In economics, let a man confuse money with wealth; let him put the cart of consumption before the horse of production; let him suggest that monetary inflation, fiscal intemperance, and sheer prodigality are the recipe for greater prosperity and what happens? Sean Corrigan notes several cases when believing such things qualifies you to manage editorial pages and purport to administer whole nations. FULL ARTICLE
Source link: http://archive.mises.org/3890/a-consuming-folly/
A Consuming Folly
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The most frustrating part of studying economics at any of this country’s fine universtities is the keyensian drivel that is foisted upon young, impressionable minds. It is truly depressing to witness the corruption of bright young people by such nonsense and to know that there is not much that can be done about it. The weapons of misinformation posessed by the state and the intelligentsia are formidable. How else can we explain the persistence of such blatant falsehoods in the face of constant, consistent refutation? One can only hope that as the perverse effects of these fallacies become more and more evident, there will be a mainstream revival of sound economics. I’m not crossing my fingers though. My own musings on this topic can be found here and here.
It’s even more frustrating when it’s taught by professors who openly admit it’s wrong and it doesn’t work..
All part and parcel of the government involvement in education. All those grants, tax exemptions, and other corruptions of even the most “private” of schools.
Well said, Dr. Corrigan.
In further support of what you are saying, just take a look at the recent debate over free trade, which remains continuously under attack despite centuries of proof of its value. Regards.
My theory about why Keynesian economics took hold is that in some countries, where the economy was starved for cash, the government issued new cash and spent it, thus relieving the cash shortage and stimulating trade. People mistakenly thought it was the spending that caused prosperity, when in fact it was the newly-issued money. Getting now money is sort of like taking a drink of water. If you’re thirsty, a drink can have miraculous effects. If you’re not, a drink will do nothing. Likewise for money: If an economy is starved for cash and people are reduced to less efficient forms of exchange, new money will be stimulative. If there’s already enough money, then new money will not affect productivity.
Seems obvious that “nothing happens till someone sells something,” e.g. the latest payola scandle. It was a different world when consumers had basic needs caused by a shortage of production. Baby may have needed a new pair of shoes but the working class was spending half their life’s energy obtaining enough calories to stay warm and alive. If one could more efficiently produce shoes then the market was automatic.
When the Northgate Mall (Seattle – oldest indoor mall in the USofA) revamped it seemed to me that none of the stores were selling necessities but the goods were almost 100% filling an advertising generated need.
Then there is “talk radio.” The advertising must obviously be effective but P.T. Barnum would be proud of the hucksterism. Now days we must have a sucker being born every millisecond.
The only problem with that analysis Mike is that it immplies the vague concept of “enough money.” Money is a naturally occuring phenomenon that does not have a specific optimum quanitity. As long as prices and wages are free to adjust there is no wrong or right price level. The reason Keyensianism caught on is because governements love it. It gives them total control of the money supply and provides them unlimited power to spend and vast control over the economy. Populations like inflation because it does produce a boom, although it is unstable and results in the business cycle. The politically connected love it because it allows them to fleece the general population. Another thing: new money always effects producitvity in the long run. It saps it. You can’t have a harmless inflation. Even if an economy had “enough” money already, inflation still distorts the production structure and causes problems. The popularity of keynesianism is due mainly to its utility with regards to the state and its cronies, and to the inability of the general population to equate cause with effect in economic matters.
Hi Mike: I’m going to throw some feedback at your theory:
“…in some countries, where the economy was starved for cash, the government issued new cash and spent it, thus relieving the cash shortage and stimulating trade.”
Countries don’t get starved for cash. They get starved for productivity and useful goods to consume. Wealth is not increased by an increase in the supply of money. It is increased by an increase in the productivity of labour.
“People mistakenly thought it was the spending that caused prosperity,”
Big mistake, I agree!
“…when in fact it was the newly-issued money [that caused prosperity].”
Money printed from thin air does not cause prosperity. Let’s kill this nasty myth. People must work, produce, save, and invest to bring an increase in labour’s productivity and this is the only way to increase wealth. No other substitutes for this have been found, including money printing.
