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Wednesday, May 8, 2024

The Keynesian Fairy State

Today’s blog posting is adapted from the book, Economic Personalism, which you can get free from the CESJ website, or from Amazon or Barnes and Noble.

One of the first things a student must learn about Keynesian economics is there are certain questions one must not ask, such as, How could Keynes reject Say’s Law of Markets when he couldn’t even define it correctly?  What did it mean when Keynes declared inflation — which means a rise in the price level — isn’t really inflation until after “full employment” is reached, and that a rise in the price level before reaching full employment is due to “other factors” and isn’t really inflation . . . meaning a rise in the price level isn’t really a rise in the price level until Keynes said it is a rise in the price level?

Keynes reading economics


And how about when Keynes insisted nobody defined savings as anything other than past reductions in consumption — and implied people who said otherwise (e.g., savings could also consist of future increases in production, such as Dr. Harold G. Moulton) were fools?  If NOBODY says otherwise, then were the people who said otherwise nobodies?  If they didn’t exist, why imply they were stupid?

If saving must precede production, and saving means only reducing consumption below production . . . where did the first production come from?  A gift from God?  Nope.  Keynes was an atheist and didn’t believe God exists.  Keynes believed he had proved the existence of non-existence . . . which might explain why his economics doesn’t make sense, either.  Keynes simply asserted both the chicken and the egg exist before his system allows either of them to exist.  Paradox, schmaradox, who you gonna believe?  Keynes, or your own commonsense?


Keynes writing economics

And if capital is not independently productive and only provides the environment within which human labor can be productive, who or what is producing when machinery is automated?

These are interesting, if baffling questions, and we can understand why Keynes insisted his system could only work if we deceived ourselves long enough that it is working, and it will work; build it and it will work!  Keynesianism is a system established firmly on shifting sand, instability, and uncertainty.  Opinion must overcome knowledge.  Empirical observation and logical consistency are nothing.  Might must make right, and the comfortable lie of fantasy is preferred to the uncomfortable truth of reality.  As Keynes said,

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. (John Maynard Keynes, “Economic Possibilities for Our Grandchildren” (1930), republished in his collection, Essays in Persuasion.  London: Macmillan and Co., 1931.)

Friedrich von Hayek


This was not a chance remark or an offhand comment.  Keynes was adamant his system requires fundamental changes in principles of existence and reality — the essence of the New Things of socialism, modernism, and the New Age.  This must be imposed through total government domination over economic life, which is to be accomplished through control of money and credit.  In the opening passages of A Treatise on Money, the book he intended as his magnum opus until Friedrich von Hayek critiqued it (Friedrich von Hayek, “Reflections on the Pure Theory of Money of Mr. J.M. Keynes,” Economica 11(33): 270-295; “Reflections on the Pure Theory of Money of Mr. J.M. Keynes (continued),” Economica 12(35) 22-44.), he claimed,

The Kingdom of Keynes on Earth


It is a peculiar characteristic of money contracts that it is the State or Community not only which enforces delivery, but also which decides what it is that must be delivered as a lawful or customary discharge of a contract which has been concluded in terms of the money-of-account. The State, therefore, comes in first of all as the authority of law which enforces the payment of the thing which corresponds to the name or description in the contract. But it comes in doubly when, in addition, it claims the right to determine and declare what thing corresponds to the name, and to vary its declaration from time to time — when, that is to say, it claims the right to re-edit the dictionary. This right is claimed by all modern States and has been so claimed for some four thousand years at least. It is when this stage in the evolution of money has been reached that Knapp’s Chartalism — the doctrine that money is peculiarly a creation of the State — is fully realized. (John Maynard Keynes, A Treatise on Money, Volume I: The Pure Theory of Money. New York: Harcourt, Brace and Company, 1930, 4.)

Georg Friedrich Knapp


Georg Friedrich Knapp, by the way, was a German socialist who advocated gradual implementation of socialism through government control of money and credit.  His important works are Die Baurenbefreiung und der Ursprung der Landarbeiter (1887); Grundherrschaft und Rittergut (1897); and Die Staatliche Theorie des Geldes (1905).  An abridged version of this last was translated into English as The State Theory of Money (London: Macmillan and Co., 1924).

Aside from the glaringly obvious fact Keynes did not understand money, the key point here is his absolute faith in the ability of the manmade abstraction of government to control every detail of the lives of God-made human persons.  This would be by “re-edit[ing] the dictionary” to change reality.  Of course, government would in turn be controlled by a defunct economist — Keynes’s term —

The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood.  Indeed the world is ruled by little else.  Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.  John Maynard Keynes, General Theory of Employment, Interest and Money (1936), VI.24.v.

Annie Besant in Fairyland


This would establish Annie Besant’s Fabian aristocratic socialism in lieu of Catholic personalist liberal democracy.  Not that Madame Blavatsky’s theosophical successor was alone in expressing this as her goal.  Walter Bagehot claimed that a “chosen people” composed of a financial elite are meant to rule the world.  (Walter Bagehot, The English Constitution. Portland, Oregon: Sussex Academic Press, 1997, 17.)  Not surprisingly, Bagehot influenced Keynesian economics, as Keynes admitted.  (John Maynard Keynes, “The Works of Bagehot,” The Economic Journal, 25:369–375 (1915).)  As Besant gushed,

But the general idea is that each man should have power according to his knowledge and capacity. . . . And the keynote is that of my fairy State: From every man according to his capacity; to every man according to his needs.  A democratic Socialism, controlled by majority votes, guided by numbers, can never succeed; a truly aristocratic Socialism, controlled by duty, guided by wisdom, is the next step upwards in civilisation. (Annie Besant, The Future of Socialism (Adyar Pamphlets No. 18).  London: The Theosophical Publishing House, 1912, 23.)

Grim Fairy Tales


About that “fairy State.”  Anyone familiar with the so-called “fairy tales” of the Brothers Grimm knows just how horrifying and dangerous “fairyland” can be.  G.K. Chesterton’s discussion of the “Ethics of Elfland” in Orthodoxy (1908), presents a less fantastic, more common-sense concept of fairyland as having an underlying consistency far removed from the arbitrariness of the New Things — but still nothing to fool around with.

The bottom line here is that it would be far better for people to stop dreaming of a presumed fairy tale economy that covers its gruesome perils, death, despair, and destruction with a glamor of false hopes and outright lies, and go with economic personalism, based on the economics of reality as presented, for example, by Louis O. Kelso and applied in the Economic Democracy Act proposed by the Center for Economic and Social Justice.