THE Global Justice Movement Website

THE Global Justice Movement Website
This is the "Global Justice Movement" (dot org) we refer to in the title of this blog.

Monday, November 19, 2012

Keynesian Contradictions, I: No Distinction Between Public and Private Sector

Recently someone raised a question about our claim that Keynesian monetary and fiscal policy relies on printing money directly for consumption. As the questioner recalled, Keynes advocated governmental investment in large productive projects, not "printing money directly for consumption."

Keynes did not state explicitly that the government should print money directly for consumption. It is also true that he favored productive over non-productive expenditures by government . . . up to a point. In a past savings system such as Keynesian economics, however, creating money for government expenditures for any purpose, productive or non-productive, assumes as a given that the government has a right that we call "property" (vide Irving Fisher, The Purchasing Power of Money. New York: Macmillan, 1931, 4) to issue claims against existing wealth, i.e., is the ultimate owner of everything that exists in the economy. Keynesian economics ignores the fact that the government has no such right.

In the Keynesian system there is no real distinction between the private sector and the public sector (General Theory, VI.24.iii), any more than there is in the "chartalism" (a.k.a., "Modern Monetary Theory," or "MMT") of Georg Friedrich Knapp (The State Theory of Money. London: Macmillan and Company, 1924; cf. John Maynard Keynes, A Treatise on Money, Volume I, The Pure Theory of Money. New York: Harcourt Brace and Company, 1930, 4). Thus, Keynes could be honestly confused about the difference between asset-backed private sector money consisting of bills of exchange and mortgages, and debt-backed public sector money consisting of bills of credit.

To be specific, asset-backed private sector money consists of bills of exchange backed by the present value of future marketable goods and services, and mortgages backed by the present value of existing marketable goods and services — anything that can be accepted in settlement of a debt. Consistent with the principles of the "Currency School" — and Keynes was Currency School, despite the widespread belief that he was "Banking School" (Charles P. Kindleberger, Manias, Panics, and Crashes: A History of Financial Crises. New York: Basic Books, 1989, 60-65) — money consists solely of either specie (gold and silver) or government bills of credit backed by the present value of the government's ability to collect taxes in the future, or substitutes for currency in the form of demand deposits ("checking accounts").

Given the Keynesian understanding of money, and the failure to distinguish between the public and private sector, whether new capital is owned and controlled as private property or by the State becomes irrelevant. This is critical to understanding Keynesian monetary and fiscal policy, which can only be understood in light of the Keynesian assumptions about private property and money.