The Failure of Keynesianism

Tyler Durden's picture




 

Submitted by James E Miller of the Ludwig von Mises Institute of Canada,

It’s hard not to agree with the old aphorism “history doesn’t repeat itself, but it does rhyme.” It’s nice to think we learn from our mistakes; yet we always seem to repeat them at some later date.

Reading the daily news, you would be hard-pressed to find mention that there is still an employment crisis unfolding in many industrialized countries. The New York Times recently reported that employers in the United States hired only 175,000 workers in February. This is apparently a cause for celebration among economists. The unemployment rate in the U.S. still remains at an historic high of 6.7%, and there appears to be no date in sight for a return of full employment, but no matter; the economy is supposedly gaining steam.

The only problem is, nobody seems to care much anymore. High unemployment is a constant reality now. Nearly six years of slagging job creation has created a cloud of apathy for most people. It’s just accepted that not everyone who wants to find work will be able to; or they will wander from low-wage job to low-wage job without any kind of security.

The current economic malaise is reminiscent of what the Great Depression was like. Persistently high unemployment with no conceivable end; massive government intervention in the marketplace; a changing industrial landscape; and even social and cultural transformation. We’re less than a century removed from the biggest economic hardship ever faced in America, and the same mishaps are unfolding in front of our eyes.

Then and now, something has remained perennial: the utter incompetence on government’s part to cure economic stagnation.

Newscasters, state officials, and academic economists all tell us government is capable of spending us into prosperity. No matter how much dough is thrown at the glob known as the “economy,” large numbers of people remain out of work. During the Depression, the glut of joblessness lasted for nearly fifteen years. Uncle Sam spent like a drunken sailor while swallowing up much of the economy in fascist scheme after fascist scheme.

The very same thing goes on today, all at the behest of Keynesian-type political actors who provide the intellectual ammunition necessary to justify government’s outstretched hand. With neatly obscure formulas and obtuse language, the apparatchik darlings of Keynes love branding themselves as deep-thinking scientists capable of engineering the perfect economy. When their policy is put to work, we get the opposite. Job creation stagnates, living standards slump, and misery spreads. The siphons of entrepreneurial growth don’t pump; they are bogged down with the grimy sludge of currency manipulation and government hubris.

After decades of constant failure, I mean this wholeheartedly: the followers of the Keynesian school don’t have a damn clue on how to fix the economy. Why my gauche phrasing? Their policy prescription is a complete and total failure. The Great Depression; the stagflation of the 1970s; the Great Recession we see today; in each instance, Washington was impotent to reverse the damage. Keynesians are either pathetically ignorant, or maliciously deceptive.

Taking rhetorical shots doesn’t mean much without some evidence. So let’s meet the Keynesians on their terms. First, economic science itself will be interpreted through the lens of positivism. That means data, in whatever form, will be used to justify whether something works or not. Of course the assumption will be made that spending is the driver of economic prosperity – not saving or investment. The same goes for boundless money printing, which is said to infuse the “animal spirits” with a rejuvenating elixir.

So what have they got for successes? Keynesians used to tout the efforts of Franklin Roosevelt (not so much Herbert Hoover, who was proto-Rooseveltian) during the Great Depression as vindication for their theory. I remember being told in no uncertain terms that Uncle Sam stepped up to save the downtrodden from excess capitalism in my American Presidency 301 class. Sure, it wasn’t an economics course; but it’s the same tale spun by economists anyway.

What does the data say? From 1931 to 1940, the unemployment rate never went south of 10%. From the onset of the Depression, Washington spending went up 97% under the Hoover Administration. According to the White House’s official statistics, the federal budget increased from $3.5 billion in 1931 to $13.6 billion in 1941, jumping in size year after year. A combination of deficit spending and tax hikes (admittedly not a Keynesian remedy) allowed for this gorge in consumption. Meanwhile, the Federal Reserve goosed the economy by first stabilizing the monetary base and increasing the supply of money after the initial contraction during the Depression’s early years. According to the Historic Statistics of the United States, the Federal Reserve increased its holding of U.S. securities from $510 million in 1929 to over $6 billion in 1942. During the same period, the central bank’s balance sheet went from about $5.5 billion to $29 billion.

