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Guest Post: Why Listen To Keynes In The First Place?

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


In a recent BBC News article, philosopher John Gray asks the quaint but otherwise vain question of what would John Maynard Keynes do in today’s economic slump.  I call the question vain because practically every Western government has followed Keynes’ prescribed remedy for the so-called Great Recession.  Following the financial crisis of 2008, governments around the world engaged in deficit spending while central banks pushed interest rates to unprecedented lows.  Nearly four years later, unemployment remains stubbornly high in most major countries.

Even now in the face of the come-down that inevitably follows any stimulus-induced feelings of euphoria, certain central banks have taken to further monetary easing.  The Bank of England recently announced an extension of its quantitative easing program by £50bn.  Not to be outdone, both the People’s Bank of China and the European Central Bank cut interest rates in an effort to boost consumer borrowing.  Still, these new rounds of monetary stimulus don’t appear to be doing the trick.  The Keynesian miracle cure has been a spectacular dud thus far.  All that modern day disciples of Keynes can do is scratch their heads and say “more should have been done.”  They never allude to how many more trillions of paper dollars should have been created or spent; just call it the excuse that keeps on giving.

Perhaps for these reasons Gray doesn’t make a full blown recommendation of Keynes’ famed countercyclical policy to combat the ongoing downturn.  Instead he asks if Keynes would propose a policy that contrasts heavily with the influential theories presented in The General Theory of Employment, Interest, and Money.  To Gray, Keynes was an intellectual heavyweight who possessed a “deep understanding of the complex, unpredictable and at times insolubly difficult nature of human events.”  According to Gray, policymakers worldwide should see to it to welcome Keynes’ vision of achieving an “intelligent variety of capitalism.”

Gray’s simple query of “what would Keynes do” really begs another question: who was Keynes and why is he looked to by as a brilliant mind?  Does this man truly deserve the praise he receives by the intellectual establishment closely aligned with government?

To answer these questions, it helps to first observe the early years of the 20th century’s most famous economist.  For starters, Keynes was not born into a family with little means.  In fact he was incredibly privileged while growing up as his father, John Neville Keynes, was an important figure within Cambridge University.  With the help of his father and his father’s good friend and economist Alfred Marshall, the young Keynes was introduced to the aristocratic life of Britain’s intellectual upper-class.  This included his joining of the Apostles as a student at Cambridge University.  The Apostles was a secret society reserved for those connected to or within the country’s ruling class.  Keynes’ membership would ultimately shape his view on life and humanity in general.  It would lead to his adopting a self-serving elitist bent for much of his career.

And it all began at Cambridge with the Apostles.  He and other members would frequently refer to those not within the highly secretive clique as “phenomena” and not “real.”  As an undergraduate, Keynes wrote in a letter to his friend Giles Lytton Strachey,

Is it monomania — this colossal moral superiority that we feel? I get the feeling that most of the rest [of the world outside the Apostles] never see anything at all — too stupid or too wicked.

Keynes’ feeling of superiority was also accompanied by the Apostles’ disdain toward notions of morality and values held by the middle class such as thrift.  After graduation, he would help form the Bloomsbury Group which became an intellectual force in early 20th century England.  The Bloomsbury Group, like the Apostles, embraced avant-garde views toward aesthetics and morality and detested traditional values.  Much of Keynes’ hatred toward sensible views of good and evil was influenced by a philosophy professor at Trinity College named G.E. Moore.  To Keynes, Moore’s magnum opus Principia Ethica was “exciting, exhilarating, the beginning of a new renaissance, the opening of a new heaven on earth.”  In his memoir “My Early Beliefs,” Keynes insisted that Moore’s personal ethics, “made morals unnecessary….We entirely repudiated a personal liability on us to obey general rules.”  Towards the end of the paper, he also ensures his readers that “I remain and always will remain an immoralist.”

Keynes’ rationalization for government intervention  and horribly inflated ego lead him to be one of the most sought after economists during the initial throws of the Great Depression.  To the politician who fancies himself as a molder of the perfect society, the theories Keynes presented which divorced themselves from all semblance of reality were a Godsend.  The General Theory would go on to provide the intellectual cover needed by the political class to convince the man on the street that only the state could deliver him to the land of the plenty.

Most controversial of Keynes’ theories was that investment should be socialized to, in a sense, “euthanize” the rentier class that had no justifiable income.  He went as far as to write “Interest today rewards no genuine sacrifice…[T]here are no intrinsic reasons for the scarcity of capital.”  The ultimate solution would then be to engineer “an increase in the volume of capital until it ceases to be scarce.”  To do so meant lowering the interest rate for borrowers by expanding the money supply.  To the delight of public officials, increased government expenditures would then follow in tandem.

Of course this strategy would be successful if it weren’t for one critical detail: capital doesn’t consist of pieces of fiat currency.  Capital is real savings represented by things such as industrial machines, assembly lines, factory equipment, optical cables, and raw materials.  In other words, capital can never be rendered scarce since it can’t be printed on command.  However, this truth has yet to stop politicians from promising “free” goodies for life to susceptible voters.

And that’s why The General Theory wasn’t just a book on economic theory; it was a “how to” guide on winning elections.  Should it be any wonder then why so many apologists for the state saw it containing some great, hidden-until-then wisdom?

Indeed, what politician doesn’t love to hear that prosperity is just a few laws away?  The world of homogenous aggregates Keynes presented to the Establishment played into their lustful desire for societal control.  In a world of lifeless statistics, the people are nothing more than pawns on a chessboard to be moved to and fro with the faintest of ease.  Objections matter naught; the path to virtue is only seen by those central planners who, like Keynes, regard themselves as the chosen few not constrained by the primal instincts of the common people.

In short, John Maynard Keynes didn’t just provide a roadmap for a centrally managed economy, he did so by wrapping his intellectual dishonesty in incomprehensible jargon and charisma.  As Murray Rothbard pointed out in his short biography “Keynes, The Man,”

Keynes displayed a positive taste for lying in politics. He habitually made up statistics to suit his political proposals, and he would agitate for world monetary inflation with exaggerated hyperbole while maintaining that “words ought to be a little wild – the assault of thoughts upon the unthinking.” But, revealingly enough, once he achieved power, Keynes admitted that such hyperbole would have to be dropped: “When the seats of power and authority have been attained, there should be no more poetic license”

Keynes’ ego was so grand that when pressed by friend and Austrian economist Friedrich Hayek on the kind of totalitarianism his theories were inspiring, he assured a worried Hayek that he could swing public opinion easily; as if by the quick twisting of his hand.

