Thursday, December 7, 2017

More Comments on Keynes



Yesterday we hung our Canadian correspondent out to dry by publishing his comments on Keynes . . . with his permission, of course.  We wouldn’t want to offend those aggressive Canadians who would then swarm across the border to take bloody revenge, crying havoc and letting slip the dogs of war.

Since we survived the first one, however, here is the second half of the comments, just as pithy as the first, and leaving that wild, aggressive Canadian spelling in place.  We left off yesterday with the observation that if the definition of “money” is determined by the State rather than the parties to a contract, the State effectively controls all economic activity.
Plus, if the State can change the definition at any time (e.g., by changing the value or saying something else must be used to fulfil a contract), then nobody ever knows where he or she stands.  Has full value been given and received?  Has the contract even been fulfilled?  Is it even possible to complete a transaction if the terms of the contract keep changing?
Believe it or not, and we won’t name names, but we have had a series of run-ins with an “economist” who insists it is impossible to buy capital on credit because the interest on the loan will take all profits, so the transaction, if just on his terms, can never be completed.  Of course, what this “economist” is doing — and we assure you he is a real person and that is his actual position — is confusing the cost of capital, return on investment, past savings, future savings, price, value, and a whole raft of other things.  The real problem is that he’s a Platonist and thinks ideas have an existence separate from the human mind, while we’re Aristotelians and know that ideas are abstractions that cannot even exist without people to think them up, so we’re right and he’s wrong.
"Let me give a ridiculous and impossible example."
But back to Keynes, money, and our Canadian correspondent’s comments on Keynesian monetary theory based on the slavery of past savings.  As he (the Canadian, not Keynes) pointed out, “The yellow rocks view of capital, or the fiat money view, is comparatively sane in relation to Keynes’s view on compound interest.”  But that doesn’t finish off Keynes, not by a long shot.  As Keynes declared,
Now it happens that £40,000 accumulating at 3½ per cent compound interest approximately corresponds to the actual volume of England’s foreign investments at various dates, and would actually amount to-day to the total of £4,000,000,000 which I have already quoted as being what our foreign investments now are. Thus, every £1 which Drake brought home in 1580 has now become £100,000. Such is the power of compound interest!
Of course, Keynes neglected to mention the unimportant fact that when Drake brought home the proceeds of his piracy, there was no one with whom or which he could deposit his £40,000; commercial banking had not become reinstitutionalized, there were things like taxes, confiscations, the English Civil War, and a bunch of other things that precluded the fantasy of depositing funds and just letting them grow.
In Drake’s day there were only three things in general you could do with cash until the invention of central banking and the Industrial Revolution.  You could hoard it (no interest), spend it (ditto), or buy land (and get rent, which is “interest” from land . . . and you can’t keep buying land with the rent on land because new land doesn’t come into being on demand . . . so you spend it, not get interest on it).  Keynes’s example, then, was a ludicrous fantasy that assumed all income is reinvested, and none is consumed . . . contradicting Adam Smith’s first principle of economics that “Consumption is the sole end and purpose of all production.”
And Our Canadian’s Comments?
So, the neighbour comes back after finding some yellow rocks so you can get together and build the fence. Except, I invested my yellow rocks while he was gone. Compressing time to illustrate the example, now to put my investment to use, instead of building one fence, I have to build 100,000 fences or the equivalent; regardless if anyone wants or needs this production. Easy, we just have to advertise and condition people to want infinite material goods. Never mind if they are unhappy pursuing such things, or that we are destroying the environment we depend upon. The symbols, call if a golden calf, created by the compounded yellow rocks must be served.
It’s a difficult time worshipping the compounded golden calf. But you and the neighbour come up with an idea while commiserating about the difficulties of following the logic of such expert economists as John Maynard Keynes. Why don’t we wreck our fence, and then rebuild it; that’ll use up some of the compounding ‘capital’. Not enough? Let’s burn each other’s houses and rebuild them. Tada, much compounding used up, although sorry that your wife got in the way while I was sledgehammering the door open. No prob, your kid got stuck in his room when the fire blocked the exit. Hey, we can use up more capital for funerals; and lookit that GDP go up; this is great; maybe we should get entire countries burning each other and killing wives and kids.
As for Keynes championing immorality, he comes clean in this essay:

"Look what I got them to swallow this time!"
Perhaps it is not an accident that the race which did most to bring the promise of immortality into the heart and essence of our religions has also done most for the principle of compound interest and particularly loves this most purposive of human institutions.
I see us free, therefore, to return to some of the most sure and certain principles of religion and traditional virtue – that avarice is a vice, that the exaction of usury is a misdemeanour, and the love of money is detestable, that those walk most truly in the paths of virtue and sane wisdom who take least thought for the morrow. We shall once more value ends above means and prefer the good to the useful. We shall honour those who can teach us how to pluck the hour and the day virtuously and well, the delightful people who are capable of taking direct enjoyment in things, the lilies of the field who toil not, neither do they spin.
But beware! The time for all this is not yet. For at least another hundred years we must pretend to ourselves and to everyone that fair is foul and foul is fair; for foul is useful and fair is not. Avarice and usury and precaution must be our gods for a little longer still. For only they can lead us out of the tunnel of economic necessity into daylight.
His statement is like a junky saying I just need one more hit of cocaine, or the rush that power brings for politicos; and then it is time to stop. Like the character says in the Jane’s Addiction song, ‘I’m gonna quit tomorrow’. Except of course tomorrow never comes.
To keep doing the Keyne’s drug you just have to believe the essence of our religions is compound interest. Nevermind logic, nevermind what the good books say. Up is down; Jesus worshipped moneylenders etc. And now “we must pretend foul is fair and fair is foul; avarice, usury must be our gods for a little longer”.
According to Keynes, not only does the state have the right to re-edit the dictionary, the words don’t have to make any sense; just as up is now down, the new definition of fair is foul.
Anyways, time to stop the madness with the Just Third Way, decentralize power, mind Lord Acton’s dictum.
And, so you know this is Authentically Canadian, he closed with:
😢Sorry, got a bit carried away.
We’re not.
#30#

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