Dear Sir(s):
Today's statement by the Honorable Messrs. Hoyer and Miller, while not the point of their article ("Congress Must Pay for What It Spends," WSJ, 06/25/09, A13), revealed why Congress — or anyone else — isn't able to pay for what it spends. Referencing "the necessary, though costly, efforts to get our economy out of recession," they expose our government's adherence to discredited Keynesian economics and reliance on programs that fail because they reject reality.
A recession is, "An extended decline in general business activity." (American Heritage Dictionary.) Unserviceable and non-productive debt increases. Marketable goods and services are not produced because they cannot be sold. Jobs disappear as companies lay off workers who would otherwise be productive.
According to Keynes, the way out of this is to debauch the currency to redistribute effective demand through the "hidden tax" of inflation. This defies common sense. You cannot get out of debt by spending money. The only sane solution was given by Jean-Baptiste Say (1767-1832), whose "Law of Markets" was rejected by both Marx and Keynes. As Say explained in Letters to Malthus (1821),
All those who, since Adam Smith, have turned their attention to Political Economy, agree that in reality we do not buy articles of consumption with money, the circulating medium with which we pay for them. We must in the first instance have bought this money itself by the sale of our produce. . . . From these premises I have drawn a conclusion which appears to me evident, but the consequences of which appear to have alarmed you. I had said — As no one can purchase the produce of another except with his own produce, as the amount for which we can buy is equal to that which we can produce, the more we can produce the more we can purchase. From whence proceeds this other conclusion, which you refuse to admit — That if certain commodities do not sell, it is because others are not produced, and that it is the raising produce alone which opens a market for the sale of produce.The way to end a recession is not to increase liabilities and spending, but to increase feasible capital investment and production, as Dr. Harold Moulton, president of the Brookings Institution explained in his 1935 monograph, The Formation of Capital. Carried out within a free market circumscribed by a strong juridical order to ensure equality of opportunity and protection of persons and property, the process is not costly, but profitable.
Louis Kelso and Mortimer Adler outlined a financially sound means to achieve this end in their two co-authored books, The Capitalist Manifesto (1958) and The New Capitalists (1961). To the principles of Say and Moulton, Kelso and Adler add the necessity for everyone to participate in the ownership of capital to achieve a stable and sustainable economic recovery.