The question of interest shouldn’t be “what would Keynes do” but rather “why even listen to someone so pompous and nihilistic to begin with?”  Just as Keynes missed the Great Depression, modern day Keynesians missed the housing bubble and financial crash.  From his contempt for moral principles to his enthusiastic support for eugenics, Keynes saw the world as something separate from the bubble of his fellow elitists.  He was a charlatan who convinced a generation of economists that the pool of real savings for any given country could be made infinite if only the state fully embraced the printing press like a dictator embraces the gulag.

The “intelligent variety of capitalism” that Gray terms is just a clever way of saying central planning.  To Keynes and his followers, capitalism is inherently ignorant because it is consumer based; which means the common man determines what is produced and how much of it.  For someone who pictured himself as floating seamlessly above the fray of fools, the growth of the market economy must have worried someone as power-thirsty and narcissistic as Keynes.

Perhaps the best summary of Keynes comes from Rothbard who once remarked:

To Robbins (Lionel) he is the Godlike figure with a golden light…around a halo.  I’ve got a slight different assessment.  Sum up Keynes: arrogant; sadistic; power-besotted bully; deliberate and systemic liar; intellectually irresponsible; an opponent of principle; in favor of short term hedonism and nihilistic opponent of bourgeoisie morality…; hater of thrift and savings; somebody who wanted to liquidate the creditor class…exterminate the creditor class; an imperialist and anti-Semite; and a fascist.

Outside of that I guess he was a great guy!


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Wed, 07/25/2012 - 20:24 | 2651475 knukles
knukles's picture

Keynes would ask "What would Paul Krugman do?"

Wed, 07/25/2012 - 20:38 | 2651521 Pladizow
Pladizow's picture

Keynes was a Socialist whose goal was the slow death of the American experiment!

Wed, 07/25/2012 - 20:48 | 2651548 max2205
max2205's picture

Assholes have common traits.

Wed, 07/25/2012 - 21:21 | 2651635 Muppet of the U...
Muppet of the Universe's picture

Keynesianism is the cover story for the 9mm snuff film called crony capitalism. 

That's why I had I <3 Keynes embroidered on my pillow case.

Wed, 07/25/2012 - 21:43 | 2651689 Thomas
Thomas's picture

Keynes is more nuanced. There is a book by Benn Steil coming out in the fall entitled, "The Battle of Bretton Woods". It offers a window into the Harry Dexter White/John Maynard Keynes tug of war to create a post-WWII global currency regime. The prose is great and the plotline thick with intrigue. Steil is no left-winger--he has Austrian leanings--but he brings Keynes into an interesting light.

Wed, 07/25/2012 - 22:41 | 2651825 Sandmann
Sandmann's picture

Harry Dexter White Jewish Communist feeding everything to Stalin and designing Morgenthau Plan - even having printing plates for Occupation Currency in Germany shipped to Stalin so they could counterfeit

Wed, 07/25/2012 - 23:23 | 2651924 Thomas
Thomas's picture

Yes indeed. Harry had issues.

Wed, 07/25/2012 - 23:32 | 2651939 economics9698
economics9698's picture

Keynes was not that bright when it came to economics.  You can drive a truck through his assumptions.  He would have served society better as a fairy tale writer. 

The bankers and politicians, Washington and the Federal Reserve, seized and promoted his ideas because they served the interest of the elites.  If not Keynes the John Law or some other fool would pollute our textbooks with garbage for the youth.


Wed, 07/25/2012 - 20:32 | 2651499 Cheater5
Cheater5's picture

Politicians follow Keynes for one simple reason:  it gives them a justification for appropriating more money and power into the government and thus under their control.

Consequently Keynes will NEVER be discredited amoung the political classes.   He's just too convenient


Wed, 07/25/2012 - 20:37 | 2651515 agent default
agent default's picture

Exactly.  The reason economics has become pseudoscience is because it is so closely intertwined with politics.

Wed, 07/25/2012 - 20:55 | 2651569 malikai
malikai's picture

...and yet we still haven't figured out that EVERYTHING politics touches turns to shit.

See also: climate science, subsidy (in all forms), public education, regulation, "equal opportunity"

I know I've left some things out..

Wed, 07/25/2012 - 22:39 | 2651820 agent default
agent default's picture

Climate science... Don't you dare call that thing science.  If you  did  half of the East Anglia  shit in CERN or IEEE or any other scientific (valid) field you would not only have been ridiculed, your whole department would have been black listed for good.  I have never seen fake research being treated so leniently before, I am talking minor shortcuts on proofs here and you still get bollocked by reviewers.  And the  crackpot pieces of shit in East Anglia are still in business. 

Watch out for the next shoe to drop:  Extremely low energy density systems passed off as economically viable energy alternatives.  Renewable is easily the largest scam in history.  They are a few exceptions, but guess what?  They are shunned in favor the really expensive solutions.  And above all: Tax everyone doing something productive to hell because he is emitting some thing or another.  Next time anybody tries to talk to you about productive investment, tell them to get the damn penguins in Antarctica to invest.  After all Western governments care more about them than they care about you.  \rant

Wed, 07/25/2012 - 23:07 | 2651880 malikai
malikai's picture

The sad part is that AGW could in fact be true. But how in the hell is any rational, critical thinking, human supposed to trust the "science" when it has been so thoroughly clouded with both crooked politics and crooked "science". Moreover, how is any rational, intelligent human being supposed to trust any of the "solutions" when they are all proposed by the most crooked bunch of charlatans on earth today?

Thu, 07/26/2012 - 00:31 | 2652086 Orly
Orly's picture

Really?  Are you aware that volcanic eruptions spew millions of more tons of carbon emissions into the atmosphere than man ever has in toto?

How many eruptions have there been this decade?



Thu, 07/26/2012 - 01:39 | 2652167 malikai
malikai's picture

Well, all I know is that those volcanoes better have a good revenue stream to pay for their carbon taxes under our current regime.