That’s no small stimulus. And yet the unemployment rate failed to drop significantly during the Depression years. Most of Keynes’s disciples admit that nearly fifteen years of high unemployment leaves much to be desired on the part of muscular government. The counterfactual is then deployed that Roosevelt’s domestic efforts lightened the economic burden foisted upon America. What finally put the Depression to bed, they argue, was the incredible amount of spending during World War II.

But as economic historian Robert Higgs shows, measures of economic performance were highly skewed during wartime. Unemployment fell and production ramped up, but this was due to the draft and building of armaments. Rationing was widespread to the point where basic foodstuffs and toiletries were scarce. If a wartime economy counts as prosperity, then the homeless today are the living embodiment of luxury.

World War II is a bunk fantasy that in no way proves the Keynesian theory correct. The same goes for the fascist orgy known as the New Deal. Fast-forward to today, and the same charlatans are preaching from the gospel of government interventionism. They implore Washington to fight back against the Great Recession with the same blunted tools: spending and money printing.

When the housing bubble burst and the economy began to tank, then-Chairman of the Federal Reserve Ben Bernanke and crew nearly tripled the central bank’s balance sheet. As of right now, the Fed’s sheet stands at about $4 trillion. In 2008, it was at $800 billion. Not to be outdone, the federal government ramped up spending by running nearly-trillion dollar deficits year-after-year. Once again, all this effort has only made a slight dent in the unemployment rate.

From a strictly empirical perspective, the Keynesian theory is a disaster. Positivism wise, it’s a smoldering train wreck. You would be hard-pressed to comb through historical data and find great instances where government intervention succeeded in lowering employment without creating the conditions for another downturn further down the line.

No matter how you spin it, Keynesianism is nothing but snake oil sold to susceptible political figures. Its practitioners feign using the scientific method. But they are driven just as much by logical theory as those haughty Austrian school economists who deduce truth from self-evident axioms. The only difference is that one theory is correct. And if the Keynesians want to keep pulling up data to make their case, they are standing on awfully flimsy ground.

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Sun, 03/16/2014 - 13:16 | 4555199 Tsunami Wave
Tsunami Wave's picture

So much of what is considered 'mainstream economics' is complete and utter crap.  It's a very simple PHILOSOPHY (not mathematics, not a science) for people to understand once you see how people/various organizations and incentives work in all scenarios.

Sun, 03/16/2014 - 13:46 | 4555342 NihilistZero
NihilistZero's picture

I am so tired of the "full employment" straw man.  The perpetuation of bubbles is to preserve the Oligarchs power structure and nothing more.  A market economy may have a persistently high unemployment rate, but it will also have the greatest social mobility, both up and down.  Also as market forces ALWAYS lower the cost of EVERYTHING even the unemployed, if in the social circle of anyone with a job, will have a better quality of life than they do that under fascist Keynesian economics.  Not to mention they are always a step a away from employment as capitalisms natural creative destruction creates constant opportunity.

Sun, 03/16/2014 - 15:08 | 4555660 CognacAndMencken
CognacAndMencken's picture

 

 

The author of this article should be smart enough to understand that real, true Keynesian economics has never been practiced.

Real Keynesian economics dictates that governments pick up the GDP slack during down times, but also - EQUALLY - reduce its debt during good times. It has to balance - that's the only way Keynesian economics works.  This has never happened; our government just spends and spends and spends.  Even Ron Paul takes federal money and spends it on bullshit: in 2010, he was the biggest porker in Washingotn - he requested $400M in earmarks ($8M of it went to "shrimp marketing.") Our politicians, red and blue and Ron Paul included, take every penny on the table - whether they need it or not - and spend it. Keynesian economics can't work in such a wasteful system.

Of course, the author of this article knows this.  He's paid to write pro-libertarian propaganda pieces and discredit anything that has to do with Keynes, whether true or not.

 

 

 

Sun, 03/16/2014 - 15:29 | 4555783 economics9698
economics9698's picture

The elites could care less about the peasants.  All they care about is a good system of government and inflation to rip off the peasants without creating a revolt.  Everything else is bull shit.

Sun, 03/16/2014 - 15:31 | 4555792 CognacAndMencken
CognacAndMencken's picture

 

 

Did you just up-vote yourself?  I happen to refresh at the very minute you posted and you've already got an up arrow....????  If memory serves correct, this has happened before with you....

Sun, 03/16/2014 - 16:05 | 4555906 saveandsound
saveandsound's picture

who cares?

