A Consuming Folly
When it comes to matters of political economy, we sometimes find ourselves wondering whether there must be an evil genie at work.
We say this because economics is the only discipline we know in which commentators and policymakers constantly repeat age-old falsehoods and persist in resurrecting the long-dead errors which preceding generations of wise men have long since refuted.
Sir Isaac Newton once declared—with just a hint of false modesty—that, if he had been able to see so far, it was only because he was "standing on the shoulders of giants" who went before him.
By the same token, those who make up so much of today's economic mainstream can only be so short-sighted because, far from being hoist up for a better view of things, they been left blinded in the dust kicked up by the passing of these titans' feet.
Could you imagine how you would feel if you visited your doctor and he started to spout some mumbo-jumbo about your 'humours' being out of balance, and how the best course was for you to be purged and bled?
Can you envisage how concerned you'd become if your satellite TV company started planning its coverage using a geocentric system of astronomy based on the use of Ptolemy's epicycles?
But 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?
Do we scornfully point out that such mistakes were common to 17th century Mercantilists, 18th century Utopians, 19th century Progressives, and 20th century Collectivists—to name but a few of the wayward, if voluble, cults of cranks which have plagued us over the years?
Do we sigh that such tenets have been disproved many times over, both by the arguments of more profound thinkers in the field and by the sour fruits of a bitter experience?
Instead we find ourselves nodding sagely in agreement and wondering why somebody doesn't do something to alleviate our present woes by acting exactly as our false prophet has so eloquently proposed.
In the quest to guard against becoming victim to such common misconceptions, we could enlist any number of the ancients as our authority—Cantillon, Bastiat, or the Austrians, for example.
At the start of the eighteenth century, it was Jean-Baptiste Say who took it upon himself to point out the sheer defectiveness of the doctrine—then being championed by the famously gloomy Briton, the Reverend Malthus, and the Genevan literary gadfly, Sismondi—that savings were a social evil, while the encouragement of spending for its own sake was a worthy pursuit of the opinion makers.
But, if this was a controversy resolved in Say's favor some two hundred years since, why should we be concerned with it today?
Principally because, though the argument was clearly won by Say, his opponents and their successors have never admitted the defeat he inflicted upon them. Not the least among these bitter-enders was Keynes, whose magnum opus—his misnamed 'General Theory'—revolves around little more than an attempt to dismiss his own cheap misrepresentation of what Say had taught.
Of course, with the endorsement of a celebrity of Keynes' stature on the label, the old quack inflationary remedy he helped repackage still sells well, even in today's world.
As an instance, the Financial Times'sin-house economic guru, Martin Wolf, penned an editorial in June in which he proudly trumpeted Keynes' nonsensical concept of the "paradox of thrift." Our real problem is not debt, he writes but excess savings.
To this epitome of bad logic, Wolf added a suitably contemporary touch by also espousing the almost as absurd notions which President Bush's new point man, ex-Fed Governor Ben Bernanke, entertains about a supposed "global glut of savings."
Wolf is not alone, of course, for we are continually assailed with lamentations about a "lack of effective demand" and with fears of rampant "overproduction" every time we switch on the business news.
Governments, too, are ever eager to introduce so-called "stimulus packages" the instant the private sector is seen to stagger under the burdens imposed by all previous governmental interference with its business.
For their part, central bankers the world over tell us that they are ceaselessly engaged in a quest to promote the "maximum sustainable growth," through flagrantly tinkering with the value of our money.
Say could not resist a note of irony when he considered similar widespread expressions of folly in his day:
It might be proved without difficulty, that the prodigality of public authority, war, or the poor law [an early form of social security] of England, is a national benefit: for all of them stimulate consumption. . . .But fortunately they are erroneous."
But if Wolf would have excited Say's scorn, what do you think he would have made of the even more egregious example of Anatole Kaletsky, economics editor of the London Times?