On second thought, let's just send all those soon to be carbon-tax (thugs) enforcement agents to the next volcano before it erupts.

Wed, 07/25/2012 - 22:44 | 2651832 Anusocracy
Anusocracy's picture

War on 'fill in name'.

Thu, 07/26/2012 - 09:57 | 2652939 RickC
RickC's picture

I disagree.  Keynes will be discredited among the ruling class when everything craters and the rulng class needs a scapegoat, particularly one who is dead. 

I can hear it now:  "We would never have made those poor spending and taxing decisions if Keynes had not written his 'General Theory'.  We were misled by economists in his thrall.  We should never have listened to those economists.  Clearly, it is not our fault".

Anybody want to take the other side of that bet? 

Wed, 07/25/2012 - 20:34 | 2651503 malikai
malikai's picture

Keynes is turning in his grave over what is being done in his name right now. Whether he would recognize his philosophy as the enabler of kleptofascism or not, I can't say. But there is the critical distinction between Keynesianism and what we have today, which is at least two part.

  1. Saving during the "good times" for the "bad times".
  2. Spending on infrastructure during the bad times in order to stimulate actual consumption.

Neither occurred. Instead, we spent and racked up the debt during the "good times".

Now we spend more on pandering, bribery, and other miscellaneous klepto bullshit in the vain attempt to "solve" the "crisis".

I'm no fan of Keynes. But this is NOT Keynesianism. Regardless of what the oligarchs and their whores call it.

Wed, 07/25/2012 - 20:38 | 2651520 Orly
Orly's picture


Wed, 07/25/2012 - 22:28 | 2651799 flacon
flacon's picture

Keynes taught that "Consumption = Production" and that "Government Spending = Production".



Thu, 07/26/2012 - 15:10 | 2654060 e-recep
e-recep's picture

i don't see any mentioning of debt in those equations. hence keynes is and will remain a fool.

Wed, 07/25/2012 - 21:44 | 2651697 Thomas
Thomas's picture

I totally agree, Malikai.

Wed, 07/25/2012 - 22:36 | 2651813 Bob
Bob's picture

More of the usual demagoguery from the mises camp.

Wed, 07/25/2012 - 22:36 | 2651814 JR
JR's picture

It is Orwellian of Keynes “to refer to newly printed government money as ‘savings,’” says Keynes’ scholar, Hunter Lewis. “The word savings describes money that has been earned, and having been earned, is not spent but rather is set aside for emergency or investment use."

A government policy of inflation is a way to “gut” savers.

There is something special about the market rate of interest. Norwegian oil executive Oysten Dahle said, in fact, that “[the Soviet Union] collapsed because it did not allow [market] prices to tell the economic truth.”

The stock market, presently stable because printed money always rescues it, is feeding off of failed Keynesianism, i.e., printed money, i.e., ZIRP.

And that, according to Lewis in his 2009 book, Where Keynes Went Wrong, is the “heart of Keynes’s argument… that newly printed money can take the place of traditional savings.”

Says Lewis: “It is important to keep in mind that interest rates are a price, the price of borrowed money. They are not only a price; they are one of the most important prices in an economy. All prices are interconnected, but this price in particular affects all other prices.

“Businesses depend on prices to give them the information with which to run the economy. If the price system for interest rates is broken, no part of the price system is unaffected.”

Lewis points out that the Keynesian policy of creating new money to reduce interest rates “ultimately backfires”:

 “[I]njecting money alone in order to bring down one price (interest rates) will as a general rule just raise other prices.” …

“Economist Melchior Palyi was more blunt: ‘Stripped of crypto-scientific semantics, the Keynesian’s medicine is inflation.’”

Says Lewis, “In essence, Keynesianism is the opposite of commonsense economics.”

Wed, 07/25/2012 - 22:59 | 2651863 malikai
malikai's picture

All of the above are solid, worthy, intelligent arguments which I tend to agree with and why I don't "believe in" Keynes' theory.

Wed, 07/25/2012 - 23:23 | 2651923 Dingleberry
Dingleberry's picture

Malikai is correct, but his theory could never realistically be applied to a democratic capitalist system over the medium to long term.  The voters always vote themselves more government than they are willing to pay for. 

Wed, 07/25/2012 - 23:42 | 2651985 gwiss
gwiss's picture

Ironic, isn't it?  The very beast which Keynes thought so noble and worthy of those willing to discard historical human foibles and embrace the age of thinking man, namely scientific government, ended up bastardizing his theories to suit their own ends, thus in a way inscribing a fitting epitaph on his gravestone, which is "Those damned Austrians were right after all."


Keynes was a product of his time, which was a time when it was imagined that all natural laws were simply levers with which man could steer a course of his own choosing irrespective of the paltry limitations of causality and scarcity, guided by the twin stars of human invented science and reason.  Because Keynes never had to face the real world, he did not actually understand the real world at all.  His theories thus were a perfect fit for a reality which never existed except in his imagination, in which world he was of course an unparalleled genius. 


Keynes was completely correct in a sense, in that his theories were entirely capable of moving the machinery of business and making it spin and click once again as if it was organically alive.  However, because he did not understand the constraints of reality and specifically the second law of thermodynamics, he did not therefore understand that a system revived with external input of energy would only run as long as that external input of energy continued to flow, and that the system would quickly adapt itself to depend on that external energy flow.  Keynes was infected with the simplistic shortcutism which animated those who sought to create perpetual motion machines and thus break free from the constraints of physical reality once and for all.  Because he misunderstood the nature of capital, he also never bothered to ask what a system re-animated with external spending would look and function like over the long term, and thus never bothered to ask at what cost this re-animation could occur.


Had Keynes every had to, say, repair an engine, he would have quickly realized that an engine will happily run even when the gas tank is empty, as long as you keep spraying starter fluid into the choke.  But, the minute you stop spraying that starter fluid, the engine quits, because the engine is running on your starter fluid, not its own gas.  Because it is not a perpetual motion machine, it doesn't magically fire up and then spit out more resources than you put into it, and had Keynes ever had to face reality, he would have understood this.

Thu, 07/26/2012 - 02:15 | 2652201 malikai
malikai's picture

I want to sign up a dozen accounts on this board just so I can upvote the above answer more.