Mon, 03/17/2014 - 11:47 | 4558832 StandardDeviant
StandardDeviant's picture

Probably no one, you're right.  But you must admit that up-voting yourself is tacky, isn't it?  Would Chuck Norris up-vote himself?

Mon, 03/17/2014 - 07:19 | 4557721 Canoe Driver
Canoe Driver's picture

What?! I always upvote myself. Is there a rule against that?  If there's not, just subtract one, Einstein.

Sun, 03/16/2014 - 15:37 | 4555810 FuzzyDunlop21
FuzzyDunlop21's picture

whats the difference. why bother discussing the merits of true Keynesian economics when we (including the author) know we are never going to have it so long as our politicians behave like crack whores. I think, in time, you could get rid of Keynesian economics from society. But I do not ever think we can get our politicians to act responsibly.

Sun, 03/16/2014 - 15:42 | 4555839 economics9698
economics9698's picture

The only way to change politicans is a gold standard and 100% fractional reserve banking.  

Sun, 03/16/2014 - 20:04 | 4556713 Dick Buttkiss
Dick Buttkiss's picture

You meant 0%, right?

Though I think we'll get to 100% first.

Sun, 03/16/2014 - 20:19 | 4556741 economics9698
economics9698's picture

100% fractional reserve banking aka Full Reserve Banking.  

 

Historically conservative banks loaned out 50% and risky banks 80% or even 95%.  This unevenness allowed the conservative banks to create runs on the risky banks and hence the need for a banking cartel aka the Federal Reserve.

Today if you look at the excess reserves its running about 85% to 78%.  In good times it would be the full allowable 90% loaned out.

Mon, 03/17/2014 - 07:22 | 4557728 Canoe Driver
Canoe Driver's picture

A 10% Tier 1 Capital ratio is both appropriate and sufficient. The ratios today are approaching 2%, which is absurdly dangerous.

Sun, 03/16/2014 - 17:21 | 4556145 Pegasus Muse
Pegasus Muse's picture

On Ron Paul & his alleged pork.  I'm sure this had nothing to do with his appropriations request.  /sarc

===

The Deepwater Horizon oil spill (also referred to as the BP oil spill, the BP oil disaster, the Gulf of Mexico oil spill, and the Macondo blowout) began on 20 April 2010 in the Gulf of Mexico on the BP-operated Macondo Prospect. It claimed eleven lives[6][7][8][9] and is considered the largest accidental marine oil spill in the history of the petroleum industry, an estimated 8% to 31% larger in volume than the previously largest, the Ixtoc I oil spill. Following the explosion and sinking of the Deepwater Horizon oil rig, a sea-floor oil gusher flowed for 87 days, until it was capped on 15 July 2010.[8][10] The US Government estimated the total discharge at 4.9 million barrels (210 million US gal; 780,000 m3).[3] After several failed efforts to contain the flow, the well was declared sealed on 19 September 2010.[11] Some reports indicate the well site continues to leak.[12][13]

http://tinyurl.com/265vh38 

Sun, 03/16/2014 - 22:05 | 4557076 mophead
mophead's picture

There was no out-of-control oil spill. It was a hoax. And those pictures were doctored/phony. Days after the NASA photos were released there were helicopters flying over the gulf and all's you could see were prestine blue seas.

Mon, 03/17/2014 - 00:14 | 4557377 TheReplacement
TheReplacement's picture

Did you say something?  Pretty sky.

Sun, 03/16/2014 - 18:56 | 4556477 RaceToTheBottom
RaceToTheBottom's picture

I agree, there must be the reduction to balance the printing for it to be true Keynesianism.  Political pandering in this country plus the longer economic cycles don't force the prostitute politicians the more difficult part of the cycle.

Therefore this has become a once in a lifetime event.  We have saddled the FED with 5 Trillion dollar balance sheet and have nothing to show for it plus no way to try and balance out the cycle next time. 

Next time we SPLAT, technically speaking.

Sun, 03/16/2014 - 23:45 | 4557320 Weisshaupt
Weisshaupt's picture

I think we all know that what is really practived here is Neo-Keynesian economics and not what Keynes himself adovcated ( which really isn't much more revolutionary than saying the govt should save for a rainy day, just like individuals do)  But Keynesian economis  won't work because the governmnet is run by men, and usually the worst, most narcissitic of men, (for who else is sick enought to want the job?)  and ithe philosphy is  used as an excuse to increase the opportunities for graft and corruption. 

