Posted by
John Dick on Friday, January 30, 2009 12:45:03 AM
The other day while cruising through some of my favorite economic-oriented blogs, I came across a great reference. The blogsite Wealth is not the Problem posted a great quote by none other than John Maynard Keynes, showing that Mr. Keynes clearly understood – fundamentally - the total dire consequences of government intervention into the free-market system by controlling the money supply and expanding it, causing inflation: total economic and societal collapse. Mr. Keynes deserves to be quoted again, and again, and again…. I believe that, from his own words, we can see that Mr. Keynes was deliberate in his support of a strong, controlling central government to “watch” over the “unreliable” laissez-faire economy, and that government interference into the free-market system was an “unquestionable” necessity. We need to know that his support of statism was not from an honest mistake in economic theory, but – I think – deliberate in nature: he distrusted laissez-faire capitalism.Keynes’ Quote:
"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. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some... Lenin was certainly right. 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."
--- John Maynard Keynes
(1883-1946) British economist
Source: "The Economic Consequences Of The Peace"
For full text, see Project Gutenberg eBook - The Economic Consequences Of The Peace.
What a mess Mr. Keynes has gotten us into! In my world, he is not a laissez-faire economist by any stretch of the imagination, but a true statist-oriented economist. Any power-lusting and power-seeking statist politician or crony-capitalist would fall in love with this type of economist – and they have.
For my own commentary regarding the obsession for political power, see my previous posting “Political Power At All Costs.”
From these thoughts, the next logical move was to define some terms.
Economic Definition of Inflation:
From www.inflationdata.com-- According to Webster's New Universal Unabridged Dictionary published in 1983 the second definition of "inflation" after "the act of inflating or the condition of being inflated" is:
"An increase in the amount of currency in circulation, resulting in a relatively sharp and sudden fall in its value and rise in prices: it may be caused by an increase in the volume of paper money issued or of gold mined, or a relative increase in expenditures as when the supply of goods fails to meet the demand.”
This definition explains the basic economic causes of inflation, and shows that inflation is not defined as the increase in prices, as many people believe, but as the increase in the supply of money that causes the increase in prices, i.e., inflation follows the laws of cause and effect: inflating the money supply “causes” inflation which it turn “causes” price increases, amongst other things. And, when a government-controlled central bank does expand the money supply with complete reckless abandonment, especially a money supply not based on a gold standard, watch out! Then, if you can, run to get your investments and savings out of that particular expanded, inflated currency as fast as is humanly possible. Hyper-inflation is just around the corner. Anyone think that this might include the U.S. dollar some day … someday very soon?
Reality check: we just got one more step closer to this scenario this past Wednesday, January 28, 2009, with the U.S. House of Representatives majority vote passing the multi-hundred-billion dollar “bailout-spending” scam-bill. The U.S. Senate could be that final nail….
Quoting Ayn Rand on Inflation:
“Inflation is not caused by the actions of private citizens, but by the government: by an artificial expansion of the money supply required to support deficit spending. No private embezzlers or bank robbers in history have ever plundered people’s savings on a scale comparable to the plunder perpetrated by the fiscal policies of statist governments.”
--- Ayn Rand
“Who Will Protect Us from Our Protectors?”
from The Objectivist Newsletter, May 1962.
From inflation, on to that which government interference and control also destroys: wealth.
Economic Definition of Wealth:
“Wealth is material goods made by man. … It is also land and natural resources in the ground insofar as man has made them useable and accessible."
--- As defined by Dr. George Reisman
from his book Capitalism, Chapter 2,
“Wealth and Its Role in Human Life,” p. 39.
My own thoughts on wealth:
“Wealth is not the problem. Government control and stealing of wealth is.”
--- John Dick, 2009, U.S. Citizen
And, finally, a wake-up for all those who thought that a house was one’s best investment:
Houses are not investments:
From George Reisman’s Blog on Economics, Politics, Society, and Culture, in his article “Falling Prices are not Deflation but the Antidote to Deflation,” Dr. Reisman explains why houses should not be regarded as investments. It must be remembered that a house is still a depreciating consumer good, even though the depreciating value is slower than most other goods. So why are houses regarded as investments today? To partially quote Dr. Reisman from his posting:
”Only decades of inflation and credit expansion could make it possible for people to think of the houses they occupy as an investment. In reality, a house is a consumers’ good, just like an automobile or a refrigerator. The only difference is that it depreciates more slowly than they do. Only a long string of years in which inflation took place more rapidly than houses depreciated enabled their prices to rise every year and people to come to regard them as a source of financial gain. If not for inflation and the rise in prices that it produces, it would be very clear that housing is a wasting asset, a slowly wasting asset to be sure, but a wasting asset nonetheless.”
Ouch! Dr. Reisman is definitely a true laissez-faire economist (i.e., reality based and reason oriented), for sure. To which I say, thank you for that.
Also, the blogsite The Rational Capitalist adds some additional commentary to this subject. I recommend visiting this blog when you have some time.
My closing thought for the day:
“It pays to know something about basic economics and develop one’s own independent judgment, and not follow the popular consensus."
--- John Dick, 2009, U.S. Citizen