Thu, 07/26/2012 - 06:21 | 2652321 NoClueSneaker
NoClueSneaker's picture


Since more than thirty years EU eats its own infrastructure, built in sixties and seventies . The whole friggin' privatisation became an epic act of vandalism for profit. In the end, stolen money from the looting became worthles. Deutsche Bundesbahn destroyed 86.000 km of railroads, for nothing. New "competitors" r skinning the sheeple enron-style, and nothing ever happens, when, then too late and too expensive. Shit !

Small bussinesses can't get a dime of loans, money needed for global casino, and even in the "rich" EU-States noone could pretend being richer than 1980. ( Except the looters ).

Keynes where ?


Thu, 07/26/2012 - 09:30 | 2652818 monoloco
monoloco's picture

The flaw in Keynes theory is that it relies on the discipline of politicians, who have repeatedly proven they have none.

Thu, 07/26/2012 - 20:04 | 2655122 TimmyB
TimmyB's picture

Exactly right!  Have the government borrow and spend in bad times and pay back the loans in good times is what Keynes was all about.  

Where has this been tried?  Certainly not in this country.  Certainly not in Greece, England, Ireland, or any other country I can think of.  The author claims that every Western country has been doing this for years.  Sorry, but that claim is completely false. 






Wed, 07/25/2012 - 20:36 | 2651514 Orly
Orly's picture

Correct me if I am wrong but the modern Western economies are not practicing Keynes' economic philosophy in the first place.

I believe what Keynes proposed and supported was the idea that when you have sunny days, you put a little bit back for the rainy ones.  If rainy days come more often than not during a given period, then it is okay, in fact, preferable, to "borrow" from your future to await the sunny days again.

If one built roads and dams and bridges during the rainy period, then the sunny days woud be that much better and productive.

The current economic dynamic has hijacked the Keynes name to mean to say that in sunny days, we're going to sell you shit-on-a-stick and in rainy days, you're going to eat it.  Then, when we have to borrow from ourselves, it is to cover the cost of skewers and barf bags.

It is not at all what keynes would have supported and not at all what his ideas were.  His philosophy actually makes sense.


Wed, 07/25/2012 - 20:53 | 2651560 Colonel
Colonel's picture

Bullshit. All you qeers for Keynes sound like a broken record. "Keynes didn't mean that blah,blah,blah". There is no "hijacking" of his theories just the usual faggot deflection from one of his main destructive tenets that the state via central banking picks up the slack during those rainey days.

Wed, 07/25/2012 - 21:00 | 2651581 malikai
malikai's picture

Don't confuse understanding with deflection. Just because someone knows and can spot the differences between theory and implementation does not mean that person supports either.

Wed, 07/25/2012 - 21:13 | 2651589 Colonel
Colonel's picture

I call it like I see it.  I was being generous by calling it deflection, it's actually just plain old bullshit.

Wed, 07/25/2012 - 23:16 | 2651907 GMadScientist
GMadScientist's picture

I'm guessing you call everything you can't comprehend 'bullshit' and that the cardinality of this set is without bound.

Thu, 07/26/2012 - 01:52 | 2652178 Colonel
Colonel's picture

Bullshit is bullshit whether couched in economic OR mathematical terms.

Thu, 07/26/2012 - 08:05 | 2652562 GMadScientist
GMadScientist's picture

We're so sorry something as complex as economics can't be boiled down to a bumper sticker or picture book for you and yourn.

Wed, 07/25/2012 - 21:38 | 2651679 Orly
Orly's picture

Exactly.  I understand Marx' economic philosophy as well but that doesn't make me a communist.  Marx' theories would work as well, except for that whole "human" element.

I never understood why Reagan could be pilloried in public, along with David Stockman.  "Trickle down" theory might actually work.  We wouldn't know because it has never been actually implemented as a matter of policy.  Same here with Keynes.  It's perverse to not understand the ideas and then rant and rave about how horrible a man he was.

It's the same old song and dance from a shallow stance.  Don't read anything to understand for yourself.  Instead, we'll demonise a British homosexual for tearing apart the fabric of Western society.

Buy gold and beans, guns and ammo!  The fag, jew queers have finally taken over!

My, what rubbish.


Wed, 07/25/2012 - 21:46 | 2651702 Colonel
Colonel's picture

And keep straining out a gnat and swallowing a camel. How "progressive."

Wed, 07/25/2012 - 23:17 | 2651912 GMadScientist
GMadScientist's picture

Umm...have you looked at the taxation on hedge fund compensation and cap gains lately?

There's plenty "trickle down" already.

Thu, 07/26/2012 - 00:17 | 2652060 steve from virginia
steve from virginia's picture


Keynes has become a cardboard cut-out for liquidity economists, an easy punching bag for the Austrians ... very classy, dudes.

Chances are the witty, insightful Keynes would cross both his adherents and critics and offer alternative approaches to current states of affairs, somethings other than mindless (to Austrian) issuance of liquidity. It's hard to miss the death of capital in our modern Blade-Runner world:

In other words, capital can never be rendered scarce since it can’t be printed on command.  However, this truth has yet to stop politicians from promising “free” goodies for life to susceptible voters.

Yadda yadda yadda: I'll pretend that bit of idiocy didn't come from an Austrian economist because capital is rendered scarce right under everyone's nose: burned up for nothing ... in automobiles ... for fun.

The path to Keynes runs from Knut Wicksell through Leijonhufvud by way of Schumpeter and Minsky. Kick the rest to the curb ...


Thu, 07/26/2012 - 00:42 | 2652096 Orly
Orly's picture

"I'll pretend that bit of idiocy didn't come from an Austrian economist because capital is rendered scarce right under everyone's nose: burned up for nothing ... in automobiles ... for fun."


Capital is never rendered "scarce" because that's all there is of it.  Someone will pay the appropriate price for it eventually- in one form or another.

What was it that Lenny Kravitz dude said in that Canadian movie with Richard Dreyfuss?  "Land.  They ain't makin' more of it."

There's only so much steel, so much gold, so much arable land, so many deserts.  The fact that someone should be able to take the paper rendition of their capital and trade it off for "credit" is a very debatable subject.

I would love to spend a long weekend listening to von Mises and Keynes debate their philosophies, starting with that question there.  It would sure beat watching crime shows on TV.


