The last seventy years or so have proven the massive flaws in the official economic and monetary policies which are promoted by this government, but it appears that there are few who are either capable or willing to view these flaws regarding the solutions that are available to resolve those flaws. Evidently, during this latest economic dislocation, we will see yet another round of flawed economics and monetary policy emanating from the Keynesian mentality that permeates the official realms of our government.
Keynesian Economics was created to create problems and not offer solutions. That seems to be a radical statement however, when you judge that statement in the light of the writings of those who knew John Maynard Keynes and his economic theories, it becomes apparent that they were well aware of the effects that Keynesian Economics would have on the well-being of the economy and that those effects would create the need for an ever-increasing amount of government intervention. Perhaps the clearest explanation of the effects of Keynesian Economics can be found in the writings of Keynes’ contemporary and Socialist Comrade John Strachey. Strachey stated that Keynesian Economics was “an indispensable step in the right direction. The fact that the loss of objectivity, and the intrinsic value of the currency which is involved (i.e., inflation) will sooner or later make necessary, on pain of ever- increasing dislocation, a growing degree of social control . . . for the partial character of the policy will itself lead on to further measures. The very fact that no stability, no permanently workable solution can be found within the limits of this policy will ensure that once a community has been driven by events to tackle its problems, in this way, it cannot halt at the first stage, but must of necessity push on to more thorough going measures of re-organization.”
It should be very obvious, and irrefutable, that the real purpose of Keynesian Economic Theory was to completely undermine economic stability, thus creating a constant and steady need for government intervention that would eventually destroy the actual free market, leaving no alternatives but a government centered Socialist market economy.
In the book ”The Failure of the New Economics”, Hazlitt stated, correctly, “Keynes’s plan for ’the socialization of investment’ would inevitably entail socialism and state planning…Keynes, in brief, recommended de facto socialism under the guise of ’reforming’ and ’preserving’ capitalism.” That statement, of course, is in agreement with Strachey’s assessment about what effects Keynesian Economics would have on the substructure, and eventual superstructure of economics.
Strachey again, referring to Keynesian Economic Theory, said: “If once it were admitted that capitalism could be regulated and controlled in this way, might not the wage-earning majority of the population come sooner or later to the conclusion that the thing to do was neither to put up with things as they were nor to go through the fiery furnace of social revolution, in order to establish a wholly new system, but to harness – to bit and to bridle – capitalism in its own interest? Was it not apparent that Keynesism had only to be pushed a little further and a state of things might emerge in which the nominal owners of the means of production, although left in full possession of the legal title to their property, would in reality be working not for themselves, but for whatever hands had grasped the central levers of social control?”
Additionally, Strachey stated: “It is impossible to establish communism as the immediate successor to capitalism. It is accordingly proposed to establish socialism as something, which we can put in the place of our present decaying capitalism. Hence, communists work for the establishment of socialism as a necessary transition stage on the road to communism.”
Thus, according to Strachey, the goal has been to gradually introduce Socialist mechanisms within the capitalist market systems through degenerative measures [such as Keynesian Economic Theory] that would increasingly promote government intervention in the markets. This has indeed happened over the last seventy-some-odd-years, and today we are seeing an even greater push by government in a response to this latest dislocation in the economy, as predicted by Strachey, as well as other Socialists.
It becomes apparent that one of the goals of Keynesian Economic Theory is the transformation of a free market economy into an official government economy. Indeed, if we look at the effects of Keynesian Theory on the actual monetary and economic policies executed in this country over the decades it becomes easy to see that this particular theory has eliminated the normal market mechanics for artificially induced and managed market mechanics. You will notice that over the years the savings rate in this country has gradually deceased, consumption, driven by debt, has increased and during this process the government has drastically increased its power over the economy. Due to various mechanisms within Keynesian Economics, in particular the enforced use of Fiat Money, private monies for investment has gradually dwindled while government monies have increased. Without private monies there is no other way for the markets to be maintained other than through public funding, thus the government must intervene and provide capital in the markets, as we have seen. At this stage, once the government infuses public funding, it has the power, as we see, to dictate not only conduct within the market, but also the various processes involved in business decisions.
