Honest Money

The privileges of the dollar fraternity must be maintained at all cost.

The 15 November 2008 Group of 20 nations (G20) summit in Washington seems to be thinking about reviving Keynesianism. Keynes would have presented the solutions we need for the present crisis.

The International Monetary Fund (IMF) plans to use the conference to lobby nations for a big dose of Keynesian pump priming — running big budget deficits to cut taxes and boost spending. The USA has started in this direction, but many European countries are sceptical, says the Wall Street Journal this morning. (1)

Nobel prize laureate Friedrich von Hayek could occasionally discuss the crucial issues with Keynes. Hayek realised that Keynes was not a highly trained economist, that Keynes was not even centrally concerned with the development of economics as a science. Keynes was neither a full master of the body of economic theory then available nor did he really care to acquaint himself with it. Keynes’ aim was to influence current policy and economic theory was for him simply a tool for this purpose, says Hayek. (2)

Keynes’ entire system can be summarised in one sentence: A free market in labour and fall in wage rates is incapable of eliminating unemployment and mass unemployment is an inescapable feature of a capitalist economic system in modern conditions. (3)

Prior to the publication of Keynes’ book “The General Theory of Employment, Interest and Money” in 1936, people held the belief that monetary policy was a potent instrument for promoting economic stability (4) and economists had accepted the proposition that unemployment can be eliminated by a fall in wage rates. (5)

With Keynes, the belief shifted almost to the opposite extreme that “money does not matter”.

Keynes’ alternative provided both an appealing justification and a prescription for extensive government intervention. (6)

Whereas economists argue that purchasing power grows out of production (7), Keynes argued that general employment is always positively correlated with the  aggregate demand for consumer goods. (8)

The sum and substance of the “Keynesian Revolution” was the thesis that there CAN be an unemployment equilibrium on the free market. (9)

One grave and fundamental error is Keynes’ insistence to regard interest rates (10) as the price of money. (11)

Interest rates are not the contract rate on loans. Interest rates are the price spreads between the stages of production. The former is only a reflection of the latter. But it requires no Keynesian labyrinth to explain this phenomenon. (12)

As the Wall Street Journal is reporting this morning, organised deficit spending to the benefit of those who are on the receiving end of the free money causing the deficits has become the enlightened IMF policy of the day. By the same token, the central bank issuing the green paper is being established as the world central bank.

At the end of the day, that is now, this planet’s economy is a debt-driven political economy to the benefit of the same dollar fraternity.

Hence, the USA Federal Reserve will do what it takes to maintain its credibility, which is central to preserving the integrity of the US dollar, said Dallas Federal Reserve Bank President Richard Fisher last week on Tuesday. (13)

Keynes never recognised that progressive inflation was needed in order that any growth in monetary demand could lastingly increase the employment of labour (14), but thought that one can spend one’s way out of recession by boosting government spending. (15)

The IMF plans to use the 15 November 2008 Washington G20 conference to lobby for the dollar fraternity.

Ivo Cerckel
Siquijor, 10 November 2008

NOTES

(1)
Nations Strive for Unity on Financial Crisis
By BOB DAVIS
NOVEMBER 10, 2008
http://online.wsj.com/article/SB122628033558712405.html?mod=googlenews_wsj
SNIP
The IMF plans to use the conference to lobby nations for a big dose of Keynesian pump priming — running big budget deficits to cut taxes and boost spending. The U.S. has started in this direction, but many European countries are skeptical.

(2)
Friedrich A. von Hayek, “The Keynes Centenary – The Austrian Critique”, in Hayek,  Chiaki Nishiyama and Kurt Leube, eds.), “The Essence of Hayek” ,Hoover Institution Press, 1984), 43,,  p. 44-45

(3)
George Reisman, “Capitalism – A Treatise on Economics”, Ottawa, Illinois, Jameson books, 1998. 3rd ed., p 864

(4)
Milton and Rose Friedman, “Free to Choose – A Personal Statement”, New York and London, Harcourt Brace Jovanovich, 1980,  p. 70-71

(5)
Reisman, op. cit., p. 864

(6)
Friedman, op. cit., loc. cit.

(7)
Benjamin M. Anderson, “Economics and the Public Welfare – A Financial and Economic History of the United States, 1914-46”, Indianapolis, Liberty Press, 1979, 2nd ed., (first ed. published in 1949 by D. Van Nostrand Company), p. 384

(8)
Hayek, art. cit., p. 43

(9)
Murray N. Rothbard, “Man, Economy, and State – A Treatise on Economics”, Auburn, Alabama: Ludwig von Mises Institute 2001, (originally published 1962).,  p. 685

(10)
Rothbard, op. cit., p. 691

(11)
Reisman, op. cit., p. 863

(12)
Rothbard, op. cit., p. 691

(13)
http://news.goldseek.com/GoldSeek/1225998899.php

(14)
Hayek, art. cit., p. 44bard, op. cit., p. 691

(15)
Gordon Brown and his cohorts go back to their Keynesian default setting
By Liam Halligan
Last Updated: 12:33am BST 10/08/2008
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/08/10/ccliam110.xml
SNIP
I hesitate to admit this, but one of my earliest memories is a political speech. I distinctly remember, as a pyjama-clad seven-year old, hearing the following words. “We used to think you could spend your way out of recession by boosting government spending. I tell you, in all candour, that option no longer exists. And in so far as it did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by higher unemployment as the next step…” Jim Callaghan on News at Ten  1976 Labour party conference.

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