Saturday, November 29, 2008

The Legacy of Keynesian Economics

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(A shorter version of this article I wrote first appeared in the November newsletter of Christian Voice. It is reprinted here with permission. For information about joining Christian Voice and receiving the monthly newsletter, click HERE.)

British Chancellor of the Exchequer (pictured left), Alistair Darling, has decided to follow a Keynesian approach for getting Britain out of its financial recession.

The words of Richard Nixon in 1971 are an apt description of Labour’s present approach: ‘We are all Keynesians now.’


But who was economist John Maynard Keynes and why have his views exercised such a lasting impact on Western thinking?


This article attempts to answer that question by exploring some of the lesser known facts from the life of Britain’s most influential economist.

The British economist John Maynard Keynes (1883 –1946) is known for laying the groundwork of modern economic policy.
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What few people realize is that his economic theories grew out of his rejection of Christianity and were bound up with the same principles governing his homosexual lifestyle.
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INVERVENTIONIST APROACH
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Known as the father of liberal economics, Keynes advocated an interventionist approach to economic policy, which urged governments to use fiscal measures to mitigate the adverse effects of economic recessions, depressions and booms. He opposed the gold standard because it acted as a brake on government’s capacity to control the money supply.

This interventionist model led to a paradigm shift in people’s view of government and “provided the intellectual rationale for the transformation of the State from primarily an administrator of law and order (as the Bible teaches) into an economic manager with broad, open-ended powers.” (Ken Ewert, from his article
In The Long Run We Are (Not) All Dead: The Anti-Christian Economics of John Maynard Keynes’)

A centrepiece of Keynesian economics is that lack of private spending during hard times is compensated for by increased government spending during hard times. In keeping with what biographer Robert Skidelsky calls Keynes' "lifelong bias against long-run thinking”, he argued that when the national economy is faced with a financial recession, the government must spend its way out of the difficulties. In practice, this means Government putting forward billions of pounds on construction projects, schools, social housing and hospitals. If such projects must be financed by debt, then so be it. The theory was that supply would create demand and stimulate consumption, rather than the other way round, as classical economics maintained. This might actually have worked if it weren’t for the fact that Keynes’ advice about lack of spending during good times was never embraced with the same enthusiasm. (See Melanie Phillips’ article "Saviour or Destoryer")

Keynes urged citizens to trust that government knew best and could manage society’s money better than the people could. However, Keynes was astute enough to recognize that governments were intrinsically untrustworthy. He attempted to overcome this dilemma by arguing that England and America should work in concert since neither one could be trusted on their own (as if one leaky bucket plus another leaky bucket equals a perfect bucket.)

Despite the flaws in his theory, Keynes’ General Theory of Unemployment, Interest and Money helped to convert many influential people, including those within the ecclesiastical establishment, to Labour Party socialism (what Keynes himself called “semi-socialism”.)
As one writer put it
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The politicians loved him: he was giving academic reasons for budget deficits, price controls, and monetary inflation. The younger economists loved him, for his ideas were creating lifetime employment opportunities for them as government economic planners.
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“It was Keynes, more than any man in the twentieth century, who is intellectually responsible for today's looming bank crisis, the huge government deficits, and the eventual default of governments on their financial obligations. He gave the Western economy a large does of intellectual AIDS.” (From http://www.americanvision.com/baptizedinflation.aspx)

REJECTION OF CHRISTIANITY

Keynes (pictured right) rightly recognized the central role that worldviews play in economic thinking. For example, in an essay he wrote in 1926, titled ‘The End of Laissez-faire,’ he criticized the Christian idea, advocated in a pamphlet written by Archbishop Whately and published by the SPCK, that true liberty “is that every man should be left free to dispose of his own property, his own time, and strength, and skill, in whatever way he himself may think fit, provided he does no wrong to his neighbours...” Keynes asserted, on the other hand, that “It is not true that individuals possess a prescriptive ‘natural liberty’ in their economic activities....The battle of Socialism against unlimited private profit is being won in detail hour by hour.”

