John Maynard Keynes: The General Theory of Employment, Interest and Money

A Critique by Brett DiDonato (

This is a six part critique of John Maynard Keynes and his 1936 book The General Theory of Employment, Interest and Money. This document is a consolidation of articles originally written for the financial blog So You Think You Can Invest? found at

John Maynard Keynes is without a doubt the most influential economist of the last 100 years. Keynesian economics is taught at every major University and practiced by every central bank throughout the world. With that being said how many people in the general population, let alone economists, have actually sat down and read Keynes’s most famous work, The General Theory of Employment, Interest and Money? Our guess is not many. That’s why we decided to take the time to explore this work ourselves and what we found was quite astonishing. A brief disclaimer: We are not an economist, though we have read many economics works. Who and what we are is someone that knows how to

disseminate well thought out arguments from utter nonsense and we are tired of what passes for economic insight by supposed experts. We feel that the arguments presented herein can stand on their own merits. Our critique is divided into six parts, which are as follows:
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Part 1: Keynes Hated Stock Markets Part 2: Was John Maynard Keynes a Gold Bug? Part 3: Keynes's Guinea Pigs Part 4: Keynes Promoted the Destruction of Free Market Capitalism Part 5: Keynes on Government Stimulus, Digging Holes (with thoughts from Paul Krugman and Henry Hazlitt) Part 6: Keynes: Let’s Destroy the Value of Your Money

As a point of reference, you can read the full text of The General Theory of Employment, Interest and Money online for free at Now that that’s settled, let the criticizing begin…

Part 1: Keynes Hated Stock Markets

Keynes held some very surprising views in regards to stock markets. You are not likely to see these quotes highlighted by modern economists. Chapter 12, Section V:

Of the maxims of orthodox finance none, surely, is more anti-social than the fetish of liquidity, the doctrine that it is a positive virtue on the part of investment institutions to concentrate their resources upon the holding of “liquid” securities. It forgets that there is no such thing as liquidity of investment for the community as a whole. The social object of skilled investment should be to defeat the dark forces of time and ignorance which envelop our future. This battle of wits to anticipate the basis of conventional valuation a few months hence, rather than the prospective yield of an investment over a long term of years…For it is, so to speak, a game of Snap, of Old Maid, of Musical Chairs - a pastime in which he is victor who says Snap neither too soon or too late, who passes the Old Maid to his neighbor before the game is over, who secures for himself when the music stops. Keynes' words seem even more relevant today than they did in his day. Stock market yields are now far below their historical average. Dividends, or the expected increase in dividends, are practically ignored by stock analysts. Also, when is the last time you heard an economist note the downsides to liquidity? Chapter 12, Footnote 5: It is said that, when Wall Street is active, at least half of the purchases or sales of investments are entered upon with an intention on the part of the speculator to reverse them the same day. This is often true of the commodity exchanges also. Keynes would surely be appalled by today's market activity. We are now a world of high frequency trading between computers that hold positions for a fraction of a second at a time. Chapter 12, Section VI Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. The measure of success attained by Wall Street, regarded as an institution of which the proper social purpose is to direct new investment into the most profitable channels in terms of future yield, cannot be claimed as one of the outstanding triumphs of laisserz-faire capitalism – which is not surprising, if I am right in thinking that the best brains of Wall Street have been in fact directed towards a different object. These tendencies are a

scarcely avoidable outcome of our having successfully organized “liquid” investment markets. It is usually agreed that casinos should, in the public interest, be inaccessible and expensive...The introduction of a substantial Government transfer tax on all [stock market] transactions might prove the most serviceable reform available, with a view to mitigating the predominance of speculation over enterprise in the United States. The spectacle of modern investment markets has sometimes moved me towards the conclusion that to make the purchase of an investment permanent and indissoluble, like marriage, except by reason of death or other grave cause, might be a useful remedy for our contemporary evils. Let's start from the beginning of this passage. Keynes asserts that when Wall Street speculation becomes the driver for the economy, and not the other way around, the economy will suffer dire consequences. I think this is a pretty concise way to describe what is happening today and what the results have been and are likely to be going forward. Keynes then declares that Wall Street is not a great example of free market capitalism and that the primary purpose of Wall Street is not, contrary to popular belief, to allocate capital efficiently. Name me one well known economist, even amongst the so-called Keynesian economists, who professes this view. Finally, Keynes advised an increase in the transaction costs of stock trading in order to curb trading by the general public and in general, speculation in favor of investment. Keynes would certainly be against the much lower transaction costs present today compared to his time. He would also be appalled by the high level of speculation taking place by the public. The idea of a 401(k) would probably be absurd to Keynes. In essence, Keynes was against the workings of the stock markets of his day and, based on his specific grievances, would be against the workings of modern stock markets, only more so. For all of the lavish praise heaped upon Keynes and his most famous work, you would think that maybe one well known economist would share Keynes' views on stock markets or at least quote some of the passages mentioned here.