“If an economy is starved for cash and people are reduced to less efficient forms of exchange, new money will be stimulative.”
The only thing newly printed money can do is allow people to divert scarce resources from those with the most urgent use for them, to others who were able to get their hands on this new money.
What i am arguing is very old Mises material. Do you consider your theory to be consistent with Mises, or do you see it as more Keynesian?
Well, one of these snake oil sellers, Paul Stigliz, will be answering questions from readers of the Financial Times. See
http://tinyurl.com/9n6sw
“Joseph Stiglitz will answer questions on China, the US and the global economy in a live debate from 3pm BST on August 2. Send questions in advance to ask@ft.com. Answers will appear at http://www.ft.com/stiglitz”
In particular note the following passages
Today, almost everyone recognises that countries can suffer from too little government intervention just as they can suffer from too much. China has been rebalancing and, over the past two decades, markets have become more important, the government less so. But the government still plays a critical role. China’s particular blend has served the Chinese well. It is not just that incomes have been rising at an amazing 9 per cent annually, and that high rates have been sustained for more than two decades, but the fruits of that growth have been widely shared. From 1981 to 2001, 422m Chinese have moved out of (absolute) poverty.
…
The US economy is growing at a third the pace of China’s. Poverty is rising and median household incomes are, in real terms, declining. America’s total net savings are much less than China’s. China produces far more of the engineers and scientists that are necessary to compete in the global economy than the US, while America is cutting its expenditures on basic research as it increases military spending.
Let’s all write to him…
Please do not take this as a flame. It is not. But I found this article to be very tiresome. I look to the Mises Institute to be straightforward.
Who I am: I am (style myself as) a Quaker Prophet teaching K.I.S.S. whereby God forbids man the use of coercion. Not just limited against using it ourselves, we are commanded to hurl our very bodies in the path of those who would use it against ourselves and our neighbors (martyrs for freedom are tops with God). Of course, we are forbidden to pay others or empower others to use coercion in our names. In Quaker terms (of the 17th century, anyway), that means ‘live spiritual lives – not in obedience to man but to our conscience. Perforce, I have no drivers license or vehicle registration/title but drive many miles upon MY public roads and pay no property taxes to Clinton, Ct nor income taxes anywhere. Plus, I encourage sedition at every Quaker Meeting I speak at on the east coast.
John Boanerges Redman, Prophet of God, Quaker reformer
Hi John: I thought it was pretty good. I even laughed a couple of times at the quotes.
Are you serious in your Clinton remark? If so, i admire your ability to remove yourself from the daily concerns of worldly life such as who is the current president of the US. On the other hand, if you’re reading mises.org, how can you remain that disconnected?
Paul,
I think he meant Clinton, Connecticutt. I would like to know why he found the article tiresome, though. I like a little fire in my economics!
Regards.
Ha! That occurred to me later and i figured my comment must have been good for a real laugh for others, as i found it pretty funny too.
Aaron Singleton writes “The weapons of misinformation posessed by the state and the intelligentsia are formidable. How else can we explain the persistence of such blatant falsehoods in the face of constant, consistent refutation?”
My explanation is not that the economic issues are examined, while the weapons of misinformation are formidable. It is rather that the powers that be, build upon the wishes of the mass. People want to believe that instead of earning, saving, and investing, it suffices to: print more money; take wealth from those who have earned it; consume more in order to have more, etc.
The blatant falsehoods do not arise from, nor continue, primarily from intellectual examination, but from the desire to evade examination. As has been said “You can’t reason a man out of a position that he hasn’t reasoned himself into.” How then can we approach this problem? By pointing out the motive of wishful thinking, rather than pretending that there is an honest examination.
OK, can I phrase this in a more direct way, then?