John Maynard Keynes was closely associated with various Socialist groups; in fact Keynes once described himself as a Bolshevik and was well aware of Socialist doctrine and theory. Keynes, in his book “Economic Consequences of the Peace”, stated: “By a continuous process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method, they not only confiscate, but they confiscate arbitrarily; and while the process impoverishes many, it actually enriches some…. The process engages all of the hidden forces of economic law on the side of destruction, and does it in a manner that not one man in a million can diagnose.”
Indeed, Nikolai Lenin spoke before the Second Congress of the Communist International and declared of Keynes: “I will quote another economic source which assumes particularly great significance, the British diplomat Keynes, the author of The Economic Consequences Of The Peace, who on the instructions of his government, took part in the Versailles peace negotiations, watched them directly from the purely bourgeois point of view, studied the subject step by step, and took part in the conference as an economist. He arrived at conclusions which are stronger, more striking and more instructive than any a Communist revolutionary could advance, because they are conclusions drawn by an acknowledged bourgeois….”
The political economic nature of Keynesian Economics cannot be denied, nor can the effects of those theories on the entire economic and social structure of our government. Keynes, in a letter to fellow Socialist George Bernard Shaw, said: “I believe myself to be writing a book on economic theory which will largely revolutionize … the way the world thinks about economic problems. When my new theory has been duly assimilated and mixed with politics and feelings and passions, I can’t predict what the final upshot will be in its effect on actions and affairs. But there will be a great change, and in particular the Ricardian foundations of Marxism will be knocked away.”
Geoffrey Pilling, a Marxist, wrote of the effects of Keynesian Economic Theory on the Western Capitalist Societies saying: “It [the West] accepts Keynes’ own belief in the primacy of ideas in the shaping of state economic policy. An examination of the development of the role of the state indicates that there is an organic trend towards ever-greater state involvement in the attempted regulation of economic and social matters. It concurs with Keynes’ own judgment about the significance of his work: namely that it did in fact constitute a revolution in economics. We have already noted that there is little if any agreement amongst those who would wish to be labeled Keynesians about the nature of this revolution.”
The “Keynesian Revolution” has effectively created a continual increase in the levels of involvement by the government in economic markets, in fact if you look at the latter half of the Twentieth Century you will see that free market capitalism, not only in the United States, but internationally, has been heavily influenced by this Socialist Keynesian Revolution. It is also important to understand that the works of Keynes was not only lauded by various Socialist groups, including Marxists, but the Fascists and even National Socialists [Nazis] equally held Keynesian Theories in high esteem. In writing the “Forward” to his German Edition of the General Theory, Keynes stated: “The theory of output as a whole, which is what the following book purports to provide, is much more easily adapted to the conditions of a totalitarian state, than is the theory of production and distribution of a given output produced under the conditions of free competition and a large measure of laissez-faire.”
In the Journal of Political Economy, you will find: “German economists in the early 1930s were well aware of Keynes’s work, and were developing theories along parallel lines. These involved the now-familiar prescription for economic depressions of large budget deficits, public-works programs, and easy credit.”
Of course, there can be no doubt that government involvement in the markets and the regulatory state reached its height under Fascist theory and execution; likewise Keynesian Economic Theories lead to the overwhelming necessity of such intervention. The Fascists, in particular the National Socialist Party [Nazi], were the first to put into practice the economic theories found in Keynes’ General Theory; the Nazis implemented truly massive public works projects and increased deficit spending seeking to encourage full employment of the German peoples. The Nazis also created what amounts to an inflationary boom, this naturally increased productivity, but as we know it was based on the assumption that an inflationary boom can be permanent when in fact they are artificially induced and will eventually deflate.
