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Saturday, September 20, 2014

Keynesian Klaptrap

John Maynard Keynes was the father of an economic theory which has been dominant in the US for over 70 years. The gist of his idea is that the government can promote prosperity by cutting taxes and increasing spending. He was so certain of this idea that in his book "The General Theory of Employment, Interest, and Money" he wrote:

"If the Treasury were to fill old bottles with bank-notes, bury them at suitable depths in disused coal-mines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of repercussions, the real income of the community, and its capital wealth, would probably become a good deal greater than it actually is."

This quote goes a long way in explaining the US government's insane spending policies.. American politicians are following the advice of a man who literally said we should throw money in a hole.
Of course, politicians are smart enough not to quote that part, so instead they call for "stimulus", which is the Latin word for a stick used to drive an animal ahead.

Keynes believed the key to prosperity was maintaining consistent demand, but that is false. Prosperity is the result of saving and producing, not borrowing and spending. Improvements come from capital, capital comes from savings, savings come from under-consumption. If no one saves, there is no money to borrow in order to build something new or start a business.

Unfortunately, inflation means you lose money if you save it. The dollar has lost about half its value during my lifetime. The only cure for inflation is money backed by gold or silver. It is not a coincidence that there was very little inflation in the US  until Nixon ended the gold standard in 1971.

I agree with Keynes when he said that in the long run we are all dead. However, I would prefer not to die as a result of economic ruin. 

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