Part II: Was John Maynard Keynes A Gold Bug?

Since gold has been busy making new all time highs, it seems like an appropriate time to discuss John Maynard Keynes and his thoughts on gold. Keynes is commonly known as one of history’s biggest gold critics, famously referring to it as a “barbarous relic.” How accurate is this commonly held view? You might be surprised by what Keynes actually wrote on the subject. Dare we ask...was John Maynard Keynes a gold bug? Chapter 10, Section VI It is curious how common sense, wriggling for an escape from absurd conclusions, has been apt to reach a preference for wholly “wasteful” forms of loan expenditure rather than for partly wasteful forms, which, because they are not wholly “wasteful” forms of loan expenditure rather than for partly wasteful forms, which, because they are not wholly wasteful, tend to be judged on strict “business” principals. For example, unemployment relief financed by loans is more readily accepted than the financing of improvements at a charge below the current rate of interest; whilst the form of digging holes in the ground known as gold-mining, which not only adds nothing whatever to the real wealth of the world but involves the disutility of labour, is the most acceptable of all solutions.

First of all, I have never heard even the most hardcore gold bug suggest that a solution to unemployment is gold mining. I have not read everything written by the popular economists of Keynes’s day, of course, so perhaps I am wrong, but this passage strikes me as the ultimate straw man argument. Let’s move beyond the nonsensical argument to make one point. Gold mining does require a large commitment of labor, no doubt, but what of it? What are the alternatives? Fiat currency is certainly cheaper to produce but this is also its greatest weakness. The ease of production has ultimately been the undoing of all fiat currencies, while the difficultly of mining gold creates its scarcity and has led to its store of value for thousands of years. As a working man myself, trading my labor for something that is difficult to produce (gold) makes a lot more sense than trading my labor for something that has nearly zero cost (fiat currency). If the treasury secretary can simply hand unlimited amounts of money to his friends who did not know how to run their businesses, why am I working so hard to obtain these same dollars? It is not a stupid question. Chapter 10, Section VI At periods when gold is available at suitable depths experience shows that the real wealth of the world increases rapidly; and when but little of it is so available, our wealth suffers stagnation or decline. Thus gold-mines are of the greatest value and importance to civilisation. just as wars have been the only form of large-scale loan expenditure which statesmen have thought justifiable, so goldmining is the only pretext for digging holes in the ground which has recommended itself to bankers as sound finance; and each of these activities has played its part in progress-failing something better. To mention a detail, the tendency in slumps for the price of gold to rise in terms of labour and materials aids eventual recovery, because it increases the depth at which gold-digging pays and lowers the minimum grade of ore which is payable. There is a lot to digest in this passage so let’s start again at the beginning… At periods when gold is available at suitable depths experience shows that the real wealth of the world increases rapidly; and when but little of it is so available, our wealth suffers stagnation or decline. This can only be construed as a positive remark by Keynes on gold. The more gold there is, the greater the wealth. I own gold and yet I completely disagree with these sentiments. An increase in the supply of gold does not

