has a reflection). Baldwin quickly gains everything promised, only to lose it again or have it rendered worthless or meaningless as his Dopplegänger destroys everything. Baldwin, clearly unaware that his soul is himself, finally decides to kill the reflection by firing a pistol at it, and (as we might expect) kills himself by killing his soul — a twist used to good effect by Oscar Wilde in The Picture of Dorian Gray (1890). The viewer is adjured to pray for the soul of Baldwin, who (for all his good qualities) was tricked into suicide.

Boiling matters down to their essentials, it's the old story: be careful what you pray for — you might get it. Baldwin was a popular, if poor, fellow with the other members of his "student corps" (difficult to explain these days, but roughly analogous to a fraternity), and clearly had good intentions. After gaining endless wealth (100,000 gold Gulden, the equivalent of several million dollars today), he endowed scholarships for (other) poor students, spent lavishly for the entertainment of the other members of his corps, gave to charity, and bought expensive gifts for the girl of his dreams.

Fast forward to the present date and to the semi-real world. Why only "semi-real"? Because the global economy is in the grip of Der Student von Keynes, or (more accurately) Die Studenten von Keynes.

This is more than a little ironic. At the end of his General Theory (1936), Keynes sneered at anyone who did not accept his theories in words that have an appropriately shivery echo today:

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 quite exempt from any intellectual influences, are usually the slaves of some defunct economist. (General Theory, VI.24.v)
What's so chilling about that? Keynes was solid "Currency School." The basic tenets of the Currency School of finance are in direct conflict with a natural law understanding of money and credit. "Money" changes from being anything that can be used in settlement of a debt, to whatever the State says it is. (Vide John Maynard Keynes, A Treatise on Money, Volume I: The Pure Theory of Money. New York: Harcourt, Brace and Company, 1930, 4; cf. Georg Friedrich Knapp, The State Theory of Money. London: Macmillan and Co., Ltd., 1924.) Consistent with the rejection of the natural moral law based on Intellect rather than Will, this understanding of money and credit takes the existence of a totalitarian or absolutist State for granted. (Mortimer Adler, "The Meaning of Natural Law"; Heinrich Rommen, The Natural Law. Indianapolis, Indiana: Liberty Fund, Inc., 1998, 51-52.)

It comes as no surprise that Keynes's economic and political philosophy parallels that of Walter Bagehot, who lauded the State control over money and credit established by the British Bank Charter Act of 1844 (Lombard Street, 1873) and the absolutist political philosophy of Thomas Hobbes, detailed in Leviathan (1653) (The English Constitution, 1867). All of this was considered a triumph of the theories of the Currency School. The most damaging assumption of the Currency School — politically, financially, and economically — is that the only way that new capital formation can be financed is by cutting consumption, accumulating money savings, then investing.

We've already analyzed the dogmatic faith in the Currency School's Monetas Solo position in greater depth than many people care to hear about. Today we want to take a look at the gruesome results of selling your soul to past savings in light of the legend of the Student of Prague. The parallels (appropriately enough) are, well, horrifying.

We'll update the story a little bit, though. Instead of a student, "Baldwin," in Prague in the 1820s, we'll make up a mythical country, "the United States of America" ("America" for short), in the 1920s. The mysterious if satanic "savior" . . . what the heck, let's call him "Lord Keynes."

America is at its wits end. The stock market has just crashed. Unemployment is rising rapidly. The price level is falling. Desperate for a way out, America listens to the mysterious Lord Keynes, despite the warnings of its friends and well-wishers, such as the Gypsy dancer Glenda Moulton and Herr Professor Dietrich Brookings. In exchange for the independent spirit of America — its soul — Keynes delivers what seems to be prosperity and the answer to all problems.

When examined closely, however, there's always a catch to the presumed benefits. Where do the increased savings come from in the Keynesian satanic bargain? From the diminished purchasing power of wage workers as their pay buys fewer and fewer goods and services. (General Theory, II.7.iv, IV.14.i, V.21.i, Jobs are created, yes, but the labor is used to produce goods and services that are not put to any useful purpose. (Ibid.,, IV.16.iii.) There is plenty of money, but each unit is worth less than before, and unemployment only goes down as the price level goes up. (Ibid., III.10.iii, V.21.v.) People are working, but they're worse off than they were before the Crash.

Finally, of course, Lord Keynes's policies direct the economy, putting the State in place of private interests, giving it near-total control. (A Treatise on Money, loc. cit.) Liberty and property, as well as the pursuit of happiness, take a back seat to artificially induced prosperity supported by increasing redistribution of existing wealth and government control over the life of every citizen.

After a while, three-quarters of a century or so (countries have a somewhat different lifespan and time frame than poor students), things begin to unravel at an accelerating pace. The students of the now-defunct Keynes continue to try and carry out the contract America made but — in true Keynesian fashion (ibid.) — the terms of the contract seem to have been altered in some mysterious fashion. America keeps its part of the bargain (slavish devotion to Keynesian economics), but even the rather hollow benefits promised seem to have evaporated. The catches are still there, but the benefits that are supposed to balance things out don't seem to be in evidence. Finally, in a frenzy of despair, America commits suicide by leapfrogging over Keynesian economics and political theory, and going straight to socialism and an absolutist State.

Fortunately, unlike people, having lost its soul, a country can get it back. I realize it's a bit of a departure to end a Halloween Horror Special on a note of optimism, but I can't help it. It's just the way I am. A necessary first step is to reform the financial system, acknowledging that the contract with Lord Keynes to deliver America's soul was never binding due to lack of consideration. The fact is that Keynes, like Satan in the traditional bargains, never delivered on his end, or did so in a way that rendered the benefits the opposite of what was desired. His policies didn't end the Great Depression. World War II did that. Subsequent history has simply been a repeat. Every genuine social and economic benefit attributed to Keynesian economics has really been due to something else entirely.

We've got a very long list of reforms to correct the situation, but we'll try to make it quick.

• Reinstitute Glass-Steagall and give it a nice big set of choppers.

• Prohibit the Federal Reserve from dealing in primary or secondary government securities, whether through discounting, rediscounting, or open market operations.

• Establish a 100% reserve requirement for member commercial banks by mandatory rediscounting of all qualified loans at the local regional Federal Reserve.

• Restrict open market operations to the qualified paper of non-member banks and individual companies.

• Cease manipulation of interest rates charged on loans of existing accumulations of savings, let the market determine the rate of return.

• Limit the discount rate to the amount necessary to cover costs and a just profit, plus a risk premium if not covered directly by the borrower.

• Privatize the Federal Reserve by making the citizens and permanent residents in each region the direct owners of the regional Federal Reserves through the issuance of no-cost, non-transferable, fully participating voting shares, one to each natural person.
Obviously there has to be a lot more than that to it, but that's enough to give the idea. Considering the alternative, it's time to get started.


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