To some people, economics is not merely the dismal science (thanks to the Reverend Thomas Malthus), but also the incomprehensible science . . . with increasing numbers of potential and former votaries insisting it is no longer a science, if it ever was. Of course, followers of Keynes who always knew the Master’s economics were a religion and not a science remain solidly entrenched in their faith . . . despite the lack of a solid moral or even rational foundation.
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| John Maynard Keynes |
We say such a thing with no little trepidation, knowing how fiercely Keynesian devotees defend their position, but we have the Master’s own words for our claim. As he noted in Scripture (John Maynard Keynes, “Economic Possibilities for Our Grandchildren” (1930), republished in his collection, Essays in Persuasion. London: Macmillan and Co., 1931), “For at least another hundred years we must pretend to ourselves and to every one that fair is foul and foul is fair; for foul is useful and fair is not. Avarice and usury and precaution must be our gods for a little longer still. For only they can lead us out of the tunnel of economic necessity into daylight.”
In other words, to make Keynesianism work, we must worship “Avarice and usury and precaution” as gods (instead of Keynes?), knowing the whole time we are lying to ourselves! This would seem to create a paradox. What are we to think of a Prophet — economic or otherwise — who claims we must (as in “you are absolutely required to”) worship as gods what we know to be false, and which the Prophet declares to be false!
This violates the first principle of reason, which stipulates, “That which is true is as true, and is true in the same way as everything else that is true.” According to Keynes, we must accept as absolute truth what we know to be false if his True Economic Religion is to function and have the benefits he declares will be ours someday in the Kingdom of Keynes on Earth, and not wait for an afterlife of PITS, i.e., Pie In The Sky, which presumably can be attained by living virtuously and not lying and that sort of thing.
In other words, according to the Gospel According to Keynes, we must hope for a temporal material paradise instead of a spiritual immaterial one, which (of course) can only be attained if we listen to Keynes, cross our fingers, and lie to ourselves for at least a century.
In contrast to this we can only point out the rigorous and exhaustive philosophical analysis of Louis Kelso’s theories Mortimer J. Adler carried out in The Capitalist Manifesto. Whether you agree with Kelso or not, you must agree that the logical and philosophical — and thus moral — basis for his theories is consistent and logical and does not rely on lying to ourselves for a century (or at all) to work. The ESOP (Employee Stock Ownership Plan) Kelso invented to apply his theories has turned millions of workers into part-owners of the companies which employ them and that without usually reducing pay and benefits or using the workers’ savings.
But wait! There’s more! Despite what common sense tells us, we can know Keynesian lies are truth because he gave us his economic analysis to prove it works . . . except when it doesn’t. For example, as we saw in a previous posting, “Inflation Indexing and the EDA,” Keynes’s definition of inflation is a trifle rotund, even completely circular. As we noted,
Keynesian School: Inflation consists of a rise in the price level after reaching full employment. Rises in the price level prior to full employment are the result of “other factors.” . . . the Keynesians [therefore] insist inflation means a rise in the price level except when it doesn’t. Adding the qualifier “after reaching full employment” renders the Keynesian definition of inflation essentially meaningless. You see, Keynes defined “full employment” not as no unemployment . . . but as the point where involuntary unemployment is eliminated and further increases in aggregate demand result in price inflation rather than increased output. It is the level of employment where aggregate demand is sufficient to utilize all available resources, essentially representing the maximum, sustainable, potential output of an economy.
In other words, Keynes used a term to define itself, making it completely useless:
· Inflation is a rise in the price level after reaching full employment, and
· Full employment the point at which the price level starts to rise, and involuntary unemployment no longer exists.
So, how do you know you have full employment? You have inflation. How do you know you have inflation? You have full employment!
In other words, you just defined a thing in terms of itself. It’s like saying a yard is three feet. And what’s a foot? One third of a yard, of course!
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| You can't make this stuff up |
As the late, great Anna Russell used to say (sort of), “We’re not making this up, you know!” But Keynesian economics is filled with this sort of thing. Take, for example, the concept of productivity. In textbooks, productivity is the measure of efficiency and is defined as the ratio of output (goods and services produced) to inputs (labor, capital, or materials used). It gauges how effectively resources are converted into goods and services, with higher productivity meaning more output is produced from the same or fewer inputs.
That’s nice, except for one thing. Input other than labor — “multifactor productivity” (MFM) — is a recent addition to the calculation. Keynesian economics and public policy based on Keynesian theory are predicated on the assumption that only human labor is productivity. Capital (the non-human factor of production) only “enhances” labor, providing the environment within which labor can be productive; capital is not itself productive. That is why, for example, the U.S. Bureau of Labor Statistics uses both “Labor Productivity” and “Multifactor Productivity.”
Adding Multifactor Productivity does not solve the problem, in part because it still doesn’t recognize that all factors contribute to production in a different way, although it all ends up as production — which is all the powers-that-be are interested in, not whether the human beings involved have a way of gaining income other than by selling their labor. So, when productivity rises, the economy must be okay, in fact, great. As reported in an article a while back, “[Bank of America’s] economists reject the idea that AI will obliterate white-collar jobs, thereby crushing aggregate demand . . . At the core of their argument is the belief that AI technology boosts productivity, which, in turn, grows the economy rather than shrinking it.”
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| Even elves are becoming redundant |
According to “Labor Productivity”, the less labor you put into something, the more productive you are. Thus, if you have 100 workers turning out 1,000 per hour, productivity is 10 — 1,000/100. If you buy a machine that can do the work of 90 workers and increase output to 10,000 units per hour, lay off 90 workers, your productivity rises from 10 to 1,000! Fantastic economic growth of 100,000%!!!! (10,000/10) . . . and the only cost was 90 less jobs and 90 workers without income — decreasing aggregate demand by that amount.
Now suppose you replace all the original 100 workers with AI. What happens? If the output doesn’t change — or even decreases! — productivity increases to infinity! . . . okay, not infinity, because that’s nonsense and you can’t divide by zero; it’s an impossible number because it defies the fundamental rules of mathematics.
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| Louis Kelso |
In other words, the belief that rising productivity doesn’t endanger jobs is far off-base, and unless something is done to replace the earning power of human labor for most people, there is a big problem coming. This suggests adopting the Economic Democracy Act would be a good idea — and that’s even before we even find out about the other paradoxes in Keynesian economics!
Now let’s contrast this with Kelso’s concept of “productiveness.” Keeping in mind that different people often use the same word in different ways (and often the same person uses the same word in different ways without even realizing it), Kelso explained productiveness as recognizing while humans contribute to economic growth through all forms of labor, capital assets such as machines and technological processes are making an even bigger, ever-increasing contribution to overall output, in relation to that contributed by human labor.
In other words, productiveness as Kelso used it is an expression of the pro rata contribution of each economic factor to production. This is measured by the free market-determined value each factor contributes to the overall production process. In contrast, the commonly accepted term, “productivity,” measures economic output strictly in terms of one factor (labor) alone, while treating the contribution of technology and other forms of productive capital as irrelevant for income distribution or uses the Multifactor approach but attempting to do so in subjective, non-free market terms.
As odd as it might seem, however, the battle of productivity versus productiveness is only a minor skirmish in the great struggle between what is considered “mainstream economics” and Louis Kelso’s “economics of reality.” We will see this in the next posting on this subject, which deals with the misuse/misinterpretation of the Quantity Theory of Money equation.
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