Wednesday, December 6, 2017

Some Comments on Keynes



A short time ago we made a few remarks about Lord Keynes, the Defunct Economist who rules modern political economy.  Within hours of posting the comments, we heard from a faithful reader up in Canada, who started off with, “Interesting read.”  Well, “interesting” can be good or bad; we recall the foreword G.K. Chesterton wrote to a book by the guild socialist Arthur Penty that said the questions Penty raised were “interesting” and “important” . . . and managed to say not one word one way or another about Penty’s answers. . . .

"I am the Great Defunct Economist"
Fortunately, our Canadian correspondent meant “interesting” in a good way.  As we had said,
Someone took exception to the statement by John Maynard Keynes we quoted in a blog posting to the effect that the State has the right to “re-edit the dictionary” when it comes to altering the meaning of money and changing the terms of contracts.  Evidently missing the fact that Keynes was quoted verbatim and the cite given, the commentator declared Keynes had never said any such thing.  
Our Man in Canada had this to say:
It is not difficult for anyone, especially in the age of the Internet to determine the character of Keynes and the quality of his arguments. In my opinion, he became famous because of his championing of immorality, and more importantly, his insane beliefs about capital. These qualities were important to a ruling class that well understood the effectiveness of what writer Kurt Vonnegut called the “capacity to astonish.”  
That is: most people project their own sensibilities onto a person they are communicating with. If it is a complex subject, or a simple matter made intentionally complex, they will give credence to the most bizarre explanations; simply because they cannot imagine a well-dressed, well-spoken person, held in some esteem; communicating ideas that are infinitely silly.
For example, consider the following from his Economic Possibilities for our Grandchildren (John Maynard Keynes, Essays in Persuasion, New York: W. W. Norton & Co., 1963, pp. 358-373.)  Keynes wrote:
"Ignore him. He's Canadian. I'm British. Listen to me."
From the earliest times of which we have record – back, say, to two thousand years before Christ – down to the beginning of the eighteenth century, there was no very great change in the standard of life of the average man living in the civilised centres of the earth. Ups and downs certainly. Visitations of plague, famine, and war. Golden intervals. But no progressive, violent change. Some periods perhaps 5o per cent better than others at the utmost 1 00 per cent better – in the four thousand years which ended (say) in A. D. 1700.
This slow rate of progress, or lack of progress, was due to two reasons – to the remarkable absence of important technical improvements and to the failure of capital to accumulate.
Technical improvements are inherently self-augmenting; so, of course, they picked up speed, and kept increasing speed, once society reached a certain communications threshold. The things created by the technical improvements were the capital of course. Real things that served people.
Because the book was written while the gold standard was still in effect, yellow rocks were given a prominent role as so-called capital.
Keynes continued:
"He's making me look stupid. I don't need his help."
The modern age opened; I think, with the accumulation of capital which began in the sixteenth century. I believe – for reasons with which I must not encumber the present argument – that this was initially due to the rise of prices, and the profits to which that led, which resulted from the treasure of gold and silver which Spain brought from the New World into the Old. From that time until to-day the power of accumulation by compound interest, which seems to have been sleeping for many generations, was re-born and renewed its strength. And the power of compound interest over two hundred years is such as to stagger the imagination.
Let me give in illustration of this a sum which I have worked out. The value of Great Britain’s foreign investments to-day is estimated at about £4,000,000,000. This yields us an income at the rate of about 6½ per cent. Half of this we bring home and enjoy; the other half, namely, 3¼ per cent, we leave to accumulate abroad at compound interest. Something of this sort has now been going on for about 250 years.
Rising prices leads to improved living standards for society? It gets worse. Imagine you and a neighbour are going to build a needed fence which you both desire. It increases the capital value both of your homes, as most people like fenced yards. Now your neighbour comes to you on the start-up date and says sorry, no can do. Why? Well, I thought I had some yellow rocks to exchange for your yellow rocks so we could begin work. Too bad we have to leave the lumber to rot and the nails to rust. I’m going to look for some yellow rocks, so maybe we can do something later.
Now, we don’t know about you, but we can listen to our Canadian correspondent for a lot longer than we can hear what’s coming out of the mouth of Keynes.  That being, the case, we’ll save the rest of the analysis for tomorrow.
#30#

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