Why Listen to Keynes in the First Place (Miller)

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 20^th 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 20^th 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!