The fact is that inflationary booms are nothing more than the conscious application of Keynesian policies, which naturally lead to even more government intervention due to the effects brought about by the collapse of such inflationary booms. Whether Marxist, Socialist or even Fascist, Keynesian Economic Theory provides the necessary economic system to achieve government involvement in the social relationships of economic production.
When a government employs Keynesian Economic Theory there is the inexorable tendency toward more and more government intervention into every area of economic functioning within the market. Actual regulation of the capitalist economy has little to do with what is finally arrived at through the policies employed and are only the medium by which greater intervention becomes necessary. The theoretical work of Keynes, as well as others, cannot be underestimated and should not be confused in judging cause and effect; hearkening back to the words of Strachey, there is an inherent process within the mechanics of Keynesian Economics that promotes the implementation of Socialist Political Economics, thus replacing free market capitalism with government intervention. Generally speaking, while there appear to be contradictions engendered by the apparent growth in economic production during the various business cycles, particularly in the boom portions of those business cycles, the gradual increase of the degenerative effects associated with the bust of the booms cycle provided the material foundation for increasing government activity and intervention in the markets.
In looking at Keynesian Economic Theory, it should be apparent that Keynes has become on of the central forces behind government regulation of the markets and the increasing degree of intervention into those markets. The ideological importance of this aspect of Keynesian Theory is the basis of the growing role of government and has not only transformed capitalism, but has basically negated the effects of capital markets in favor of government control. In this respect, which is of extreme importance, Keynesian Economic Theory has provided the government with a central function within the economy. Since his theories tend to implement the need for such intervention, the question then arises concerning the effects such intervention have on the lives of the individual and the degree to which the individual becomes dependent on the government for his economic, and therefore social well-being?
Keynes’ criticism of unregulated capitalism rest primarily in his belief that social stability could not be achieved or maintained and therefore he saw the need of a highly centralized economic plan be administered by government intervention; thus, this belief lead him to a rather pragmatic-utilitarian view of the necessity of ad hoc government intervention in economic markets. This idea or belief however, did not originate from Keynes’ himself, but came from the Fabian Essays, published in 1889, by Sydney Webb, Bernard Shaw and others. Like Marx, the Fabians, including Keynes, believed that it was necessary for governments to gain control over capital markets, the monetary systems, credit and the implementation of a progressive income tax system to achieve the goals of Socialism. Indeed, Keynes, in pure Fabian form, thought that it was absolutely necessary to end laissez-faire policies in order to end capitalism, for without free markets; capitalism would then be prone to crisis after crisis under the guise highly regulated economy while retaining the capitalist label. Free market capitalism died in the Twentieth Century, thanks in a large part to the policies promoted by Keynesian Economics.
President Bush recently said: “I’ve abandoned free-market principles to save the free-market system, to make sure the economy doesn’t collapse.” Now, if you look at that quote from President Bush in the light of Keynes’ General Theory, you will find a more eloquent statement bearing the same meaning: “Whilst, therefore, the enlargement of the functions of government, involved in the task of adjusting to one another the propensity to consume and the inducement to invest, would seem to a nineteenth-century publicist or a contemporary American financier to be a terrific encroachment on individualism, I defend it, on the contrary, both as the only practicable means of avoiding the destruction of existing economic forms in their entirety and as the condition of the successful functioning of individual initiative.”
Bush, in short, reiterated what Keynes stated, advocating further government intervention into the markets to save the capitalist system; nothing could be further from the truth however. As Keynes stated: “Our final task might be to select those variables which can be deliberately controlled or managed by central authority in the kind of system in which we actually live.” In concrete terms, Bush, like Keynes, meant that there is a necessity to select as many variables within the economic system as possible, at this point, to achieve effective and applicable controls in preserving the existing economic form while allowing for even greater government management. Under the continuing guise of preserving the capitalist market system, Keynes, and it appears that Bush, believed that the operations of the government intervention would be crucial to “save the free market system”, even though it involves a complete abandonment of free market principles, essentially destroying the last remnants of free market capitalism.