increase real wealth whatsoever. An increase in the supply of gold will cause an increase in prices relative to gold, and may kick start an inflationary cycle which raises prices, but real wealth is much the same as before. You would think an economist would know the difference. If we go back to his original quote in this post, Keynes actually said the exact opposite – "gold-mining, which not only adds nothing whatever to the real wealth…" Is this man playing a trick on us or is he just incapable of consistency? Thus gold-mines are of the greatest value and importance to civilisation, just as wars have been the only form of large-scale loan expenditure which statesmen have thought justifiable, so goldmining is the only pretext for digging holes in the ground which has recommended itself to bankers as sound finance; and each of these activities has played its part in progress-failing something better. Wow – there is a lot said in just this one passage. First, Keynes claims that gold mines are of great value to civilization. Does that sound like someone who detests gold? Certainly not. Next, Keynes equates gold mining to wars in that both have led to great progress. Perhaps for the victors, whom go the spoils, war is the road to prosperity. As a whole civilization, however, war is a net negative. Economics is defined as the social science that studies the production, distribution, and consumption of goods and services. If nothing else, the job of an economist is to argue the merits of peace and free trade, and show how it is a superior form of civilization compared to war and tyranny. I submit that an economist who espouses the progress of war is not an economist at all. To mention a detail, the tendency in slumps for the price of gold to rise in terms of labour and materials aids eventual recovery, because it increases the depth at which gold-digging pays and lowers the minimum grade of ore which is payable. Keynes overplays the importance of the new profitability of gold mining as a catalyst for economic recovery. After all, exactly how many people does he expect to become gold miners? At the same time, in general, he is right. Economic slumps naturally correct themselves because input costs decrease in relation to money (deflation) to the point where new production will be revived. This is in line with what most Austrian economists believe and this directly contradicts the need for government intervention in markets during economic slumps. This article is about gold so I will move on from here but I will discuss this subject more in my next Keynes article. Chapter 10, Section VI Ancient Egypt was doubly fortunate, and doubtless owed to this its

fabled wealth, in that it possessed two activities, namely pyramidbuilding as well as the search for the precious metals, the fruits of which, since they could not serve the needs of man by being consumed, did not stale with abundance. As in the previously quotes passage, as Keynes praises gold I find myself shaking my head in disgust. Ancient Egypt had “fabled wealth?” Wealth for whom? The pharaohs certainly lived a life of abundance. Do you think the slaves who worked backbreaking labor building pyramids in the scolding desert heat felt the same way? To them, Ancient Egypt may have been fabled but it certainly was not wealthy. In Keynes's mind, however, gold and pyramids were the cause of Egypt’s wealth and certainly not just a byproduct of other wealth creating mechanisms. What nonsense. Chapter 23, Section II The economic history of Spain in the latter part of the fifteenth and in the sixteenth centuries provides an example of a country whose foreign trade was destroyed by the effect on the wage-unit of an excessive abundance of the precious metals. This directly contradicts the Keynes quote we featured earlier. “At periods when gold is available at suitable depths experience shows that the real wealth of the world increases rapidly; and when but little of it is so available, our wealth suffers stagnation or decline.” I think both explanations by Keynes are wrong so I will restate my stance. An increase in the supply of gold does not increase real wealth whatsoever. An increase in the supply of gold will cause an increase in prices relative to gold, and may kick start an inflationary cycle which raises prices, but real wealth is much the same as before. Such an extreme example of a rapid increase of gold supply is interesting but not that useful in the grand scheme of things, since the supply of gold has been fairly steady over long periods of time. Compare the supply of gold over any one hundred year period to any fiat currency over that same period and I do not suspect that the fiat maintained a more stable supply over any period in history. Imperfect, yes, but superior to the alternatives. Chapter 23, Section II The history of India at all times has provided an example of a country impoverished by a preference for liquidity amounting to so strong a passion that even an enormous and chronic influx of the precious metals has been insufficient to bring down the rate of interest to a level which was compatible with the growth of real wealth.

I think the example of India unfairly blames gold for the economic condition of that country. Gold has been historically hoarded by Indians because of their weak economy and financial institutions, and thus is a symptom of their plight and not the cause. As the Indian economy continues to grow and prosper over the foreseeable future, we are likely to see a decrease in the hoarding of gold as better investment alternatives continue to expand. It is certainly an interesting topic for discussion, however, and I would love to hear more arguments on this subject, perhaps from someone who understands the Indian culture better than I do. So was John Maynard Keynes a gold bug? Hardly. What we have shown, however, was that Keynes did not have a total disdain for gold as is often claimed. His constant contradictions on the subject are undoubtedly a source of confusion, so it is not surprising that the general understanding of his views on the subject is low. The more I read Keynes, the more I tend to think that this man was playing a trick on the world. He surely must have noticed the massive contradictions he presented on many subjects, in this case gold but I have other examples, and yet he always espoused his views with the certainty of law. Are half of his passages what he actually believes while the other half are in simply made in jest? It is hard to say.