Because he rejected the Christian worldview, he also rejected the free market. This was accompanied with an almost paranoiac frenzy against thrift, which he pejoratively referred to as the “hoarding instinct.” The General Theory shows an understanding that the ‘virtue’ of saving is rooted in the Christian worldview. As he wrote: “The morals, the politics, the literature, and the religion of the age [are] joined in a grand conspiracy for the promotion of saving.” Elsewhere he argued that the “hoarding instinct” was one of the trinity of evils which also included the family and concern for the future (“the hoarding instinct [is ]the foundation...for the family and for the future...”).

Keynes recognized that the principle behind saving – deferred gratification of immediate desires – indicated a future orientation which pointed beyond oneself. He scornfully dismissed such ‘purposiveness’ with his oft-quoted words, “in the long run we are all dead.” Ken Ewert put it best when he wrote that
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“The effects of the ‘short-run’ and ‘childless’ philosophy of Mr. Keynes are clear: nearly all western governments have followed the Keynesian prescription of spending and consumption, and have run large annual budget deficits for decades.”

HOMOSEXUAL LIFESTYLE

Keynes’ rejection of the Biblical “sowing and reaping principle” in favour of immediate gratification was not limited to his economic theories, but formed the centrepiece of his deviant sexual lifestyle.

Keynes was the chief homosexual protagonist of the Bloomsbury group, which has been described as a “sexual merry-go-round” by biographer Robert Skidelsky.

Arguing that homosexuality was the supreme state of existence, Keynes saw no problem indulging his obsession for little boys. In letters to his homosexual friends, Keynes urged them to go to Tunis, “where bed and boy were also not expensive”, while he himself ranged throughout the Mediterranean area searching out suitable boys for himself and his friends. He was particularly delighted to discover that the poverty and ignorance of North Africa, the Middle East, and Italy allowed him to use English shillings to purchase the bodies of children. (See Lytton Strachey, A Critical Biography).

Keynes’ short-term philosophy of life held no place for abstinence, whether financial or sexual. He campaigned to legalize homosexuality as well as drugs and believed that a restructuring of economics was central to that process. As he put it, “When the accumulation of wealth is no longer of high social importance, there will be great changes in the code of morals. We shall be able to rid ourselves of many pseudo-moral principles which have hag-ridden us for two hundred years....”

ADVOCATION OF EUGENICS

Keynes was also a strong supporter of eugenics, a point overlooked by his contemporary devotees. He declared that eugenics was "the most important, significant and, I would add, genuine branch of sociology which exists."

He was the treasurer of the Cambridge University Eugenics Society during its early years and served on the British Eugenics Society’s board of directors in 1945.
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IT ISN'T ALL BAD
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Despite his problems, Keynes early works are scattered with some amazing economic insights. For example, his book The Economic Consequences of the Peace, opens with the following words:
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“Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and while the process impoverishes many, it actually enriches some. – As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery. Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose."
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Keynes asked us to imagine a government that increases the stock of money from nine million to twelve millions currency notes without other conditions being changed. “In taking this step,” writes Herbert Schlossberg summarising Keynes’ position, “it has transferred from the public to itself an amount of resources equal to three million currency notes ‘just as successfully as if it had raised this sum in taxation.’ Who paid the inflation tax? Those who hold the original nine millions notes, because each of those notes will purchase 25 percent less than before the inflation. The inflation of currency means its depreciation in value. ‘The burden of the tax is well spread, cannot be evaded, costs nothing to collect, and falls, in a rough sort of way, in proportion to the wealth of the victim.’ (Herbert Schlossberg, Idols for Destruction)

Understanding that the money-printing policy he came to favour would eventually lead to economic collapse, Keynes struggled mightily to devise a way to prevent it. He settled finally on a capital levy, whereby the state despoils the creditor and confiscates part of its debt held by the citizens. Seizing the money directly by repudiating the debt seemed better than depreciating the purchasing power through inflation.
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FURTHER RESOURCES
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For more of my writing on the economic problems of our day and the false solutions, see The Bush Bailout and What's Wrong With It.
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