For decades the American People, and even most of our politicians, have lived under the illusion that our economic system has retained its free market capitalist nature; the fact is that there has been a hybrid system that is so far removed from free market principles that it can no longer be defined as a free market. Keynes’ views have prevailed and today we see that the government has taken an extensive and growing responsibility over economic functions in our society.
Like Keynes, most of our politicians believe that the government must not only regulate the economy to provide price stability and “full” employment, but that it is also obliged to promote any and all measures that generate sufficient investments to compensate for the shortfall of private capital in our system due to various economic drains brought about by the policies of Keynesian. Thus, in the Keynesian view, the government should employ what amounts to national income to achieve various economic and corresponding social goals; this is exactly what has taken place in this country over the last seventy years as we have seen the rise of the government as the central component of our economic system and not merely an external force. Essentially, the government has promoted what amounts to “welfare capitalism”, which in realistic terms is nothing more than Socialism where a government “supra-class” of administrators who manage the economic and social welfare of all members of our society regardless of their social status or economic position.
It should be evident in our current state of government involvement in economic relationships in the market that Keynesian theories have become the primary driving force behind economic and monetary policies in this country. Additionally, it is evident that the degree of income redistribution that takes place in this country has proved effective in producing a stratified social structure where a hierarchy of wealth is concentrated in those who are politically connected and enjoy the benefits of those connections with government. Along with the upward redistribution of income, Keynes proposed that the wages of the masses be reduced covertly through the government-regulated process of inflation or monetary depreciation.
Keynes stated: “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.” Thus, as we have seen, particularly since 1971, the government use of controlled inflation would allow for an increase in the nominal wages or face value wages of workers while actually affecting a simultaneous reduction in real wages or purchase value wages through price inflation. This would not only achieve he goal of providing government with needed revenues for its expansion, but would continue the illusion that more money is being put into the pockets of the working man and it would also allow for the illusion of greater profits for business; the reality, of course, is just the opposite. Regarding this effect Keynes stated: ”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 it is necessary.”
Essentially, Keynes proposed that the government, and only the government is responsible for the determination of the rate of reward a person can achieve by productivity; thus the functions of market forces are no longer determinant factors. One should make no mistake about what has taken place in this country or in the effect of Keynesian Economics have had on the entire economic structure upon which this country depends. There has been a very definite and intentional control over income policies in this country, all under the disguise of ensuring price stability and social equity. What most people don’t understand is that these policies create numerous distortions within the economy and have untold unintended consequences that promote the need for ever-increasing government intervention. Consequently, there has been a gradual move toward government-centered arrangements within the economy, and those developments have rapidly increased over the last couple of decades which have essentially lead to the creation of a type of Socialist Corporatism, which, by the way, is not inconsistent with the ideals of Fabian Socialism.
Keynesian Economic Theory, in particular The General Theory, paved the way for the ideology that free market capitalism is incapable of being maintained and could not regulate itself or function without government intervention. It is therefore claimed that government intervention and the ancillary spending that always accompanies that intervention is the essential precondition to achieve stability in the market, the consequences of this intervention is, of course, the increased provisions of Socialization, not only in the market, but also in society. The most prominent feature of Keynesian political thought has come in the form of the drastic rise of government spending, but apparently the vast array of economic experts fail to see or choose to ignore is that such intervention and spending is nothing less than a massive drain on surplus value and capital, thus the effects will always aggravate and dislocate the market. Keynesian-based economic and political policy made such spending acceptable and generally respectable due to the fact that such spending is presented as a means of economic growth and stabilization however, the history of the last fifty years has shown that is not the case.
