Quote of the Day: The Keynesian Crank

In the early 20th century, John Maynard Keynes came up with a new idea about economics. The politicians loved it; Keynes explained how they could meddle in private affairs on a grand scale, and, of course, make things better.

Keynes argued that a government could take the edge off a business recession by making more credit available when money got tight, and by spending itself to make up for the lack of spending on the part of consumers and businessmen. Keynes suggested, whimsically, hiding bottles of cash all around town, where boys might find them, spend the money, and revive the economy.

The new idea caught on. Soon economists were advising all major governments about how to implement the new “ism.” It did not seem to bother anyone that the new system was a fraud. Where would this new money come from? And what made anyone think that the economists’ judgment of whether it made sense to spend or save was better than any individual’s?

All the Keynesians had done was to substitute their own guesses for the private, personal, economic opinions of millions of ordinary citizens. They had resorted to what Franz Oppenheimer called “political means,” instead of allowing normal “economic means” to take their own course.

The economists wanted what everyone else wants: power, prestige, women (except for Keynes himself, who preferred men). And there are only two ways to get what you want in life. There are honest means, and dishonest ones.

There are economic means, and there are political means. There is persuasion and there is force. There are civilized ways and barbaric ones.

The economist is a harmless crank as long as he is just peeping through the window, but when he undertakes to get people to do what he wants–either by offering them money that is not his own, by defrauding them with artificially low interest rates, or by printing up money that is not backed by something of real value such as gold–he has crossed over to the dark side. He has moved to political means to get what he wants. He has become a jackass.

Keynesian “improvements” were applied in the 1920s — when then Fed governor Ben Strong decided to give the economy a little “coup de whiskey” — and later in the 1930s when the stock market was recovering from the hangover.

The results were predictably disastrous. And along came other economists with their own bad ideas. Rare was the man, such as Robert Lucas or Murray Rothbard, who pointed out that you could not really improve economic results with political means.

If a national assembly could make people rich simply by passing laws, we would all be billionaires, because assemblies have passed a multitude of laws and seem capable of enacting any piece of legislation brought before them. If laws could make people wealthy, some assembly somewhere would have found the magic edicts — simply by chance.

Instead of making them richer, each law makes them a little poorer. Every time political means are used they interfere with the private, civilized economic arrangements that actually get people what they want.

This is from Bill Bonner of the Agora Publishing at the Forbes  (hat tip Mises Blog)