Thursday, March 3, 2011

The Wrath of Keynes, or, The Fall of the House of Hayek, Part II

Yesterday we looked briefly at the common assumption of all three of today's mainstream schools of economics, that new capital cannot be financed except by cutting consumption, saving, then investing.

Obviously, if we have any respect for the dignity of the human person as manifested in the natural rights of private property and freedom of association (liberty/contract), this restricts ownership of the new capital to those who can afford to cut consumption and save. Especially in light of the sheer expense of new capital in the form of advanced technology, this assumption restricts ownership of the new capital to the currently wealthy — unless, as does Keynes, we redefine private property and freedom of association in order to justify inflation and redistribution, as well as increasing State intrusion into everyone's lives. The State, as one enthusiast put it, becomes "the sole intercessor available to the poor," and everyone is relegated to the status of "mere creature of the State." (Pierce v. Society of Sisters, 1925.)

Such redefinition — whatever you might choose to call it (social justice, solidarity, etc.) — is an offense against human dignity. Possession of natural rights define someone as a natural person, and presumably provide a means of guaranteeing respect for essential human dignity.

In his noted critique of Keynes's A Treatise on Money (1930), Friedrich von Hayek observed that the analysis was collectivist. This claim resulted from the fact that Keynes, in his anxiety to try and guarantee sufficient effective demand through full employment of labor in a wage system redefined both private property and liberty in a way that effectively abolished them as natural rights, making them derived from and dependent on the State.

While correct within its own framework, von Hayek's analysis was flawed by taking the slavery of past savings as a given, as did Keynes. From the point of view of anyone trapped within the past savings paradigm, this refusal to redefine essential natural rights made the Austrians hard-hearted fiends for insisting on property rights of the few, rather than, like Keynes, on the alleged human right to receive wages or welfare at a level sufficient to meet the demands of human dignity.

Thus, at both ends of the spectrum of mainstream economics we see that the past savings assumption leads to unacceptable situations. Either we abolish the natural moral law and redefine basic rights in order to get what we want, or we insist on rights for the few, and the many go begging.

In our next posting in this series (probably Monday), we will look at the specific flaws in von Hayek's analysis as examined by Dr. Harold G. Moulton in his book, The Formation of Capital (1935).



Ed Dodson said...

My views on the subject have been expressed time and again, so I hope I do not bore readers by referring to the analysis provided by Henry George.

What George understood was that the monopolization of the "means of production" would be impossible without the corresponding monopolization of locations and natural resources (i.e., land).

If a society fully collects the annual location rental values of land (in its broadest sense to include the broadcast spectrum and any competition-limiting licenses issued by government), the selling price of nature would fall very close to zero over time. The rent fund collected could be distributed as an income supplement to all citizens. And, as Thomas Paine suggested, put into trust when every child is born to provide them with a base upon which to begin their adult lives.

nail-in-the-wall said...

Ed, I noticed that nobody responded to your comments (yet). Thoughtful and well clarified as they were.

As for me, I agree with the "Distributism" up to the point of whom should own. Are we to assume that the nature of government in the role you described, as a bureaucratic organization/mechanism the collection of those rents -for the benefit of posterity- isn't that the myth of Social Security, collecting labor rents?

I would much prefer to "Own, than to be Owned". Neither by statist or bureaucratic manipulation. And having said nothing of justice. Again please take a deeper look at Capital Homesteading, Citizen Land Banks and suggest instead where we go wrong, with that same child having a mechanism to advance a broad base of productive capital in future technology and rentable space.

You are right to keep the focus on the children and family. God knows they are the only ones to change the paradigm, that society now finds itself - grasping for solutions.

Please also take the liberty of reviewing the now 120 year anniversary of RERUM NOVARUM. Some would think that 120 years is significant.

I'm sure somebody else will respond to your thoughtful query, perhaps Benedict XVI. But then I'm just a nail in the wall,..

nail-in-the-wall said...

Ed Dodson please review this also; providing credit where credit is due - Justice.
Henry George, Buckminster Fuller and Louis Kelso: Three Architects of a Post-Scarcity Paradigm