Wednesday, July 20, 2011

The Dangers of Interpreting Keynes

Yesterday the Washington Post had a column by Ezra Klein on "The Dangers of Misinterpreting Keynes." With all due respect to Mr. Klein, from a Just Third Way perspective the problem is not misinterpreting Keynes, but interpreting him at all. The question we have to ask ourselves is, Is the Great Defunct Economist really all that relevant?

From a political perspective, yes. Keynes is very relevant politically, if only because (as Keynes himself put it), "[T]he 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. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas." (John Maynard Keynes, The General Theory of Employment, Interest and Money, 1936, VI.24.v.)

From the perspective of binary economics, however, the academic scribbler Keynes is irrelevant. Why? Because the Keynesian system, "voices in the air," does not describe reality. It is based on faith, not reason, and is not supported by the facts or soundly reasoned theory. Admittedly, Keynes probably unconsciously exempted himself from the ranks of defunct economists, even though he dismissed criticism of his theories in the 1920s by flippantly remarking, "In the long run, we're all dead" — a rejoinder that, while perfectly true, has nothing to do with the case.

So, what are we to do in a Keynesian world in which the Powers-That-Be insist on implementing disproved and disastrous Keynesian economic policies, and the best that the opposition can come up with is to say, "Don't do that!"?

Well, for one, we can write letters to columnists and editors expressing our concerns whenever they say something that is not in strict accordance with objectively established facts. This, of course, is absolutely guaranteed to make you extremely popular with everyone. Like King Gama in Princess Ida, you'll be a genuine philanthropist. And probably get the same reaction, i.e., "ev'rybody says I'm such a disagreeable man . . . and I can't think why!"

With this as our guiding philosophy, we sent the following to Mr. Klein in response to his column yesterday, slightly edited for publication:

Dear Mr. Klein:

The question is not whether Keynes is being misinterpreted, but (1) whether Keynes was right, and (2) if there is any viable alternative to the present system. Keynes was wrong, and there is an alternative.

Dr. Harold G. Moulton, president of the Brookings Institution from 1916 to 1952, presented an alternative to the New Deal. This was in the four-volume study he directed on "the Distribution of Wealth and Income in Relation to Economic Progress," 1934-1935, of which the third volume, The Formation of Capital (1935) is the most relevant to today's situation. Dr. Moulton analyzed the results of Keynesian programs in The New Philosophy of Public Debt (1943), concluding that the Keynesian belief in the efficacy of "pump priming" was misplaced, and the advice of Dr. Alvin H. Hansen, "the American Keynes," that the public debt could rise to twice GDP without danger, was unsound.

What Moulton's analysis lacked was a practical means to implement an economic recovery in which ordinary people could participate as other than mere wage-workers or welfare recipients. The work of Louis Kelso and Mortimer Adler supplied this lacuna. The principles of Kelso and Adler's "binary economics," an integral component of the "Just Third Way" of the Center for Economic and Social Justice (CESJ), were presented in The Capitalist Manifesto (1958), while the mechanics were outlined in The New Capitalists (1961), a short book with the provocative counter-Keynesian subtitle, "A Proposal to Free Economic Growth from the Slavery of [Past] Savings."

Kelso and Adler's proposals were refined in Capital Homesteading for Every Citizen (2004) by Dr. Norman Kurland, et al. Capital Homesteading offers a way out of the current dilemma by accepting a raising of the debt ceiling in the short run, with the quid pro quo being immediate enactment of a Capital Homestead Act. Capital Homesteading would empower every man, woman and child with the means of acquiring and possessing private property in capital without redistribution of existing wealth or manipulation of the currency. Capital Homesteading, if enacted in its entirety, has the potential to balance the budget and pay down the debt completely within twenty to thirty years, while still ensuring as far as possible that everyone has an income sufficient to meet ordinary needs adequately.

I invite you to visit CESJ's website, www.cesj.org, and look over the materials on Capital Homesteading. If you have any questions, please feel free to telephone Dr. Kurland.

By the way — Nixon was quoting Milton Friedman when he said we are all Keynesians now. (Time magazine, December 31, 1965.) A month later Friedman "clarified" what he meant by saying, "In one sense, we are all Keynesians now; in another, nobody is any longer a Keynesian." (Time magazine, February 4, 1966.) Get Dr. Kurland to tell you how Dr. Friedman avoided a debate with him in 1971 over the merits of binary economics — and how two years later Dr. Kurland was able to help Kelso persuade the late Senator Russell Long of the necessity of implementing a program of widespread direct ownership of capital.

Yours,

Blah, blah.

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