Liberty Forged

the State has no money of its own, so it has no power of its own. ` Nock

Demand and Supply (in other words – “Cough it up”)

Posted by Jesse on December 31, 2008

Gary North on the war for the change in your pocket:

“One of the best tests for determining whether a financial columnist or a professional economist is a Keynesian is to examine his views on personal spending. If he favors an increase of personal spending as a means to stimulate the economy, he is a Keynesian. He may not call himself a Keynesian, but he is a Keynesian.

John Maynard Keynes believed that an economy could become a self-reinforcing economic depression because the general public saved too much money. He believed that the key to economic growth is not productivity, but rather spending. He did not believe that the price system is a reliable system of resource allocation. For example, he did not believe that the interest rate is a price that allocates investments and savings. He believed that it is possible that many people in the economy can save money by hoarding currency – not depositing it in a bank, where it is immediately lent. This, he said, undermined the interest rate’s role in equating savings and investments.

First, this observation is irrelevant in a world in which almost all currency is either deposited in a bank account or sent abroad, where it functions as a currency for black markets.

Second, hoarding currency pressures sellers to reduce prices. This acts as an incentive for people to buy more goods and services with their currency. The supposed excess of supply then disappears. Holding currency is a means of thrift. This thrift produces a positive result: lower prices and therefore greater purchasing power for the currency. This process was disparaged by Keynes as a liquidity trap. It was no trap. It was a benefit for holders of currency.

Keynes and his disciples had a solution to the liquidity trap: increased government spending and monetary inflation. This debases the currency, forcing hoarders to spend. The process by which this was accomplished, worldwide, was World War II. In the name of the war effort, every nation authorized its central bank to inflate.

This is what they are all doing again, in our Keynesian world, in which hardly anyone in the West hoards currency. Central banks are inflating. Governments are running huge deficits.

………… the whole article here

The fact that professional economists have returned to Keynesianism – in the words of the Bible, like a dog to its vomit – should not surprise anyone. Professional economists cannot shake their faith in big government. They cannot shake their faith in deficit spending. They also cannot shake their faith in the power of government to increase productivity merely by spending money on boondoggles. They believe in government, and in government boondoggles, with the same kind of commitment that theologians in the Middle Ages believed in scholastic theology. They cannot think outside the box. The box is labeled: “Spend!”

The government is determined to thwart all attempts of individuals to save more money and therefore increase productivity. It is committed to the idea that the individual is unreliable in his commitment to deficit spending. There was even a slight uptick in the second quarter of 2008 in household savings. It rose by a little under 3% per annum. This was a reversal of recent years, when most American households did not increase savings at all. In fact, they actually borrowed a in order to maintain their spending habits.”


2 Responses to “Demand and Supply (in other words – “Cough it up”)”

  1. jeliwickham said

    what the hell is this spend spend spend crap? John Maynard Keynes must have been stoned when he thought up this approach to market analysis.
    When people produce things that is economic growth itself is it not? Money is just a measuring mechanism for price. If no one were to spend money in a monetary based economy, no one would get food to survive, besided those who produced food and those who recieved it from giving generous folks at no cost. So lets presume that 90% of people were saving their money and not spending. This would lower prices as a result of less money chasing goods and services or should i say much less goods and services because wouldn’t the lack of spending show a lack of demand which would result in less productive output? But that depends on what services or goods you are talking about. If everyone 100% staked up on dried goods to where they wouldn’t have to buy food for 3 years in order to survive comfortably, and furthermore 90% of these people decided not to buy perishable food but the other 10% did for luxury, wouldn’t the production and output of perishable food reduce by approximately 90% due to a 90% fall in demand? If this is true then all that money the 90% saved up gives them the combined power to buy up far more than the remaining 10%of food left. Hmmmm. Kind of trailing off the point but that’s some thought for ya. Anyway. the notion or paranoia of economic depression stagnation or damage resulting from people saving too much is absolute nonsense to me. In a healthy free market that is not interfered with by monetary perversion of government or artificial inflation of fractional or fiat currency, what you will have is communities in that market full of people basically getting creative and doing things that enable them to survive and improve eachother’s life; exchanging goods, providing services, ideas, economizing. A commodity money such as gold or silver circulating in a marketplace, if untampered with by government would allow for a stabilizing self correcting mechanism in pricing and furthermore market stability if accepted as a medium of exchange as it once was many years ago. In a healthy economy, the saving of or spending of money would become more irrelavent if you ask me, as production in a healthy economy would be aloud to flourish and scarcity of the necceseties of life would begin to fade. Unfortunately however, in any monetary system as history shows, some group usually associated eventually with government, if not the state itself, becomes overwhelmed with the desire to acquire more money, and will soon do whatever it takes to pervert the commodity money in order to achieve this possibility; to debase, or justify inflating it’s amount at a rate not conceivable in a natural free market; to embark upon the path of economic monetary distortion which breeds scarcity, poverty, hatred, war, civil unrest, and ends finally in bitterness, disillusionment and collapse as far as i’ve studied. Lets see if the pattern will be the same again this time around. We’ve already been well on the path of distortion of money for quite some time now. –johnny

  2. Jesse said

    Totally. Frank Shostak point out early on in this article that if money pumping were a viable way to “produce” anything, the problem of poverty would have been solved long ago.

    Why Congress Must Stop the Fed’s Massive Pumping

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