Part III: Keynes's Guinea Pigs

Back in January of 2009 we wrote an article for our financial blog titled The Fed Will Buy All Treasury Bonds in Existence if Necessary. The aim of that post was to settle an argument over whether the Fed would actually follow

through with its threat at the time to buy long dated treasury bonds. We argued that Ben Bernanke gave a speech in 2002 that covered the topic, and he explicitly stated that he believed the Fed could control both short and long term interest rate by outright purchasing treasury bonds. Sure enough, on March 28, 2009, the Fed announced its program to buy $300 billion in treasury bonds over the coming months. Since that time, the Fed has become the largest purchaser of treasury and agency debt in the world. We still aren't quite sure why so many were unwilling to believe that the Fed would do this. Moving on, in August, President Obama nominated Bernanke for a second term as Fed Chairman. The word used over and over to describe Bernanke was "creative." See the following quotes...
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Mr. Bernanke is seen by supporters inside the administration and in markets as a creative and steady hand. He’s been far more aggressive and creative than almost anyone else would have been in his place. He has done a remarkably creative job of dealing with these problems.

How creative has Bernanke been really? After reading John Maynard Keynes, it becomes obvious that at least one of Bernanke's so called creative ideas should properly be credited to Keynes. First, let's examine briefly what Bernanke said in his now famous 2002 speech: So what then might the Fed do if its target interest rate, the overnight federal funds rate, fell to zero? One relatively straightforward extension of current procedures would be to try to stimulate spending by lowering rates further out along the Treasury term structure--that is, rates on government bonds of longer maturities. [One direct method] would be for the Fed to begin announcing explicit ceilings for yields on longer-maturity Treasury debt (say, bonds maturing within the next two years). The Fed could enforce these interest-rate ceilings by committing to make unlimited purchases of securities up to two years from maturity at prices consistent with the targeted yields. If this program were successful, not only would yields on mediumterm Treasury securities fall, but (because of links operating

through expectations of future interest rates) yields on longer-term public and private debt (such as mortgages) would likely fall as well. Lower rates over the maturity spectrum of public and private securities should strengthen aggregate demand in the usual ways and thus help to end deflation. Of course, if operating in relatively short-dated Treasury debt proved insufficient, the Fed could also attempt to cap yields of Treasury securities at still longer maturities, say three to six years. Yet another option would be for the Fed to use its existing authority to operate in the markets for agency debt (for example, mortgage-backed securities issued by Ginnie Mae, the Government National Mortgage Association). Bernanke held true to his words from 2002 and enacted these very programs in 2009. John Maynard Keynes wrote similar thoughts all the way back in 1936: Chapter 15, Section III Perhaps a complex offer by the central bank to buy and sell at stated prices gilt-edged bonds [English government bonds] of all maturities, in place of the single bank rate for short-term bills, is the most important practical improvement which can be made in the technique of monetary management. The monetary authority often tends in practice to concentrate upon short-term debts and to leave the price of long-term debts to be influenced by belated and imperfect reactions from the price of short-term debts; — though here again there is no reason why they need do so. There is the possibility, for the reasons discussed above, that, after the rate of interest has fallen to a certain level, liquidity-preference may become virtually absolute in the sense that almost everyone prefers cash to holding a debt which yields so low a rate of interest. In this event the monetary authority would have lost effective control over the rate of interest. But whilst this limiting case might become practically important in future, I know of no example of it hitherto. Indeed, owing to the unwillingness of most monetary authorities to deal boldly in debts of long term, there has not been much opportunity for a test. Moreover, if such a situation were to arise, it would mean that the public authority itself could borrow through the banking system on an unlimited scale at a nominal rate of interest.

I am sure Keynes would be thrilled to know that a test of his ideas would eventually be enacted, with us modern day folks being the guinea pigs of this experiment. It only seems appropriate to describe the current situation we are faced with by using a quote from Keynes himself: Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.