Thu, 07/26/2012 - 08:10 | 2652571 GMadScientist
GMadScientist's picture

How many books will there be? How much software written?

The question you need to ask is if capitalism can actually function without credit money (cue ignorant revisionist historian brigade in 3...2..1..).

Wed, 07/25/2012 - 21:40 | 2651682 blunderdog
blunderdog's picture

An umpire is supposed to understand the difference between a strike and a foul tip, but if you got into such a position without ever learning such a thing, more power to you.  I like your fried chicken, anyway, even if thinking isn't a strong suit of yours.

Wed, 07/25/2012 - 21:55 | 2651729 jimmyjames
jimmyjames's picture

I believe what Keynes proposed and supported was the idea that when you have sunny days, you put a little bit back for the rainy ones.


Yes he did-but his policy of constant inflation (multiplier theory) diluted/robbed all the savings and so instead of watching your buying power fizzle away year after year as more and more paper chased the same amount of goods--the Fed created bubbles so people could make vast amounts of wealth investing in those-until they popped and then the peoples money vanished in the bubble-

Why has the Keynesian multipliers stopped working?

Because you cannot inflate your way to prosperity because eventually- like we're now witnessing-the pool of greater fools simply dries up-

Thu, 07/26/2012 - 00:56 | 2652108 Orly
Orly's picture

Thanks, jimjim.  It seems you have made my previous point for me.

Keynes realised the importance of the velocity of money, whereas it seems the Austrian school is terrified of even mentioning the term in their prescence.  An ongoing and sustainable society needs money to have a velocity, and no, it doesn't always have to end in absolute disaster.

Think of adding new immigrants, new technologies, having children.  These new babies are starting from a blank slate in which they have no resources.  Unless an economy can perform the function of rolling the person forward financially on the tide that lifts all boats, these people would become an overall burden on the system.  (As an example, I heard today on Lance Roberts' radio show that in 1960, there was a 60:1 ratio of workers:govt. disability.  Today, that ratio is 16:1.  Think about it...) 

Without the velocity of money, these ideas and new workers would stagnate in a morose economy, with the rich hoarding it all and the poor barely scraping by (I mean hand-to-mouth kinda stuff...).  A new fiefdom, so to speak.

The perfect inflation rate necessary to lift all boats has been calculated to be just under 2%.  Now, I'm no economist, I just understand that it is the Fed's target rate and I'm sure they didn't pull that number out of nowhere.  It prolly came from Keynes or some of Keynes work.

The important point is that the system has been abused such that all of the resources we as a society have created have been siphoned off by a cabal of very rich people bent on owning everything in the world.  That's the bottom line.  None of this has to do, really, with Keynes or Marx or von Mises.


Thu, 07/26/2012 - 01:33 | 2652161 jimmyjames
jimmyjames's picture

Thanks, jimjim.  It seems you have made my previous point for me.


I think you might have misinterpreted my meaning then-

2% inflation/yr means you lost 20% of the buying power of your money in 10 years-give or take technological advancement out-

Velocity of money is not a cause-it is an effect and when velocity falls-it means there is a demand to hold money and that is what is happening now- and we've been inflating-

So why isn't velocity under control?

btw--Hayek coined the term-

"Money does not circulate-someone always holds it"

Thu, 07/26/2012 - 02:15 | 2652200 Orly
Orly's picture

May I say that you have indeed made my later previous point for me again:

You: "Money does not circulate-someone always holds it"

Me: "Without the velocity of money, these ideas and new workers would stagnate in a morose economy, with the rich hoarding it all and the poor barely scraping by (I mean hand-to-mouth kinda stuff...).  A new fiefdom, so to speak."


There is the very reason it is imperative for a government to attempt to shape an economic outcome that is fair to most and tries to level the playing field between the big boys and the small fry.

Taxes.  Taxes pay for the kids to grow and develop.  In an ideal world, only rich people would pay taxes.  The rate would only be 20% on capital gains but there would be no write-offs.  Taxes are the tide that lifts all boats.  Once your dining with Gatsby, you're more than willing to tack on an extra 20% to the government, as long as that scrilla keeps pouring in.

As I see it, in an ideal world rich people would pay taxes in order to help the less fortunate get a job gluing together stuff that Americans could sell to China for a 77% mark-up.  By helping young people and immigrants succeed in our society, it performs a valuable economic service down the road and only governement has the ability to manipulate the economy with the idea of fairness to all.  It could be done.

Of course, the problem is...


Thu, 07/26/2012 - 08:23 | 2652613 GMadScientist
GMadScientist's picture

"The State will have to exercise a guiding influence on the propensity to consume partly through its scheme of taxation, partly by fixing the rate of interest, and partly, perhaps, in other ways." - JMK


Wed, 07/25/2012 - 23:21 | 2651831 JeffB
JeffB's picture

Keynes was disasterously wrong on a variety of issues.

"The Paradox of Thrift" was one.

I think Professor Roger Garrison does an excellent job of showing how the way he foolishly threw out important and time honored concepts in classical economics inevitably lead to malinvestment and the creation/exacerbation of the capital destroying boom bust cycle.

Capital Based Macroeconomics - Power Point Lecture on YouTube

Roger W. Garrison, Professor or Economics, Auburn University

One of those quite important concepts he threw overboard was "The Market for Loanable Funds", which stated that available resources were best allocated by allowing the free market to set interest rates via supply and demand for capital. He preferred to have the government goose or slow down the economy by artificially lowering or raising interest rates via the Central Banksters.

Keynes' theories formed the basis of "The New Deal" policies that greatly prolonged and deepened "The Great Depression".

See historian Thomas Woods' talk on the marked contrast between the way the two depressions of the 1920s were handled, and the dramatic differences in the results in this YouTube talk:

Why You've Never Heard of the Great Depression of 1920, By Thomas E. Woods, Jr.

and see Murray Rothbards' book, America's Great Depression for a detailed explanation of why those massive government interventions caused things to spiral out of control.

Sadly, we can't seem to learn from history.


Thu, 07/26/2012 - 01:01 | 2652109 steve from virginia
steve from virginia's picture


The recession in 1920 was the consequence of the end of government price supports for US agricultural goods during World War One. With the end of supports hundreds of thousands of small farmers went bust and migrated to the cities looking for work.