Unable to comprehend that savings are the fuel which powers the furnaces of entrepreneurial achievement and that monetary chicanery is an evil, per se, Kaletsky penned a recent op-ed in which he effectively argued that the best an Italian could do with any savings he did feel compelled to make was to lend them to his government so that they could be poured into the capacious gullet of the dole-dispensing, gluttonous, armed bureaucracy which it temporarily commands.
Furthermore, he brazenly exhorted the government to renege on its debt by withdrawing from the euro and then resuming the tired, old policy of constant devaluation, with the aim of masking the country's structural inefficiencies and its lack of international competitiveness in a mercantile miasma of monetary manipulation.
In a piece in which Kaletsky was ostensibly asking whether the recent referenda meant the euro might break up, he admonished us that such an outcome was likely—even desirable—unless those stubborn Germanic bankers at the ECB took his warped advice and launched their citizens upon an orgy of debauched money, speculative excess, and phoney well-being.
"There is little doubt that Italy could gain short-term economic benefits from leaving the euro," he wrote. "By devaluing its currency, Italy could immediately boost exports, jobs and manufacturing investment—as it managed to do repeatedly up to 1999."
But: how can you hope to prosper by selling your goods to foreigners at artificially discounted prices—all the while relying on the assumption that those goods' recipients will not be similarly misled into retaliating to your foolishness by taking some action aimed at suppressing the price of their competing products, or raising the price of yours?
Furthermore, Kaletsky—who wants Italians to become rich by giving away wealth—overlooked the fact that a falling currency is especially a problem in a resource-poor country like Italy where it can only drive up the costs of all those imports upon which its producers are so reliant.
Even more fundamentally, Kaletsky declined to tell us how one can build civic trust and maintain property rights—each so essential to the future of the commonwealth—by misleading workers as to the true value of their wages and confusing savers as to that of their hard-earned capital.
In any case, if its former path of perennial inflation and depreciation was supposed to have been so successful, Kaletsky might have explained why generations of Italian politicians fought to join the single currency and why there was near universal relief when the country did (somewhat dubiously) qualify for euro membership, some six years ago.
But our man had only just warmed to his task of dispensing economic snake oil. He went on to propose that:
"The government's liabilities . . . be transferred from a strong currency, over which it has no control, into a weak currency, which it could print at will. This may seem unfair and even fraudulent but such are the prerogatives of sovereign governments—legal opinion and historical precedent are both quite clear on this point."
Like some Renaissance condottiere-turned-princely tyrant, what Kaletsky was expounding here was the theory that only after clipping coins and expropriating its creditors, could Italy face up to its massive debts.
In recommending such an expropriation of savers, Kaletsky was, of course, simply echoing the sentiments of his master, Keynes, a man who had utter contempt for the bourgeois 'rentiers' to whose extinction he so looked forward.
We can imagine the shade of Say harrumphing with disdain as our scribe then wrote:
"The real economic problem in Italy is not weak exports but inadequate consumer spending which in turn undermines investment, employment and government finances."
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Next, to emphasize that the lack of morality in his article was only to be matched by its complete absence of originality, Kaletsky gave voice to the monetary crank's characteristic hatred of 'usury,' by issuing a call for a "bold reduction" in interest rates, "preferably to zero"— adding, for good measure, "not only in Italy, but throughout Europe"
At this point, we must wearily observe that if, as Randolph Bourne famously remarked, "war is the health of the state," then the War on Capital is surely the most invigorating form of governmental violence in the Hegelian strategists' armory.
Indeed, in the article under consideration, the state-worshipping Kaletsky took as his leitmotiv nothing other than the blatantly Machiavellian theme that individuals should be seduced into ruining themselves in order that a debauched and dropsical Leviathan could better balance its books.
This is as perverse and as naked a piece of totalitarianism as you could wish to see—and its publication in the supposedly free-market London Timesshows us to what depths of intellectual depravity and Orwellian deceit we have been reduced by our ignorance of, or denial of, the wisdom of men such as Jean-Baptiste Say and his successors in the Austrian School.
How that evil genie must be laughing at our wilfulness and stupidity!