Part IV: Keynes Promoted the Destruction of Free Market Capitalism

All the way back in 1936, Keynes laid out the game plan that government officials and central bankers have followed until this very day. In part III, we noted that Keynes was the source of Bernanke's economic stimulus game plan. In this part, we will show that Keynes's influence goes far beyond this. His influence is the guiding policy for our entire economic and political system. To put it bluntly, Keynes promoted the destruction of free market capitalism. Skeptical? We will provide the proof right here. Let's get to the quotes and you can be the judge... Chapter 22, Section III In conditions of laissez-faire the avoidance of wide fluctuations in employment may, therefore, prove impossible without a farreaching change in the psychology of investment markets such as there is no reason to expect. I conclude that the duty of ordering the current volume of investment cannot safely be left in private hands. Did you get that? Keynes declared that free markets must be removed of their role of allocating capital, which is the very backbone of capitalism. Those promoting themselves as Keynesians are in favor of something that is very different from free market capitalism. Chapter 24, Section III The State will have to exercise a guiding influence on the propensity to consume partly through its scheme of taxation, partly by fixing the rate of interest, and partly, perhaps, in other ways. Furthermore, it seems unlikely that the influence of banking policy on the rate of interest will be sufficient by itself to determine an optimum rate of investment. I conceive, therefore, that a somewhat comprehensive socialisation of investment will prove the only means of securing an approximation to full employment… I suppose that since Keynes only wanted a "somewhat comprehensive socialisation of investment" that he was somewhat more in favor of free market capitalism than Karl Marx. How wonderful. You have to laugh at the ignorance or gall that it takes for someone to declare themselves both a Keynesian and a free market capitalist. Chapter 24, Section III It is not the ownership of the instruments of production which it is important for the State to assume. If the State is able to determine the aggregate amount of resources devoted to augmenting the instruments and the basic rate of reward to those who own them, it will have accomplished all that is necessary. Moreover, the

necessary measures of socialisation can be introduced gradually and without a break in the general traditions of society. This is perhaps the most prescient quote of the entire 20th century. Keynes is saying that the government can come to wrestle control from the free market, not by the forceful confiscation of private property as characterized by Communism, but by merely determining the rules behind who gets the property. Today, we call one extreme form of this mechanism a government bailout. Further, he noted that if the socialization is done gradually then there is no need for a violent and abrupt upheaval, as found via a Coup d'état. Does this not precisely describe what has taken place over the past century? A slow, steady creep of socialization has conquered the western world. Passages like those found above are why I do not believe in conspiracy theories. Who needs them when the great stories of history are laid out for you in black and white? I'll leave you with one final thought. When economists speak of Keynesian economics, the above ideas are what they are promoting. If they do things and promote ideas that seem antithetical with free market capitalism, now you know why.

Part V: Keynes on Government Stimulus, Digging Holes

Let’s discuss government stimulus. John Maynard Keynes is often credited with originating the ideas for the various government stimulus efforts that are currently being employed by almost all of the major nations of the world. But how accurate is this really? As we will see below, it is quite fascinating to read what Keynes actually said about certain government stimulus efforts. Chapter 22, Section III The right remedy for the trade cycle is not to be found in abolishing booms and thus keeping us permanently in a semi-slump; but in abolishing slumps and thus keeping us permanently in a quasiboom. This is the basic game plan employed by Keynesians, or in other words, every central banker. Booms should not be stifled and busts should be battled with government stimulus. The opposing view presented by Austrian Economists is that booms lead to busts and thus booms should be prevented from getting out of control in the first place. Chapter 8, Section IV In the United States, for example, by 1929 the rapid capital expansion of the previous five years had led cumulatively to the setting up of sinking funds and depreciation allowances, in respect of plant which did not need replacement, on so huge a scale that an enormous volume of entirely new investment was required merely to absorb these financial provisions; and it became almost hopeless

to find still more new investment on a sufficient scale to provide for such new saving as a wealthy community in full employment would be disposed to set aside. This factor alone was probably sufficient to cause a slump. And, furthermore, since “financial prudence” of this kind continued to be exercised through the slump by those great corporations which were still in a position to afford it, it offered a serious obstacle to early recovery. Keynes says that the massive excesses created by the boom were enough to cause an inevitable slump. This inevitable slump became the great depression. One would think that it would logically follow that we should try to prevent booms from getting too out of hand (the Austrian argument) but based on the first quote in this article, Keynes clearly did not feel this way. Chapter 8, Section IV …in Great Britain at the present time (1935) the substantial amount of house-building and of other new investments since the war [since the end of WWI in 1918] had led to an amount of sinking funds being set up much in excess of any present requirements for expenditure on repairs and renewals, a tendency which has been accentuated, where the investment had been made by local authorities and public boards, by the principals of “sound” finance which often require sinking funds sufficient to write off the initial cost some time before replacement will actually fall due; with the result that even if private individuals were ready to spend the whole of their net incomes it would be a severe task to restore full employment in the face of this heavy volume of statutory provision by public and semi-public authorities, entirely dissociated from any corresponding new investment…Yet is not certain that the Ministry of Health are aware, when they insist on stiff sinking funds by local authorities, how much they may be aggravating the problem of unemployment. A housing boom that led to a massive bust…where have we heard this story before? Keynes was against the government efforts of his time to spend money to stimulate the housing market. He said it aggravated unemployment. Name one central banker who holds this position. Chapter 10, Section VI If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on welltried 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 the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing. To the layman (aka those with common sense) the above argument strikes one as utter insanity. Thankfully, we have prominent economists such as nobel laureate Paul Krugman who advocates such ideas. Krugman even featured this passage on a recent blog post. So rest assured, the above makes total sense. Forget the fact that Henry Hazlitt debunked this theory in 1946 with his work Economics in One Lesson. Hazlitt called this the broken window fallacy.

