"(...) John Maynard Keynes in 1936 proposed a counter-depressionary program of large government deficits. Heargued that rich people were saving far too much money. They were building up monetary assets. They were notspending enough money to create opportunities forinvestment and expansion.
So, he concluded, the government ought to borrow moneyfrom these people and start spending. It did not matterwhat the government spends money for, he said. Anythingwill do. Even pyramids.
Ancient Egypt was doubly fortunate, and doubtless owed to this its fabled wealth, in that it possessed two activities, namely, pyramid-building as well as the search for precious metals, the fruits of which, since they could not serve the needs of many by being consumed, did not stale with abundance. The Middle Ages built cathedrals and sang dirges. Two pyramids, two masses for the dead, are twice as good as one; but not so two railways from London to York. ("General Theory of Employment, Interest, and Money," p. 131)
He was a defender of make-work projects. As children, teachers assigned us busy work to keep us occupied. Eventually, we caught on: the work was not meaningful. Itwas wasting our time. Keynes advised the governments ofhis era to imitate our teachers.
If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coal mines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well tried principles of laissez-faire to dig the notes up again. (Ibid., p. 129)
What Keynes and his followers ignored is the fact thatcapital investment is driven by the hope of future income,and future income depends on future sales. Sellers don'tplan to give away their future output. They plan to sellit to consumers.
But how will consumers buy this output? With money. But where will they obtain this money? In one of fourways: exchanging their productive assets, including theirlabor, for money; borrowing money; stealing money; orprinting money.
Keynes proposed to add to the monetary reserves of consumers by having the government borrow and then spend the money any old way. To this income stream would beadded whatever money the government could extract by taxes: theft by majority vote. His disciples added counterfeiting, also known as counter-cyclical central bank monetary policy.
The consumer would supply the rest of the moneythrough his labor. What is the free market's solution to recessions? Price competition (to clear the market) and thrift (to expand productivity). Why thrift? To provide tools for workers, i.e., to increase their productivity. Their increasing level of output will then provide them with thepurchasing power they will need to increase spending.
The free market's answer to the Great Depression wa sthrift: the purchase of assets, including corporate debt.
Keynes's answer to the Great Depression was thrift: thepurchase of government debt. What did it matter which agency served as the pipelineof money from rich savers to employees?
It mattered agreat deal. Capital produces output. Government debt\produces dependency: dependency of income recipients on thestate and dependency of the state on taxpayers.
(...) The Keynesian theory taught that in recessions,governments would run deficits. In boom times, they wouldrun surpluses. In the long run, deficits and surpluseswould balance out. There would be no piling up of debt.
We know how that theory has worked out. The Federal government has run huge deficits during recessions andmerely large deficits during boom times. It has runofficial surpluses only by siphoning enough money out ofthe officially off-budget Social Security Trust Fund to cover up the red ink in the on-budget deficit.
Under the guidance of Keynesian economists andpoliticians, the Federal government never experiences a surplus. The debt national debt keeps growing.
(...) So, in boom times they reduce the percentage of their income devoted tothrift, and in bad times, they borrow more and save evenless. Keynes' solution to national economic recession was more thrift by the rich, more spending by the government,and more spending by the common people.
When does government debt get paid off? Never. When does consumer debt get paid off? Never." Gary North
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