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.
 |
| Pope Francis |
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.
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