Meanwhile, war refugees from Europe shipped themselves to the same cities looking for the same jobs. War-related production ended and was replaced by diminished output of non-war goods. High inflation was the consequence: wartime funds (quantity) chased diminished amounts of consumer goods.


Once consumer goods became more available and demand for them could be satisfied, the recession ended. Bankers offered more credit than could be put to use, the 'seed funds' for the credit-expansion to come.


The Great Depression had two sides; a balance-sheet recession to unwind those debts taken on during the 1920s along with class warfare between the robber barons and 'agrarians': small farmers, town dwellers along with industrial labor. Industrialists' need for constant capital flows were their undoing as people held onto their money regardless of the cost to themselves. By doing so they gave it value, denying same to the (unraveling) oligarchs at the same time.


Complaints by the oligarchs about their ill-treatment at the hands of their commercial servants make up much of the 'capital-side' literature of the 1930s.


Roosevelt taking office his first act was to bail out the banking system and to take specie out of circulation. Contrary to popular belief, the vast majority of Americans in 1933 had no gold or silver in their possession, they had no money at all. Had they funds there would have been no need for the government to act, there would have been no depression! As it was it was gold was already out of circulation by way of hoarding.


Had FDR not bailed the banks the US itself would have collapsed into insolvency (Fisher). The country would likely have returned to 'free banking' with greenbacks (US note issue) as was the way of business in the latter 19th century. Such a system would not have supported the large, trans-continental industries that existed in the 1930s.


Such industries' emergence was the end of both free banking and ultimately the gold standard both in the US and elsewhere: free banking lacked sufficent funds, gold-related interest costs too volatile.


FDR 'New Deal' programs put workers into gainful employment rather than having them wander the streets and no economic cost (fund so expended did not go to 'off-planet'). Wartime put more unemployed back to work. The Depression was ended by Milton Berle: television and advertising beginning in 1946 convinced Americans that spending was more useful than saving: reborn finance provided the credit ..."as seen on TV".




Wed, 07/25/2012 - 20:48 | 2651535 you enjoy myself
you enjoy myself's picture

why?  because its the easiest course of action that allows congress-critters to keep getting elected, all while pretending they're actually being prudent.  most everyone espousing Keynses is working backwards from a desire to bribe voters with an always flowering money tree - Keynesian just became the convenient ex post facto justification for it. 

remember the late 80's/early 90's power walking craze amongst housefraus?  it came about because some "expert" exercise physiologists declared running to be too hard on your joints.  all of a sudden, millions of slobs were out there with their hand weights and nylon track suits barely breaking a sweat.  if you asked them why they just didn't do sprints for 10 minutes instead of prance around a park for an hour, they couldn't wait to tell you that walking was officially better for you. 


Wed, 07/25/2012 - 20:48 | 2651546 SKY85hawk
SKY85hawk's picture

Keynes DID say that deficit spending should be paid back 'during good times'.

Didn't he?


Wed, 07/25/2012 - 20:48 | 2651547 SKY85hawk
SKY85hawk's picture

Keynes DID say that deficit spending should be paid back 'during good times'.

Didn't he?


Wed, 07/25/2012 - 20:48 | 2651550 zero19451945
zero19451945's picture

Americans have a serious problem idolizing people with longstanding track-records of failure.

See Bernanke as the current incarnation of this. 

Thu, 07/26/2012 - 02:33 | 2652205 vato poco
vato poco's picture

"Bernanke", hell. See FDR or JFK as the outstanding example of that. And then there's *Lincoln*...

Wed, 07/25/2012 - 21:00 | 2651578 Dick Buttkiss
Dick Buttkiss's picture

Thank you, James.  Having read you previously on ZH, LvMI, and LRC, it is clear that you are a gifted young voice in the cause of freedom.

Keep up the great work.

Meanwhile, as always, the state can kiss my ass.

Wed, 07/25/2012 - 21:00 | 2651579 tony bonn
tony bonn's picture

anyone who exposes the intellectual and moral squalor of keynes is a hero in my book.

Wed, 07/25/2012 - 21:10 | 2651597 Colonel
Colonel's picture

"He habitually made up statistics to suit his political proposals..."

No you don't say? Wonder who else does that? BLS anyone? 


Wed, 07/25/2012 - 21:11 | 2651604 tony bonn
tony bonn's picture

anyone who exposes the intellectual and moral squalor of keynes is a hero in my book.

Wed, 07/25/2012 - 21:12 | 2651613 masaccio
masaccio's picture

Still rooting for Hayek after the utter failure of everything he said? Why?

Wed, 07/25/2012 - 21:50 | 2651721 Turin Turambar
Turin Turambar's picture

God bless Murray Rothbard!

Wed, 07/25/2012 - 22:04 | 2651745 Overfed
Overfed's picture

Q: How did John M. Keynes find little boys in the dark?

A: Delightful!        


John M. Keynes was a pedophile. 'nuff said.

Wed, 07/25/2012 - 22:52 | 2651851 Anusocracy
Anusocracy's picture

Hardly any worse than being a Keynesophile.

Wed, 07/25/2012 - 22:06 | 2651752 Antifaschistische
Antifaschistische's picture

PEOPLE don't listen to Keynes...GOVERNMENTS listen to Keynes because his logic legitimized a governments need to counterfeit fiat currency.   So, governments and all the first-in-line recipients of government waste (I mean spending (I mean counterfeiting)) became immediate believers.  But they didn't believe in Keynes.  They believed in getting rich off counterfeiting...but even Keynes didn't figure entire armies of "bankers" would be would be pulling down 10+ million bonuses and buying $65 million dollar homes in the Hamptons.  But the bankers run Washington, and the Media, so "spending" is the mantra and will be until Americans a) wake up and b) find the courage to do something about it.

Wed, 07/25/2012 - 22:06 | 2651754 GeoffreyT
GeoffreyT's picture

Rothbard's evisceration of the Keynes legend - like his similar disembowelling of the hagiography surrounding Adam Smith and his masterwork - is a prime piece of evidence that the world lost a great thinker too soon. Had Rothbard lived to the full blooming of the internet era, he would have been absolutely fucking unstoppable.

The TL;DR of Keynes though, is simply that he furnished a quasi-intellectual justification for what the political class always wants to do: extend its reach, its power and its control.