Economics in One Lesson by Henry Hazlitt: A young hoodlum, say, heaves a brick through the window of a baker’s shop. The shopkeeper runs out furious, but the boy is gone. A crowd gathers, and begins to stare with quiet satisfaction at the gaping hole in the window and the shattered glass over the bread and pies. After a while the crowd feels the need for philosophic reflection. And several of its members are almost certain to remind each other or the baker that, after all, the misfortune has its bright side. It will make business for some glazier. As they begin to think of this they elaborate upon it. How much does a new plate glass window cost? Two hundred and fifty dollars? That will be quite a sun. After all, if windows were never broken, what would happen to

the glass business? Then, of course, the thing is endless. The glazier will have $250 more to spend with other merchants, and these in turn will have $250 more to spend with still other merchants, and so ad infinitum. The smashed window will go on providing money and employment in ever-widening circles. The logical conclusion from all this would be, if the crowd drew it, that the little hoodlum who threw the brick, far from being a public menace, was a public benefactor. Now let us take another look. The crowd is at least right in its first conclusion. This little act of vandalism will in the first instance mean more business for some glazier. The glazier will be no more unhappy to learn of the incident than an undertaker to learn of a death. But the shopkeeper will be out $250 that he was planning to spend for a new suit. Because he has had to replace the window, he will have to go without the suit (or some equivalent need or luxury). Instead of having a window and $250 he now has merely a window. Or, as he was planning to buy the suit that very afternoon, instead of having both a window and a suit he must be content with the window and no suit. If we think of him as part of the community, the community has lost a new suit that might otherwise have come into being, and is just that much poorer. The glazier’s gain of business, in short, is merely the tailor’s loss of business. No new “employment” has been added. The people in the crowd were thinking only of two parties to the transaction, the baker and the glazier. They had forgotten the potential third party involved, the tailor. They forgot him precisely because he will not now enter the scene. They will see the new window in the next day or two. They will never see the extra suit, precisely because it will never be made. They see only what is immediately visible to the eye. A very basic economic concept known as opportunity cost describes this as well. How can this possibly be overlooked by anyone that claims to be economist? Regardless, people such as Paul Krugman conveniently forget one important aspect of Keynes's argument: Chapter 16, Section III “To dig holes in the ground,” paid for out of savings, will increase, not only employment, but the real national dividend of useful goods and services.

"Paid for out of savings" is the crux. A country such as China, with their massive reserves, may actually benefit from government stimulus. This is only true because the source of the stimulus is savings. The US has major deficits and thus stimulus efforts are not coming out of savings but out of debt. This is a big difference and most central bankers are conveniently ignoring this fact.

Part VI: Keynes: Let's Destroy the Value of Your Money

For part six we will discuss how Keynes promoted the destruction of the value of money. This is commonly referred to by the euphemism inflation but, as we will see, Keynes went even beyond promoting a modest inflation target. Keynes supported this despite correctly acknowledging that inflation and currency destruction in general hurts the poor disproportionately. Chapter 19, Section II Except in a socialised community where wage-policy is settled by decree, there is no means of securing uniform wage reductions for every class of labour. The result can only be brought about by a series of gradual, irregular changes, justifiable on no criterion of social justice or economic expediency, and probably completed only after wasteful and disastrous struggles, where those in the weakest

