John Maynard Keynes

You are currently browsing articles tagged John Maynard Keynes.

Keynes and Hayek Rap Video

January 27, 2010 in Economics by Greg | 1 comment

This is a great little rap video parody featuring the government intervention policies promoted by Lord John Maynard Keynes versus the free market policies advocated by Friedrich A. von Hayek and Austrian Economics.

Created by Russell Roberts, Professor of Economics at George Mason University, and John Papola, an Executive Producer/Director at SpikeTV, the video features Billy Scafuri as “Grand Master” Keynes and Adam Lustick as F. A. Hayek (Billy and Adam).

In order to put this into some context, according to one writer:

As Hayek has shown, economic crises of boom and bust are created by governments that expand credit through central banks, creating unsustainable bubbles that ultimately crash. Unfortunately, based on Keynes’s theories, governments have foolishly then further intervened with bailouts and “stimulus” spending measures of pork and war that only prolong the recovery (e.g., Great Depression as well as the current economic malaise).1

YouTube Preview Image

Lyrics:

We’ve been going back and forth for a century
[Keynes] I want to steer markets,
[Hayek] I want them set free
There’s a boom and bust cycle and good reason to fear it
[Hayek] Blame low interest rates.
[Keynes] No… it’s the animal spirits

[Keynes Sings:]

John Maynard Keynes, wrote the book on modern macro
The man you need when the economy’s off track, [whoa]
Depression, recession now your question’s in session
Have a seat and I’ll school you in one simple lesson

BOOM, 1929 the big crash
We didn’t bounce back—economy’s in the trash
Persistent unemployment, the result of sticky wages
Waiting for recovery? Seriously? That’s outrageous!

I had a real plan any fool can understand
The advice, real simple—boost aggregate demand!
C, I, G, all together gets to Y
Make sure the total’s growing, watch the economy fly

Keynes and Hayek Rap Video »»

  1. Theroux, David. “‘Fear the Boom and Bust’: Hayek vs. Keynes Rap Video. 26 Jan 2010. The Independent Institute. 27 Jan 2010.↩

Federal Reserve and the Constitution

January 15, 2010 in Money by Greg | 1 comment

Part 2 of 1 in the series Paper Money

Congressman Ron Paul (R-Texas) wrote about the role of the Federal Reserve in relationship to the Constitution. After providing a brief U.S. history lesson of the debate over paper money, its attendant danger of inflation, and the role of a central bank in society, he wrote:

Federal Reserve global tentacles The lack of respect for the Constitution even in the nineteenth century set the stage for the Federal Reserve Act of 1913. Fear, misinformation, and ignorance allowed government to ram bad policies down the throat of the American people. This is not unlike giving the president authority to go to war and to bail out those least deserving help in an economic crisis. The rationalization that the state’s interest supersedes the interests and the rights of the people is embedded in the arguments as to why the American people had to go along with those who hate commodity money and love central banking.

The Fed was established as a result of the public and banking clamor for an elastic currency, and an elastic currency is nothing more than one that can be arbitrarily increased in volume at the discretion of the monetary managers. Sometimes they argue over who exactly will have the authority to do so, the central bank or Congress or private banks themselves. Increasing the supply of money and credit is the proper definition of inflation, meaning that when the demands were heard for an elastic currency, all they were looking for was a legal right to inflate the currency for the benefit of whatever special interests they were concerned for at the moment.

Noble intentions are always used to justify the inflation, but the real reasons are far more sinister. Those who get the control over the money are the beneficiaries, not the people as a whole.