Also... why the fuck does nobody ever mention that Keynes and Strachey were pederast sex-tourists? They wrote each other about which Greek Islands had boys that were cheap, plentiful and attractive, for fuck's sake. Remember, this was only 2-3 decades after Oscar Wilde was imprisoned - and his health ruined terminally - for being homosexual: homosexual acts were illegal in England until 1967 (helping the blackmail industry no end, and enabling the Soviets to 'turn' Philby, Burgess, Maclean, Blunt and "the Fifth Man" - all of whom were no more than two bums removed from Keynes in the Oxbridge/Bloomsbury woofter clique).

[I have no problem with homosexuality as such: although it is absolutely not my thing, it's none of my business what consenting adults do with their sex organs. Love is where you find it, even if it's up the date. But homo-pederasty is a different thing altogether - stemming more from the desire to corrupt and dominate than from any genuine affection. So the Franklin Affair White House call-boy thing - and the Homintern generally - represents the 'alpha' homosexuality of the prison yard]

Wed, 07/25/2012 - 22:19 | 2651786 sgorem
sgorem's picture

excellent retort GT. saved me from a lot of typing too. +100

Wed, 07/25/2012 - 22:21 | 2651788 White.Star.Line
White.Star.Line's picture

Why try to discredit those whose theories were fundamentally flawed and subversed from the start?

It is a new paradigm or die within the old one.

All that matters is within our chest.
Do we have heart enough to fight, or should we lie down.

I still havem't put my name on the lifeboat list yet.

I'm not sure what to do.

Wed, 07/25/2012 - 22:25 | 2651796 blunderdog
blunderdog's picture

    why the fuck...?

Two reasons.

1) He was lionized by an international propaganda system for decades.


2) His economic policy and the subsequent interpretations have failed even though there's still a flourishing pederast sex-tourism industry.

Wed, 07/25/2012 - 22:43 | 2651827 Sandmann
Sandmann's picture

Keynes was ignored - Governments simply waged war 1939 onwards [up to 2012] and SPENT BIG MONEY =  War is the birth of BIg State not a man writing a book. 


Wed, 07/25/2012 - 23:01 | 2651846 Coldfire
Coldfire's picture

Some good, solid points made here about Keynes's ideas. But I can't help but focus on JMK's creepy smile and outro clown lips. He was always looking like he just ate a bag of dicks.

Wed, 07/25/2012 - 23:16 | 2651906 jimmyjames
jimmyjames's picture

Don't forget about this guy who led Keynes's around by the nose through Bretton Woods--




In fact, that was the original goal of Harry Dexter White, the Treasury Department’s key representative at the Bretton Woods conference of July 1944, where the two institutions were created. The I.M.F. was central to White’s vision of a postwar global financial architecture dominated by the American dollar.

But trouble soon arose in the form of J. Edgar Hoover, the F.B.I. director. White had been under surveillance for two months, suspected of being a Soviet spy. Hoover prepared a report for the president, based on information provided by 30 sources, including the confessed spy Elizabeth Bentley, asserting that White was “a valuable adjunct to an underground Soviet espionage organization,” who was placing individuals of high regard to Soviet intelligence inside the government. If word of his activities became public, Hoover stressed, it could jeopardize the survival of the fund.

Following Alger Hiss’s perjury conviction in 1950, Representative Richard M. Nixon revealed a handwritten memo of White’s given to him by Chambers, apparently showing that White had passed classified information for transmission to the Soviets.

Wed, 07/25/2012 - 23:42 | 2651989 Anthony Migchels
Anthony Migchels's picture

I'm not really sure that this is altogether fair. 

In the first place: Keynes predicted the Great Depression when the West returned to the Gold Standard in 1925 (just a little something to keep in mind......) in an article called 'the economic consequenses of Mr. Churchill'

furthermore: the west did NOT do what Keynes described: giving trillions to banks has nothing to do with reflation. The little 'stimulus' there was has been completely negated by the horrible austerity that followed it (in Europe anyway).

And next: by bashing (for which there is every reason, by the way) Keynes, we are set up for the 'inflation vs. deflation dialectic' with Austrian economists who will give us deflation and austerity in the US, just like in Europe.

Thu, 07/26/2012 - 00:47 | 2652100 jimmyjames
jimmyjames's picture

In the first place: Keynes predicted the Great Depression when the West returned to the Gold Standard in 1925 (just a little something to keep in mind


There is the biggest piece of the puzzle and it's always glossed over-

The west never returned to a gold standard after the war-

It was put on for a very short time after WW#1 and gold forced the west into a massive deflation as gold had to be paid for war debt (gold working as it was meant to)

In 1922-world gold reserves were basically double counted and the money supply increased almost 100% and the world went off gold standard-so Keynes was wrong about that too-

Thu, 07/26/2012 - 00:01 | 2652036 tulip_permabull
tulip_permabull's picture

"Marx' theories would work as well, except for that whole "human" element."

Not sure what they means but let's not that Marx was a late neo-classical economist. As such, he believed in the labor theory of value, according to which labor is the determining factor in value (and presumably "price"). This view -- retailed recently by Obama in his "you did not build this" speeech -- was of course destroyed by Jevons and others in the 1870s-80s and replaced with the (unassailably correct)  subjective theory of value.

There is no realistic world in which marx's views could "work". Not that that would matter to Marx because, like Keynes and Obama and most other politicians, his ego-cancer had fullly mestatisized and entirely obliterated his ability to take other human lives and values into account.

Thu, 07/26/2012 - 01:09 | 2652123 Orly
Orly's picture

I appreciate your response.  :D

I wasn't speaking to whether or not Marx' theories would hold water in the real world because I know from reading literature that it would not.  I know it instinctively just from myself.  There comes a time when I'm rather self-promoting and eager to have nice things.  Besides, all animals are equal...kinda.

The way I understood the system to work was one of a symbiosis between the state and the farm/factory whereby everyone profits and everyone gets rich by doing the job that best suits their ability.

Enter humanity.

Can you imagine if we find the greatest leader ever known to man and he is destined to be the greatest leader of all time because that's his forte and that's what he would do best?  And we found him on the farm outside of Vinnitsya?

How dead is this guy?  Only because of people's self-interest and greed does that system fail.  A strong group of egoless automatons...maybe might work.