bargaining position will suffer relatively to the rest. A change in the quantity of money, on the other hand, is already within the power of most governments by open-market policy or analogous measures. Having regard to human nature and our institutions, it can only be a foolish person who would prefer a flexible wage policy to a flexible money policy, unless he can point to advantages from the former which are not obtainable from the latter. Moreover, other things being equal, a method which it is comparatively easy to apply should be deemed preferable to a method which is probably so difficult as to be impracticable. The question here is - what is the best method to lower employee wages? Keynes argues that it is far better to reduce wages through inflation because it is less understood than a direct reduction in numeric value. If one's goal is to fool the masses, then quite frankly we agree. Chapter 19, Section II In fact, a movement by employers to revise money-wage bargains downward will be much more strongly resisted than a gradual and automatic lowering of real wages as a result of rising prices. Central bankers like Keynes know that from a psychological standpoint, stealing your money indirectly through inflation is the preferred method. When someone promotes an inflationary policy, remember that this is what they are advocating - they want to fool you. Chapter 20, Section III For a time at least, rising prices may delude entrepreneurs into increasing employment beyond the level which maximises their individual profits measured in terms of the product. For they are so accustomed to regard rising sale-proceeds in terms of money as a signal for expanding production, that they may continue to do so when this policy has in fact ceased to be to their best advantage; i.e. they may underestimate their marginal user cost in the new price environment. Since that part of his profit which the entrepreneur has to hand on to the rentier is fixed in terms of money, rising prices, even though unaccompanied by any change in output, will re-distribute incomes to the advantage of the entrepreneur and to the disadvantage of the rentier, which may have a reaction on the propensity to consume. Not only did Keynes hope to fool the masses via inflation, but he hoped to fool entrepreneurs as well! Fortunately for the entrepreneurs and other

generally wealthy people, Keynes correctly recognized that inflation helps the rich at the expense of the poor, as Keynes describes here as well. Note that fooling entrepreneurs by making them think there is more demand than actually exists, Keynes is promoting the boom and bust cycle that continues to plague our economic system. Finally, Keynes went one step beyond promoting an inflationary policy. He also promoted the use of currency with an expiration date, aka "stamped money." Chapter 23, Section VI He [Silvio Gesell, 1862-1930] argues that the growth of real capital is held back by the money-rate of interest, and that if this brake were removed the growth of real capital would be, in the modern world, so rapid that a zero money-rate of interest would probably be justified, not indeed forthwith, but within a comparatively short period of time. Thus the prime necessity is to reduce the money-rate of interest, and this, he pointed out, can be effected by causing money to incur carrying-costs just like other stocks of barren goods. This led him to the famous prescription of “stamped” money, with which his name is chiefly associated and which has received the blessing of Professor Irving Fisher. According to this proposal currency notes (though it would clearly need to apply as well to some forms at least of bank-money) would only retain their value by being stamped each month, like an insurance card, with stamps purchased at a post office. The cost of the stamps could, of course, be fixed at any appropriate figure. According to my theory it should be roughly equal to the excess of the money-rate of interest (apart from the stamps) over the marginal efficiency of capital corresponding to a rate of new investment compatible with full employment. The actual charge suggested by Gesell was 1 per mil. per month, equivalent to 5.4 per cent. per annum. This would be too high in existing conditions, but the correct figure, which would have to be changed from time to time, could only be reached by trial and error. The idea behind stamped money is sound. It is, indeed, possible that means might be found to apply it in practice on a modest scale. But there are many difficulties which Gesell did not face. In particular, he was unaware that money was not unique in having a liquiditypremium attached to it, but differed only in degree from many other articles, deriving its importance from having a greater liquiditypremium than any other article. Thus if currency notes were to be deprived of their liquidity-premium by the stamping system, a long

series of substitutes would step into their shoes — bank-money, debts at call, foreign money, jewellery and the precious metals generally, and so forth. As I have mentioned above, there have been times when it was probably the craving for the ownership of land, independently of its yield, which served to keep up the rate of interest; — though under Gesell’s system this possibility would have been eliminated by land nationalisation. Not only do Keynes and Irving Fisher want to destroy the value of your money but they want to nationalize your land (aka Communism). The bottom line is that Keynes and his followers want to stamp out the free market and steal your land, and thus freedom, because they think they know better than you. It's all right there in black and white.

Concluding Words

We hope that you have found our critique of John Maynard Keynes and his most famous work, The General Theory of Employment, Interest and Money both interesting and informative. We feel that in light of the recent economic turmoil that economists have a lot to answer for. The fact that their most famous prognosticator spewed such nonsense on one hand and

outright disagreed with many of the stances that he is now credited with does not speak highly of the profession. It is high time for economic theory to evolve, and a great start would be a movement away from Keynes and Keynesian economics.

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