Many people today deplore the consumerism and waste that permeates the developed world, and point out that if (other) people would just share what they have, consumerism would lessen its grip on the economy and waste could be eliminated. That is true, but only up to a point.
The fact is that the most prevalent school of economics in the world today is based solidly on the assumption that consumerism and waste are essential to have what many experts think is a sound economy, but is in reality simply a means by which the rich and powerful can control the economy for their own benefit. We refer, of course, to Keynesian economics, possibly one of the worst economic theories ever developed, aside from capitalism and socialism themselves.
Pope Francis and the Pontifical Academy of Social Sciences have made some comments about this, although they assume as a matter of course that the problem could be solved if people would share. In the short term, perhaps, but the Academy is going at the problem from the wrong end.
It’s not a matter of cutting waste, but of making everyone productive either with labor or capital or both and of producing only for consumption, not to generate savings for reinvestment as Keynes demanded. As Jean-Baptiste Say pointed out over 200 years ago, if some goods go unsold, it’s because other goods are not produced; “money” is just a mechanism by means of which I exchange what I produce for what you produce. The problem is too few people are productive. The solution is not to manipulate demand, but to make people productive.
|John Maynard Keynes|
Part of the problem is that Keynesianism makes a number of claims that sound a little hollow, if not rotten, when thumped. To take the example we’re looking at today, in The Economic Consequences of the Peace (1919), the book that established Keynes’s reputation, he made the remarkable, even incredible statement that,
The immense accumulations of fixed capital which, to the great benefit of mankind, were built up during the half century before the war, could never have come about in a Society where wealth was divided equitably. (John Maynard Keynes, The Economic Consequences of the Peace (1919), 2.iii.)
Now, this simply isn’t true. The “half century before the war” referred specifically to World War I and the period from roughly the end of the American Civil War in 1865 and the beginning of World War I in 1914. During that period, the United States grew from a relative agricultural backwater supplying cotton and other products to the factories of Europe, to the greatest industrial power the world had known up to that time.
Contrary to what Keynes declared, wealth was divided fairly equitably in the United States prior to the Civil War. It became concentrated only after economic development occurred, not before. Keynes did not even get his logical fallacy correct. The post hoc ergo propter hoc fallacy is that something happened after something, therefore because of it.
The concentrated wealth in the U.S. did not cause economic development, but resulted from it! Keynes got everything exactly backwards. He became renowned as the World’s Greatest Economist because he was wrong but telling the rich and powerful exactly what they wanted to hear.
Now, that’s not the only thing Keynes got wrong, but it’s enough for today. We’ll look at more Keynesian Kraziness when we look at this subject again.