 

Mon, 03/17/2014 - 00:11 | 4557368 TheReplacement
TheReplacement's picture

Why does it seem like Keynsianismistalic voodoo never works?  Your whole point is we've never driven down the debt but why doesn't it work to restore good times?  The recoveries have been due to wars, reduced regulations, reduced taxes, and bubble blowing.  Did Government debt cause the .com bubble to burst nor the housing crisis or black Friday or Monday or whatever.  We keep getting crapped on no matter what in this system.  It is not getting better.  Wealth disparity is at an all time high.  We've had 100 years of this crap and that is enough.  This is not a test tube.  You are playing with my life.  You are on very thin ice.  Knock it off.

Mon, 03/17/2014 - 02:08 | 4557486 GoldIsMoney
GoldIsMoney's picture

"The author of this article should be smart enough to understand that real, true Keynesian economics has never been practiced."

 

Yes they forget the part with paying back. But I think they tried there very best to print everone out of this mess, and that still has failed remarkably.

 


Mon, 03/17/2014 - 06:51 | 4557693 easypoint
easypoint's picture

@C&M   When money is created with interest owed upon it (interest that is not created) as has been the case in the US since 1914 when the Fed started operations conincident with our entry into WWI, how, exactly, might this debt be reduced during the good times? No matter how frugal the government the money simply does not exist to satisfy the principal and interest due on this debt since the interest is never created. Show me the math.

Sun, 03/16/2014 - 15:09 | 4555719 Seeking Aphids
Seeking Aphids's picture

Ok N...if you combine your market economy ideas with your prior agreement that infrastructure should remain in the public realm you may have something. Education should also remain in the public realm. Multinationals need to be taxed to pay for such support. Taxes for small businesses and employees need to be reduced. Access of employees to paid vacations, UI, medical insurance and pension plans should be guaranteed by government. Everthing else should be subject to a 'market economy' as you suggest......

Sun, 03/16/2014 - 16:25 | 4555946 NihilistZero
NihilistZero's picture

No problem with public schools as long as they are NOT compulsory (having teachers babysit the dumbass kids ruins it for the rest) and EVERYTHING is administered at the local level with no state or federal mandates.  1000 communities trying 1000 approaches to education.  Can't imagine a better way to get results, and since it's not compulsory if you don't like the system you can pull your kids out.  As far as insurance, vacations, etc. on principle I disagree, but in practice I wouldn't mind.  Just like Milton Friedman with the Negative Income Tax.   In a mixed economy where the working class is denied some many of the benefits of free markets, mostly because the oligarchs and their sychophants use "socialism" to engineer the economy in their favor, .gov can use it's redistributive powers to give workers some of the stability .corp enjoys.

 

 

 

Sun, 03/16/2014 - 16:17 | 4555947 headhunt
headhunt's picture

It sounds good but government invariably f's everything up, especially if you allow government unions.

Government unions is the baby Satan of society; always bad, always stinks, always crying and always, always hungry.

Sun, 03/16/2014 - 13:47 | 4555348 yogibear
yogibear's picture

All those academics like Ben Bernanke, Charles Evans and Glen Hubbard polluted all those young minds at the universities with false economic garbage.

 

Sun, 03/16/2014 - 14:08 | 4555440 Anusocracy
Anusocracy's picture

True Believers are not able to understand or accept that their beliefs are the cause, not the cure.

They will cling to what they think is the best course for survival right to the very end.

Sun, 03/16/2014 - 13:49 | 4555361 ShrNfr
ShrNfr's picture

I am not so convinced that it is philosophy so much as a "cargo cult religion".

Sun, 03/16/2014 - 14:11 | 4555450 Anusocracy
Anusocracy's picture

It is the response of the mind of a forager, not a producer.

Sun, 03/16/2014 - 14:02 | 4555414 midtowng
midtowng's picture

Mises articles are all the same, and none are worth reading.

Sun, 03/16/2014 - 13:19 | 4555206 B2u
B2u's picture

Fuck Keynes.

Sun, 03/16/2014 - 13:29 | 4555248 0b1knob
0b1knob's picture

In USSA, Keynes fucks you.

Jackoff Smirnoff

Sun, 03/16/2014 - 13:45 | 4555336 JoeSexPack
JoeSexPack's picture

Fuck Keynes? Many men did exactly that.