Economist John Maynard Keynes, before he became the champion of inflation, wrote quite correctly of the grave danger of inflation. Like Greenspan, he changed his tune as the years moved on. Keynes stated in his book The Economic Consequences of the Peace:

Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.1

Federal Reserve and the Constitution »»

  1. John Maynard Keynes, The Economic Consequences of the Peace (New York: Harcourt, Brace, 1920), pp. 235-236.↩

Milton Friedman on Greed

March 19, 2009 in Business by Greg | 2 comments

I found the video that follows of Milton Friedman on greed at The Foundation for Economic Education blog the other day. Freidman is best known as the 1976 Nobel Memorial Prize in Economic Sciences “for his achievements in the fields of consumption analysis, monetary history and theory and for his demonstration of the complexity of stabilization policy.”1

Milton Friedman After graduating from the University of Chicago in 1935 with an M.A. in economics, and a year long fellowship at Columbia University, Friedman worked in Washington, D.C. at the National Resources Committee during the height of the great depression. During this period and the subsequent WWII years, Friedman was heavily influenced by the work of John Maynard Keynes. Writing with his wife Rose, Friedman stated in his autobiography, “I had completely forgotten how thoroughly Keynesian I then was.”2

As an example, “in 1942 he advocated a Keynesian policy of taxation” and helped invent the payroll withholding tax system in the United States.3 Sixty years after its introduction during the height of WWII, Friedman regretted the role he played in implementing this plan and said, “I wish there were some way of abolishing withholding.”4

Following the war, Friedman joined the faculty at the University of Chicago where he helped create a community of economists collectively known as the Chicago School of Economics. In addition to the Nobel Memorial Prize he won in 1976, Milton Friedman is also best know for reviving interest in the quantity theory of money.

Read the rest of this entry »

  1. “Economics 1976”. Nobel Prize. 17 March 2009.↩
  2. Friedman, Milton and Rose. Two Lucky People. Chicago: University of Chicago Press, 1998. 113.↩
  3. “Milton Friedman”. Wikipedia.org. 19 March 2009.↩
  4. Doherty, Brian. “Best of Both Worlds”. June 1995. Reason Online. 19 March 2009.↩

We Are All Keynesians and Socialists Now

February 15, 2009 in Socialism by Greg | 20 comments

Did anyone notice two recent news magazine cover stories recently proclaim that “we all really do seem to be Keynesians now”1 and “we are all socialists now”?2 The great irony that these two stories illustrate is the idea that government intervention in the economy ala Keynesian economics is now making socialists out of United States citizens.

Then-President-Elect-Barack-Obama Why is this supremely ironic? For the simple reason that Keynesian economics has consistently been pawned as the savior of capitalism.3 In 1965 a Time magazine article proclaimed “We Are All Keynesians Now” and contained the following with a quote from Lord Keynes’ book as the lead-in:

The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. – The General Theory of Employment, Interest and Money

Concluding his most important book with those words in 1935, John Maynard Keynes was confident that he had laid down a philosophy that would move and change men’s affairs. Today, some 20 years after his death, his theories are a prime influence on the world’s free economies, especially on America’s, the richest and most expansionist. In Washington the men who formulate the nation’s economic policies have used Keynesian principles not only to avoid the violent cycles of prewar days but to produce a phenomenal economic growth and to achieve remarkably stable prices. In 1965 they skillfully applied Keynes’s ideas—together with a number of their own invention—to lift the nation through the fifth, and best, consecutive year of the most sizable, prolonged and widely distributed prosperity in history.4

Read the rest of this entry »

  1. Grunwald, Michael. “How to Spend a Trillion Dollars”. 15 January 2009. Time. 15 February 2009.↩
  2. Meacham, Jon and Evan Thomas. “We Are All Socialists Now”. Newsweek. 15 February 2009.↩
  3. For example, see the many posts on this blog tagged John Maynard Keynes.↩
  4. “We Are All Keynesians Now”. 31 December 1965. Time. 15 February 2009.↩

Mankiw on Keynesian Economics

December 1, 2008 in Economics by Greg | No comments

Dr. N. Gregory Mankiw wrote in the New York Times the other day that we should look to Keynesian economics to save us from the present financial debacle:

John Maynard Keynes by David G. Klein If you were going to turn to only one economist to understand the problems facing the economy, there is little doubt that the economist would be John Maynard Keynes. Although Keynes died more than a half-century ago, his diagnosis of recessions and depressions remains the foundation of modern macroeconomics. His insights go a long way toward explaining the challenges we now confront.