Thu, 07/26/2012 - 02:34 | 2652207 malek
malek's picture

If something ceases to be scarce, then it also has become worthless.

Thu, 07/26/2012 - 03:05 | 2652228 Johnk
Johnk's picture

They didn't listen to Keynes.   He'd be mortified by what has been done in his name.

Thu, 07/26/2012 - 04:11 | 2652256 adonisdemilo
adonisdemilo's picture

We really do need to listen to Keynes, just like we need to listen to the Government.

We need to know what they think is best for us.


It's the only way to survive.

Thu, 07/26/2012 - 04:16 | 2652260 Ancaeus
Ancaeus's picture

Mr. Miller makes, primarily, an ad hominem argument, roughly, that Mr. Keynes was not the sort of person you would like, so you should ignore what he said.  This is a well known form of fallacy, and is particularly shameful because Mr. Keynes cannot defend himself.

Mr. Miller is also wrong in his assertion that "practically every Western government has followed Keynes’ prescribed remedy."  In fact, the only Western government to come close is Iceland's, and Iceland is doing remarkably well, all things considered.  In the current crisis, every other Western government has balked at public spending on the required scale.  And, every Keynesian of note has pointed out these policy errors, and predicted failure.  So, the continued economic malaise in much of the world, cannot be ascribed to Keynesian policies since those policies have not been fully tried.  Indeed, even President Roosevelt balked after some initial success and thereby caused the predicted secondary dip in 1937.  

Thu, 07/26/2012 - 20:31 | 2655189 TimmyB
TimmyB's picture

Ouch.  Its very, very unfair of you to bring facts and logic into this discussion.  Next, you'll be using Greece as an example of a country that tried to cut its way out of the current recession, and failed, simply because it is an example of a country that tried to cut its way out of the current recession and failed.

I suggest you consider your audience before resorting to facts and logic.  Thirty percent of the people here think that the law of gravity doesn't exist.  Another thirty percent believe it does exist, but also believe that it was imposed on us by liberal politicians and communists as a way to strip us of our freedoms.      

Thu, 07/26/2012 - 06:50 | 2652350 Tom Green Swedish
Tom Green Swedish's picture

Keynes is the most overrated economist of all time.  Do not listen to this mans economic ideology.

Thu, 07/26/2012 - 07:30 | 2652403 macroeconomist
macroeconomist's picture

Nope, it's Hayek, who started supporting the exact opposite of the ideas he championed in his early career, which contemporary Austrians are still stuck with..Keynes never ever never suggested printing money would solve any problem. This was on a letter he wrote to Roosevelt, which was published on zerohedge as well.

Poor discredited Austrians still hopelessly waiting for a hyperinflation that will never come, and the anger now leads to ad hominem personal attacks on Keynes.. You're only embarrassing yourself with such posts..

Thu, 07/26/2012 - 07:39 | 2652475 michigan independant
michigan independant's picture

Remember who taught him, Alfred Marshall and before Marshall, another statist taxation specialist. Keynes did not bring anything to the table but consice statistical grip and British welfarism after the treaty at Versailles. Nothing but avarice and debauchery in private life and the ability from Marshall's hand changes in the well being from government policies such as taxation. Although economists have refined the measures since Marshall’s time, his basic approach to what is now called welfare economics still stands. What is not commonly known Marshall studied in Italy also so replubicanism was grounded in theological discourse. At times the charge levied was two steps behind Darwin given the landscape of the day. Some do not consider him a vanguard or pillar of social regard to this day. I have others on the right and the left who offered more before him and after. As for the malady of the world that is condition afficting all ages? The left and right with a reality of socialism is the same calculation as communism. As for the natural law and community organization, that is a separate question of liberty for well being

Thu, 07/26/2012 - 07:48 | 2652506 macroeconomist
macroeconomist's picture

This may, but just may, embarrass some of the illiterate Austrians and shut them up..Read before you start talking nonsense on Keynes..And yes, it was on zerohedge years ago

Thu, 07/26/2012 - 08:44 | 2652650 Bob
Bob's picture

Good luck with that.  Step back and take a good look at the Austrians . . . zealotry is not optional. 

Thu, 07/26/2012 - 08:57 | 2652693 macroeconomist
macroeconomist's picture

I really don't understand what his personality or family has got to do with all this subject.. Have they ever dug into the personality or family life of Mises or Rothbard? Is this post not a huge hypocrisy for a website like zerohedge, which correctly supports anonymity on the grounds that it is what one says rather than who one is that matters?


Thu, 07/26/2012 - 10:13 | 2652990 shovelhead
shovelhead's picture

I give the fact that Keynes was a egomaniacal elitist pederast as a plus in his favor when weighted against his destructive influence that his economic theory has produced.

A little boy-buggery is nothing compared to what the lunacy of WHOLESALE MARKET MANIPULATION AND DESTRUCTION OF CAPITAL HAS ACCOMPLISHED.

Thu, 07/26/2012 - 10:15 | 2652992 Bob
Bob's picture

You're overthinking this, macro.  Spend some time looking around at and you'll start to understand what's going on here. 

Extremism in defense of "Liberty" is no vice, it seems. We're gonna see just how far this can be taken before it's all over, imo.


Michael Hudson: The Road to Debt Deflation, Debt Peonage, and Neofeudalism

Thu, 07/26/2012 - 10:22 | 2653033 macroeconomist
macroeconomist's picture

Thanks Bob, Hudson is one of my favourite colleagues, I hadn't seen that paper. I used to read more of until recently but can't stand some of the outright lies and mindless propoganda there anymore..But still, I will continue exposing all this hypocrisy to their faces wherever I see it.

Thu, 07/26/2012 - 10:38 | 2653087 Bob
Bob's picture

It seems there is a war being waged and, like usual, truth is its first casualty.  In that context, extremism becomes a virtue and the ends justify the means.  Prepare for an ideological pogrom for all who resist.     

Good luck.

Thu, 07/26/2012 - 07:49 | 2652508 DonGenaro
DonGenaro's picture

Why listen to Keynes ?
For the very same reason that one supports undeclared wars, fiat currencies
or the myth of "man-made global warming":
It's a means by which the State is further-empowered.

Do NOT follow this link or you will be banned from the site!