 

He was a flaming homosexual, like Obama.

 

Zionist MSM says that's all good clean fun.

Sun, 03/16/2014 - 13:20 | 4555211 icanhasbailout
icanhasbailout's picture

Keynesianism is simply an framework for using government and banks to loot a nation of its wealth.

Sun, 03/16/2014 - 13:48 | 4555354 lordylord
lordylord's picture

Keynesian economics is based on the existence of a central planning authority.  It violates the very essence of freedom.  Only individuals who have nothing of value to offer society advocate Keynesian economic policies.  Otherwise, one would advocate decentralized free markets.  Governments use it to preserve and grow their power and control.      

Sun, 03/16/2014 - 13:21 | 4555217 Greenskeeper_Carl
Greenskeeper_Carl's picture

Keynesian economics hasn't failed, we just have to print MOAR money and create MOAR debt. That's the only reason we haven't had dramatic growth, is that we aren't creating enough debt and money. It's the key to prosperity people. Don't you guys read Paul krugman? Duh...

Sun, 03/16/2014 - 13:28 | 4555242 tony bonn
tony bonn's picture

"the utter incompetence on government’s part to cure economic stagnation."

this is where an otherwise excellent article turns into malodorous crap right before our eyes and noses....the government is not incompetent - it is pure evil....it is hellbent on destroying a free economy with independent actors through fraudulent snake oil medicines....you are a tax cow and a serf.

the plutocrats who hired keyenes to invent his claptrap come from the same line as william rockefeller, king of the snake oil cure. he sold petroleum and castor oil as a cure for all maladies. and so keynes invented his petroleum snake oil as a "cure" for freedom and an elixir for totalitarianism.

Sun, 03/16/2014 - 22:39 | 4555842 Radical Marijuana
Radical Marijuana's picture

Yeah, tony bonn, I agree that it is disingenuous to regard what the political puppets do as due to "incompetence." Look at the puppet masters to see that the real goals are what is actually achieved. Keynes was always selectively applied. Only those things which would made the ruling classes more wealthy and powerful were actually adopted, never the entire package as Keynes proposed. Meanwhile, America, and almost the whole world, is sinking into the same stinking swamp:

http://www.salon.com/2014/03/16/there_is_no_meritocracy_its_just_the_1_p...

There is no meritocracy: It’s just the 1 percent, and the game is rigged

 

I REPEAT MY BASIC VIEW THAT ECONOMICS IS A SCIENCE THE WAY THAT WARFARE IS A SCIENCE. Success in warfare was based on deceits, and so, success in economics became based on frauds. The real jobs of the political puppets who were funded by the plutocrats were to fool enough of the people enough of the time. That is why it was consistently the case the the most successful politicians were always the best professional liars and immaculate hypocrites.

The latest example of that is, of course, President Obama who has an almost perfect track record of actually doing the opposite of what he said he would do when campaigning for votes. The whole system is terminally rigged, with nothing that I can perceive outside of the established politics that can compete with current systems of legalized lies, backed by legalized violence. In that context, any assertions that somehow it is merely "incompetence" that is to blame for policy "failures" is quite ridiculous. The American government has become the most successful, quite scientifically implemented, system of organized crimes that there have ever been. The only longer term problem continues to be the paradoxical threat of final failure from too much success at controlling civilization with astronomically sized ENORMOUS FRAUDS.

I would not agree that blaming Keynes for his bullshit being selectively picked to be promoted as the camouflage for more organized crimes is a fair criticism of Keynes as a whole. Similarly, I find the entire von Mises' school of thought to be too superficial, since it tends to deliberate ignore the real social facts that the money systems developed inside of the murder systems, as that is directed by the principles and methods of organized crime, so that governments became the biggest form of organized crime, controlled by the best organized gangs of criminals. Keynes did not advocate that! Rather, he maintained a typical bunch of impossible ideals about how we are all interdependent, and that we should collectively adjust ourselves for our mutual benefit. Hah! Of course, that was selectively applied, to become the justification for adjusting government policies to benefit the few even more at the expense of the many.

In my view, the only genuine solutions would have to adopt an attitude of using unitary mechanisms, to accept the basic fact that human realities are always organized lies, operating robberies. However, nobody who is paid to do economics is going to get paid to promote that kind of radical truth, that civilization is operated according the principles and methods of organized crime, despite that being actually the case, because it must necessarily be the way that general energy systems function.

