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Failure of New Economics

Failure of New Economics

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Published by: markbd on Dec 26, 2009
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Keynes now follows with a section in which he offers his
nostrum as a remedy for removing the alleged "economic
causes of war." Strangely enough, he blames "domestic
laissez-faire and an international gold standard" as the causes
of "the competitive struggle for markets" (p. 382) between

All this, of course, is the exact opposite of the truth. Un-
der an international gold standard and freedom of trade,
there was a competition between individuals or between
firms for foreign and domestic business, but not between
nations as such. Several American firms might bid against
each other for a foreign contract, and if German firms were
also bidding for it, they would be competing with each
other as much as with the American firms. It is nationalism,
it is the nonsensical concept of a "balance of trade" that
does not take care of itself but can only be obtained by
government intervention, that causes the nationalistic
"struggle for markets."
Keynes denounces international trade as of the time that
he was writing as "a desperate expedient to maintain em-
ployment at home by forcing sales on foreign markets and
restricting purchases," whereas, under Keynesian econom-
ics, "if nations can learn to provide themselves with full
employment by their domestic policy . . . there need be no
important economic forces calculated to set the interest of
one country against that of its neighbors" (pp. 382-383).
None of this bears much relation to the truth. Under a
system of laissez faire (i.e., free trade at home and free trade
abroad) and an international gold standard, individuals
buy what they need wherever they can get it cheapest. They



sell in the best market. They do not think nationalistically.
And so far as the international gold standard is concerned,
nations can stay on it only by keeping their interest rates
and their obligations in term of gold in equilibrium with
those prevailing in the rest of the world. It is precisely the
Keynesian system, with its nationalistic fixing of interest
rates, with its domestic inflationism and its tricky devalua-
tions of national currencies, that turns the struggle for a
"favorable balance of trade" and for "foreign markets" into
an international struggle. And it is precisely because this
system seeks to maintain "full employment" by domestic-
currency, interest-rate, and investment tricks, by disregard-
ing the imbalance of production so brought about, and by
disregarding the loss from failure to take full advantage of
the international division of labor, that it is also a far less
efficient system.

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