According to Keynes, the root cause of economic downturns is insufficient aggregate demand. When the total demand for goods and services declines, businesses throughout the economy see their sales fall off. Lower sales induce firms to cut back production and to lay off workers. Rising unemployment and declining profits further depress demand, leading to a feedback loop with a very unhappy ending.1

Mankiw then goes on to say:

That leaves the government as the demander of last resort. Calls for increased infrastructure spending fit well with Keynesian theory. In principle, every dollar spent by the government could cause national income to increase by more than a dollar if it leads to a more vibrant economy and stimulates spending by consumers and companies. By all reports, that is precisely the plan that the incoming Obama administration has in mind.

This is disconcerting. More government spending will likely only exacerbate the problem. Writing over at The Austrian Economists, Dr. Peter Boettke had this to say in reference to Mankiw’s article:

The problem with economics since 1940 has been the thorough victory of Keynes throughout the democratic western nations.  We have Keynesian theory, the development of Keynesian inspired data collection, the “testing” of Keynesian theory via Keynesian data with the purpose of providing tools for Keynesian policy.  This exercise survived the Monetarist and New Classical intellectual challenge, and it survived the Supply Side revolution in policy.  All that remained was an oscillation between liberal and conservative Keynesianism, never a serious challenge to the paradigm of Keynesian policy manipulation of the economy.

Instead of reading Keynes one more time with feeling, I would suggest an alternative reading experience. (Or at least an additional one). Start with Henry Hazlitt, ed., The Critics of Keynesian Economics, move on to Hazlitt’s The Failure of the “New Economics”, graduate to W. H. Hutt’s The Keynesian Episode, and then read closely Buchanan and Wagner’s Democracy in Deficit and then Higgs’s Crisis and Leviathan and War, Depression, and Cold War.

Sincerely, you want to know what is going on in 2008 – it is the consequence of the bad economic ideas of Lord Keynes that have led to the victory of Keynesian policy (of either the liberal or conservative variety) since 1940.  We are living through the consequences of Keynes’s ideas. The Soviet Union had to confront the legacy of Marxist-Keynesianism in the 1980s, and we are dealing with the consequences of Social Democratic-Keynesianism in the 2000s.2

In closing, Dr. Mankiw wrote:

It is hard to say how successful monetary and fiscal policy will be in avoiding a deep downturn. But as events unfold, you can be sure that policymakers in the Fed and Treasury will be looking at them through a Keynesian lens.

In 1936, Keynes wrote, “Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slave of some defunct economist.” In 2008, no defunct economist is more prominent than Keynes himself.

As if that is supposed to give me a good feeling about where we are headed during this time of economic slavery turmoil.

Sources:

  1. Mankiw, N. Gregory. “What Would Keynes Have Done?“. 28 November 2008. The New York Times. 1 December 2008. Dr. Mankiw is a professor of economics at Harvard University where he teaches introductory courses on economics. “In 2006, Mankiw became an official economic advisor to then-Massachusetts governor Mitt Romney’s political action committee, Commonwealth PAC. In 2007, he signed on as an economic advisor to Mitt Romney’s presidential campaign.” For additional information, see “N. Gregory Mankiw“. Wikipedia. 1 December 2008, and Greg Mankiw’s Blog.↩
  2. Boettke, Peter J. “The Legacy of Lord Keynes“. 30 November 2008. The Austrian Economists. 1 December 2008. Dr. Boettke is Deputy Director of the James M. Buchanan Center for Political Economy, a Senior Research Fellow at the Mercatus Center, and a professor in the economics department at George Mason University.↩

« Older entries