The sublime paradoxes of economic theories are the same as the sublime paradoxes of military theories. Controlling other people through using lies backed by violence is never going to admit that that is what is actually happening. Instead, various schools of economics are going to present different perspectives based on false fundamental dichotomies, and the related impossible ideals, about what should happen. From a sublime point of view, it is delightfully ironic that every possible economic theory that was going to be socially successful was going to do so by enabling the rationalization of frauds, through promoting its kind of idealized bullshit, which would be selectively applied through the actual ways that the production of destruction controls production. All socially successful economic theories tend to deliberately ignore that FACT that the production of destruction necessarily controls production, and that therefore, the people who are the best at being dishonest, and backing that up with violence, actually dominate the way that the real economy operates.

To argue that that happens due to "incompetence" is ridiculous! Rather, the paradox is that anyone who does not understand the ways that organized crime made and maintained the powers of states, and directed how those powers were used, is intellectually incompetent when they do not face those fundamental social facts. Ah, but then, the paradox redoubles that being socially successful requires embracing that kind of incompetence, because it actually serves a larger context of competence, in the ways that the real economy operates as a system of organized crime, which promotes every possible kind of bullshit about itself not being that.

Sun, 03/16/2014 - 22:49 | 4557194 zionhead
zionhead's picture

RM I thought they deleted you its been so long since I seen you post.

The shit is getting creepy, now on the ASIAN news they're saying the plane is in a CIA hangar in Kazahkstan, and they're showing the flight path over Myanmar 24/7 on most channels.

Nothing like the WEST, the true story is being told.

No doubt that CIA stole the plane, but then why the dog & pony about looking  for it in the west MSM? Boeing all along knew where it was, from their Chicago offices shared with Rahm Emmanuel.

*

The power to MURDER for FIAT control is going far beyond criiminal insanity the WEST has gone full retard to start a war with RUSSIA and CHINA at the same time.

Don't see ZH paying attention to the real theatre.

 

Sun, 03/16/2014 - 22:55 | 4557206 zionhead
zionhead's picture

Carnegie and Rockefeller were fond of saying "Making money  is easy, keeping it is hard"

What if you could setup a government so your family and offspring could be rich and powerful FOREVER,... what would it look like? What whould you have to do? Who would ADMIN it for you?

All is show all is theatre, ... play along get rich, fail to play go to jail

*

MASS CULLING is coming WW3, is here the USofZIO-CON has ignited a hornets nest in CHINA & RUSSIA simultaneously.

Out of the great war will come IMF-SDR no doubt, and the ADMIN will be ZIO-NEO-CON forever.

*

The end of history is here.

Sun, 03/16/2014 - 13:31 | 4555260 glaucon was right
glaucon was right's picture

I hope Keynes burns in hell next to Marx...

Sun, 03/16/2014 - 13:50 | 4555366 yogibear
yogibear's picture

HaHa he wanted to be buried instead they cremated the bastard. They wanted to make sure there was no remains left of the guy when this fraud's theories met the test of time.

Sun, 03/16/2014 - 13:31 | 4555262 Oldballplayer
Oldballplayer's picture

Well, it took 2 years of bombing England before we could get our industries moving again.

I figure it would take about a day this time around.

Sun, 03/16/2014 - 13:32 | 4555266 withglee
withglee's picture

No matter how you spin it, Keynesianism is nothing but snake oil sold to susceptible political figures. Its practitioners feign using the scientific method. But they are driven just as much by logical theory as those haughty Austrian school economists who deduce truth from self-evident axioms. The only difference is that one theory is correct. And if the Keynesians want to keep pulling up data to make their case, they are standing on awfully flimsy ground.

The only difference is that one theory is correct.

Neither Keynesian nor Austrian theories are correct. But of course these are not the only two theories that can be brought to bear on the subject.  And then, there is of course just plain common sense which points us to the cause of our economic problems and their solution.

Lets call this common sense solution "traderism". It's principle attributes: Free access to money (i.e. certified promises to complete trades) and "guaranteed" zero inflation all the time everywhere.

Sun, 03/16/2014 - 13:54 | 4555382 FreedomGuy
FreedomGuy's picture

The Austrians are correct. The proof af accuracy is not explaining the past but predicting the future and analyzing the severe flaws in opposing theories.