The creation of a mixed economy the standard of Fabian Socialistic thinking, which Keynes obviously adhered to in his theories, can be found in the Fabian Political & Economic Policy is the foundation of the Socialist agenda: “The individualistic manufacturer and farmer will be FORCED BY EVENTS to submit to far-reaching changes in outlook and methods. What is required, if with only a view to equitable treatment of individuals, is transfer of ownership of large blocks of land – not necessarily of all the land in the country, but certainly a large proportion of it – into the hands of the proposed STATUTORY CORPORATIONS and PUBLIC UTILITY BODIES and OF LAND TRUSTS.”
Historically, all public expenditures were considered basically economically unproductive however, as Keynesian Economics gained widespread acceptance, the historical and accurate historical view has been pushed out of the way by the proposition that not only was such spending beneficial, but that the massive levels of debt to fund such expenditures was of no consequence. According to the theory, at least, the vast amount of borrowed funds would be recouped by higher taxation on the production stimulated through such expenditures, of course that is not quite how it worked out.
Alvin Hansen, one of the leading Keynesian Economist during the 1960’s stated: “the long-standing lesson of history that growth requires an increase in money, credit and debt. And in the public-private economy of today, a well-balanced growth suggests an increase of debt at all levels – business debt, consumer debt, state and local debt, and federal debt.” While, on the face of it, such a statement seems to be correct, indeed there appears to be a general expansion of economic growth, but the nature of that growth should be called into question. The fact is that such an expansion, both of the money supply and credit, both of which are debt instruments, have a long-term detrimental effect in the markets, creating unhealthy distortions and eventual economic dislocations which always require an increasing degree of government intervention.
Under the prevailing winds of policy, based largely upon Keynesian thought, all government expenditures is financed through borrowing, thus pushing the growing burden into the future and thus, regardless of the political will, it will always drain future surplus value, or as we have seen over the last few years, hope-for surplus value. The reality of our economy, disguised as capitalism, still produces surplus value in the private sector only to have it drained away by the public sector. The resources devoted to the public sector always come at the expense of the private sector. The presumption that government spending can actually be a means to the creation of productive and therefore surplus value is to indulge in an illusion, yet our politicians seek to engage in such illusions on a regular basis. Eventually however, the future becomes the present and the effects of previous economic policies, government interventions and expenditures prevail. We are seeing distortions on a number of fronts, many of which have not revealed themselves as of yet, but will press upon our economic reality in ways that the government will not be capable of providing solutions, even temporary ones.
Even Marx was well aware of the illusions behind such government expenditures: “The sum that was lent to the state no longer has any kind of existence. It was never designed to be spent as capital to be invested, and yet only by being invested as capital could it have made itself into self-maintaining value . . .. No matter how these transactions are multiplied, the capital of the national debt remains purely fictitious, and the moment these promissory notes become un-saleable, the illusion of this capital disappears.”
The charade can only be maintained as long as the growth of government expenditures is at a rate below the accumulation of capital, when the equilibrium shifts and the distortions present themselves the dislocation is no longer containable and there is a growing threat of consumption of a far greater proportion of productivity and thus the extraction of surplus value increases. The inclination of those in government however, is to increase expenditures, as we are currently witnessing; this action, particularly under the already burdened system, will only exacerbate the problems. The parasitic claims of the government continues to fasten onto flesh of this country, it lives and thrives on the backs of the people by passing the burden of debt for the various spurious programs onto the working class of this country through increasing reductions of their living standards, the depreciation of the labor value of their wages and the increase of social controls.
As with former Administrations, the new Administration will continue to press forward with exactly the same policies that created this growing and chronic economic dislocation in the first place. The point will come however, when the government must institute severe cuts in every area that it has assumed responsibility in its expansion of the welfare/warfare state. The conundrum will come when those who have lambasted free market capitalism run out of scapegoats and must admit that the malfunctioning within the economy is due to the character of the policies of government intervention and Keynesian-based economic theory.
