Yesterday's Wall Street Journal carried a lengthy defense of Federal Reserve Chairman Benjamin Bernanke's efforts to breathe some life into an economy that's been put to death through reliance on the World's Leading Defunct Economist, i.e., John Maynard Keynes. It was everything you'd expect from a panic-stricken Keynesian, especially in light of the evident failure of the $600 billion stimulus.
(According to today's Wall Street Journal, the "experts" are baffled by the fact that, try as the Federal Reserve might by buying up sagillion dollars worth of government securities, bond prices keep rising . . . and so does the interest rate. How is this possible? Hint: as Dr. Harold G. Moulton pointed out, money and credit are not a commodity, and thus the interest rate is not really the "price" of a commodity in limited supply, and there is tremendous speculation going on, anyway.)
(Do I really have to explain it? Okay: "sagillion" = billions and billions; from the late Carl Sagan's habit of trying to give an idea of the colossal size of galaxies, the universe, . . . the national debt . . .)
Anyway, we fired off yet another letter to the Journal, which was promptly ignored, so we publish it here for a much smaller, but evidently more intelligent audience.
While I assume that Alan Blinder is both well-intentioned and well-versed in the complexities of Keynesian economics ("In Defense of Ben Bernanke," WSJ, 11/15/10, A17), he seems unaware that Keynesian economics is based on an understanding of money and credit, and the role of the State antithetical to personal sovereignty, individual liberty and private property. As Keynes asserted in Volume I of his 1930 Treatise on Money, the State allegedly has the right to abolish freedom of association and contract at will, and to "re-edit the dictionary" to change truth for political ends.
By rejecting Say's Law of Markets and its application in the real bills doctrine, in which money is defined as anything that can be used in settlement of a debt, Keynes effectively abolished private property except for an elite private few, which then holds it only at the sufferance of the State. (General Theory, VI.24.ii-iii.) By upholding Knapp's "chartalism," in which the State prints money — narrowly defined as M1 and M2, ignoring private sector bills of exchange and promissory notes — when it is deemed necessary, and taxes it away when there is "too much," Keynes cut the essential links between money and credit, private property and, especially, production of marketable goods and services. Keynesian economics, as von Hayak hinted, established socialism as public policy.
By advocating manipulation of interest rates, Keynes undermined even the appearance of private property in the economy, making the presumably free market a ludicrous farce. By diverting the Federal Reserve to monetize government spending instead of providing an "elastic currency" to supply the needs of agriculture, industry, and commerce by rediscounting bills of exchange supplemented with limited open market operations in privately issued — not government — securities, Keynes gave the unproductive State the power to grow beyond all reasonable bounds, and to spend money unrestrained by the capacity of the productive private sector to support it.
Blah, blah, blah.