However, Keynesianism is quite resilient. Any failure of the theory is simply attributed to insufficient use of the theory. This is similar to the idea that all government failures are due to lack of government and the solutions are more, not less of the same. This fact alone means we will see the abolition of Keynesian theory at about the same time as we see the abolition of government. It appeals to the fatal conceits of the elites.

Sun, 03/16/2014 - 14:44 | 4555591 withglee
withglee's picture

Neither the Keynesian nor the Austrian theories recognize money for what it obviously is ... "a promise to complete a trade". This is obvious by inspecting trade: (1) Negotiation; (2) Promise to deliver; (3) Delivery. In simple barter, (2) and (3) happen simultaneously on-the-spot. Money allows (2) and (3) to happen over time and space.

Both Keynesian and Austrian mechanisms just attempt to throttle the creation of money by observing some supposedly related measures indicating the proper level.

Traderism, on the other hand, always creates money in the exact amount required by the traders. It is merely certification of their trading promises. And because of its direct relation to actual trading promises, the supply and demand for money are always in perfect balance. When delivery is made, the certificates are returned and extinguished.

This leaves us with the issue of failure to deliver (DEFAULT). DEFAULTs leave certificates in circulation and work against the Medium of Exchange (MOE) the same as do counterfeits (i.e. certificates not originated from trading promises). To reclaim these DEFAULTED certificates, INTEREST collections of like amount must take place to assure INFLATION is zero at all times. The operative relation is INFLATION = DEFAULT - INTEREST. INTEREST is not some arbitrary number determined by elites in London (e.g. LIBOR). It is not a representation of the "time value of money". It is just a way of collecting DEFAULTS and there is just one right (i.e. non-arbitrary) amount of INTEREST ... and that is equal to DEFAULT experienced.

Neither Keynesian nor Austrian mechanisms have this direct link to trade. The Keynesians drop money from helicopters (inflationary). The Austrians try to tie it to commodities (deflationary unless someone hits the mother lode). Both inflation and deflation of the MOE inhibits free trade. The only right value for inflation is zero.

Sun, 03/16/2014 - 16:07 | 4555887 Radical Marijuana
Radical Marijuana's picture

Money is only "a promise to complete a trade" within the impossibly idealized world of voluntary contracts. Money is measurement backed by murder, because robbery is the foundation, with some dynamic equilibria in the forces of robbery somewhat enabling relatively voluntary contracts.

Being able to engage in trade depends upon not being simply robbed instead. Trading only relatively exists within the reality of robbery. The foundation of all economics is organized lies, operating organized robberies. The paradox of governments, which are supposed to provide some enforced rule of law to enable there to be volunatary contracts trading within that context, is that then those who control the governments become the greatest of all robbers, because they command the power of governments to rob, and to kill to back up their robbery.

The only economic theories that could make real sense are ones which accept that they operate within militarism, where militarism is merely a large scale application of the principles and methods of organized crime. The theoretical way forward is to go through paradigm shifts to stop using false fundamental dichotomies and related impossible ideals in order to try to understand what it going on. Rather, one should apply the ideas of general energy systems to human situations, which then results in understanding how and why the methods of organized crime are what actually controls civilization, and must necessarily do so, and therefore, the only better resolutions of chronic political problems found in economics are working towards better dynamic equilibria between the different systems of organized lies, operating robberies.

The production of destruction that controls all other production is on a continuum with all other production, because it is all the same energy, operating through similar systems. Any idealized notions about what "money" should be are wrong, if they do not face the real facts that money is measurement backed by murder. Of course, the perpetual paradox of both militarism and economics was that social success was based upon lying about themselves as much as possible. Therefore, more radical truth about either is extremely problematic to try to advance.

Sun, 03/16/2014 - 18:39 | 4556432 withglee
withglee's picture

Hmmm. Makes me wonder what world you live in. During my lifetime I have experienced only petty thefts and never have robbed anyone. I have been reliably robbed by our Medium of Exchange at the rate of about 4% a year. At the beginning of my career, I was robbed by my government at the rate of about 25% per year  and about 25% of our people were dependent on the government. Now both those ratios are well over 50% and growing geometrically.

If we properly mange the MOE for zero INFLATION, we not only eliminate the 4% annual leak due to inflation; we eliminate government's ability to grow beyound its constituents desire and ability to pay for its services.