There is something about human nature that persistantly likes to be lied to whenever there is the tinge of violence [I maintaine that people would not object to doctors expounding about humours. Almost all of modern medicine actually IS complete lies and bullshit. The AMA, FDA, WHO, CDC and ADA conspire to kill more Americans that the automobile industry is involved in. The other area mentioned, satellite TV distribution, is a bit too arcane to counter but relies upon a patina of cleverness to make a point that is not backed up by facts] involved. Economics is no exception. Being ignorant and WRONG about something so basically simple AND which cedes enormous power to the wealthy trogs of this world is of convenience and must, therefore, be enhanced by a state-controled education system that, even through the university level, dulls the intellect of almost all the sheeple that pass through it. Smoke and mirrors, bread and circus. Oh, and ongoing war to make people afraid.
To those with a knowedge of history, however, coupled with at least a journeyman’s knowledge of human nature, the great teachers of the truth of economics may be forgotten as the events issuing from the liars of the same provide lesson enough. We can learn less from Say, for instance, than we can from a rather young liberal and brillient Frenchman who recanted once he secured a position with the King. With 5,000 years of failed governments in our wake, we are sure that none of them were austrian in behavior, at least in their decline. All we can point to, positively, in recent history is nine years of Pennsylvania which operated without any government, Somolia, today, and Jamestown when they expelled the lawyers.
John Boanerges
OK, can I phrase this in a more direct way, then?
There is something about human nature that persistantly likes to be lied to whenever there is the tinge of violence [I maintaine that people would not object to doctors expounding about humours. Almost all of modern medicine actually IS complete lies and bullshit. The AMA, FDA, WHO, CDC and ADA conspire to kill more Americans that the automobile industry is involved in. The other area mentioned, satellite TV distribution, is a bit too arcane to counter but relies upon a patina of cleverness to make a point that is not backed up by facts] involved. Economics is no exception. Being ignorant and WRONG about something so basically simple AND which cedes enormous power to the wealthy trogs of this world is of convenience and must, therefore, be enhanced by a state-controled education system that, even through the university level, dulls the intellect of almost all the sheeple that pass through it. Smoke and mirrors, bread and circus. Oh, and ongoing war to make people afraid.
To those with a knowedge of history, however, coupled with at least a journeyman’s knowledge of human nature, the great teachers of the truth of economics may be forgotten as the events issuing from the liars of the same provide lesson enough. We can learn less from Say, for instance, than we can from a rather young liberal and brillient Frenchman who recanted once he secured a position with the King. With 5,000 years of failed governments in our wake, we are sure that none of them were austrian in behavior, at least in their decline. All we can point to, positively, in recent history is nine years of Pennsylvania which operated without any government, Somolia, today, and Jamestown when they expelled the lawyers.
John Boanerges
I swear that I hit the “post” button once!
Aaron Singleton and Paul Edwards:
A historical example of a cash-starved economy:
In 1685, the French were late sending the payroll to their fort in Canada. The result was that the soldiers could not buy since they had no coins, and the merchants could not sell–a recession. The intendent, Jacques Demuelles, cut up decks of playing cards and wrote “1 livre”, “5 livres”, etc. on the cards, and promised that when the ship arrived, carrying coins, that the cards would be redeemable for coins.
The issue of this card money ended the local recession. The most coherent explanation is that the economy had been cash-starved, and the paper relieved the shortage of cash. During the whole episode, each paper livre was worth 1 silver livre, more or less, because the paper was backed by silver. If there were 100 lives in coins on the boat, and 100 paper livres were issued, then the paper livres would hold their value. But if 200 paper livres were issued, then each paper livre would be worth half a livre in coin.
–Mike
Thanks Mike: If cash starved means that the silver is safely stored away in a vault, temporarily unavailable due to unavoidable circumstances and 100% redeemable claims to that silver (a simple money substitute) is all that is available for the time being, then i guess that’s an example that makes sense.
I don’t think an instance such as that is what most people are thinking of when they use the term cash starved, but if it is, then thankfully it is a very rare situation indeed and also isn’t inflationary.
Thanks to Oprah, Obama camp claims biggest crowd yet
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