People often think of economics as “the dismal
science.” In the opinion of some
authorities, this is due to the discredited theories of the Reverend Thomas
Malthus that, nevertheless, became entrenched as economic orthodoxy. This was primarily because Malthus told the
wealthy and powerful — and those who depended on them — precisely what they
wanted to hear.
This fitted in very nicely to the growing insistence in the
late 18th and early 19th centuries that the only source
of financing for new capital formation is past savings . . . by definition a
monopoly of the already-wealthy. It also
found support in a body of thought that a number of political scientists had
already discredited, but which many people still supported on the basis of
faith instead of reason.
That is, an elite both governed the country and controlled
the economy by divine right. This sort
of thinking was epitomized in the political economy of Walter Bagehot, a
primary influence on John Maynard Keynes whose economic theories have wrecked
the world. The inevitable conclusion is
that economics has been unfairly stigmatized as “the dismal science” when its depressing
nature results from bad ideas about where sovereignty lies: in the State, or in
actual flesh and blood people.
Bagehot’s The English
Constitution (1867) and Lombard
Street (1873) detail a political and economic theory that depends
absolutely on the maintenance of a small and extremely powerful elite — a chosen people (emphasis Bagehot’s) — who
control both the financial system and the machinery of government with their
wealth.
Bagehot called this “democracy,” because it was government
“for” the people. The “of” and “by” must
be ignored because, as demonstrated by their lack of wealth and power, common
people are clearly unable to take care of themselves. The private sector financial elite had to
assume responsibility to run people’s lives for them.
Keynes’s contribution to this theory (and which was adopted
by Adolph Berle and other architects of the New Deal) was to declare that you
could not trust the private elite to run other people’s lives in an acceptable
manner. Only the State could do so.
Keynes ignored the fact that, if the State gains that much
power, it generally gets taken over by the private sector financial elite, just
as Bagehot claimed in The English
Constitution. As Benjamin Watkins
Leigh noted, “Power
and Property can be separated for a time by force or fraud — but divorced,
never. For as soon as the pang of separation is felt . . . Property will
purchase Power, or Power will take over Property.”
Therein we see the problem for a presumably democratic
society. A nation cannot survive being
half free and half slave — and that is as true of economic slavery as it is of
chattel slavery. Imposing a “divine
right of capital” on a presumably free society is as wrong as imposing the
divine right of kings.