A properly managed MOE is achievable, just like a civilized trading environment is achievable. But we won't achieve it if we don't even understand what money is.

Money is not a measurement backed by murder. We probably can't have big government without murder (a good argument for less government). But we can have money without murder.

Mon, 03/17/2014 - 02:10 | 4557216 Radical Marijuana
Radical Marijuana's picture

Sorry, withglee, but we must agree to disagree. I will not concede that what money should be is what money actually is. The ideal that money enables there to be a Medium Of Exchange is nice sounding, however, there cannot be a society without violence any more than there can be a physics without force.

Ironically I agree with your paragraph that:

"A properly managed MOE is achievable, just like a civilized trading environment is achievable. But we won't achieve it if we don't even understand what money is."

However, I believe that you fail to operate a sufficiently radical and penetrating concept of what money is. I approach the concept of money through thermodynamics and information theory, with a radical transformation of the standard ideas about entropy, because I recognized that an arbitrary minus sign was inserted into the entropy equations, due to a desire that measurements of power and information have positive values, rather than negative values, as the mathematics itself states. Thus, we thoroughly live in a Bizarro Mirror World, where everything is understood backwards, including money. It was not an accident that the meaning of the word "money" was gradually inverted and perverted by the triumphs of the banksters corrupting governments. However, most people who begin to perceive that still only superficially do so, and so, still want to propose idealized solutions, which can never exist in the real world.

In my view, the suggestion that our public money supply should be a well-managed medium of exchange is a nice enough idea, but has nothing to do with what actually exists, namely that money is measurement backed by murder. It is the force of governments, demanding taxes, and deeming fiat money to be be legal tender, that make the fraud of creating our current medium of exchange out of nothing, as debts, by private banks, become a runaway triumph of organized crime, which is about the worst possible way to manage the public money supply to function as a public utility that enables an overall fair medium of exchange to operate.

I tend to agree with the ideal goals that you are pointing towards. However, I regard all political economy to be necessarily inside of human ecology, and thus, the money system is actually inside the murder system. It does not matter if we do not like that, it nevertheless still is the way that things actually work. In my view, a better managed medium of exchange could only work within the context of a better managed murder system. In my view, withglee, you do not understand what money IS, because you replace that too much with what you think money should be. My view is that the only realistic way to maybe approach making money become more what it should be requires facing the facts about what it actually is.

At present, the international banksters dominate the world's monetary systems, and they actually operate those as force backed frauds, as a result of the long history of them applying the methods of organized crime to effectively take control of the political processes. Along the way to doing that, they also dominated the funding of the schools of economics which would pump out the kinds of bullshit that the banksters approved of, in order to facilitate them operating their financial frauds. That is the context in which I regard Keynes' "failure."

Mon, 03/17/2014 - 09:31 | 4558060 withglee
withglee's picture

I approach the concept of money through thermodynamics and information theory

Do you approach trade the same way? How does your approach view barter vs contracted agreement?

From my education, thermodynamics is two laws ... neither of which have I ever deliberately used or consciously needed ... I never worked with steam.

My education never covered information theory ... beyond the simple sampling principles of Shannon. My formal education ended just as solid state physics was beginning. I have noticed the word entropy cropping up when talking of information so maybe that's the connection.

I have difficulty appreciating your thinking. Does it really have to be complicated? 

If our current economy is a system of murder (and thus not trade) and money is its conduit (and not a promise to complete a trade), what do you propose? 

I once had formal training is problem solving. It went like this: (1) Draw a descriptive model (how things are ... what you have); (2) Draw a normative model (how things should be ... what you want and need); (3) Remove the gaps between (1) and (2) thus moving (1) to (2).

Since a MOE has never been properly managed, my writing is definitely in the (2) department. But that's not because money is "not" a "promise to complete a trade". It is because for some reason people can't grasp that obvious reality.

 

Mon, 03/17/2014 - 10:16 | 4558262 withglee
withglee's picture

Sorry Radical Marijuana. I "never" agree to disagree.

Reality is ALWAYS organized systems of lies operating organized robbery.

In my previous reply I described a method of attacking a problem. Two things I left out. (1) The "descriptive model" must be verified accurate. (2) The "normative model" must be verified better than the "descriptive model".

I don't subscribe to your descriptive model. I can verfiy instances of your description but I don't find them to be pervasive.

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