As an economist, I eschew the soft-headed convenience of ready-made ideologies, together with their carrying rationalities, turning upon intellectual vulgarities I haven’t the stomach to bear. But even when we look askance at ideologies, focusing instead upon flinty economic facts evidenced in history, a certain resolve may be expressed without overstatement:
- Markets are the best means to capture the wisdom of individuals acting in their own interests.
- Taxes should be moderate, clear and specific, to afford business and individuals the most efficient options for planning investment and economic activity.
- Regulations should be specific and not speculative; written with sufficient flexibility to address new situations, with a clear, speedy review process to put right such anomalies as may arise from human action.
- Under this framework, capitalism provides, not merely, the most efficient means of producing prosperity for the largest possible number of persons, but also the best means by which those without it may acquire capital, by which they too can become more direct authors of their won prosperity.
- So long as the above is true, the well-off, the well and the not-so-well-off can co-exist in social harmony, because there is the belief that with application and diligence anyone who is not well-off may become so, within the system as described.
There are further elegant truths in history offering wisdom by which clear thinking on these questions may be maintained, advanced and reinforced:
- Too aggressive a tax rate offends the sense of accomplishment of those who toil for their own prosperity; increasing the feeling that the fruit of their labours is being apportioned by an unaccountable few for the sake of an increasing many.
- The habitual debasement of the currency undermines the assumption of value, which instigated the resolve to labour for oneself, in the first instance.
I wonder whether it would surprise you that John Maynard Keynes actually believed and wrote of the economic prerogatives above in the course of his long career. It would be impossible in this space – according to which I have given myself certain limitations – to show in what respects I have profound questions for Keynes’ thinking in economics. However, much of that for which he is infamous – whether from the mouths of liberal or conservative spirits – is little more than a shabby over-simplification of what he argued and authored his life long.
First, it should be noted that Keynes – whose mother Florence is the first woman to become Mayor of Cambridge – was an aristocrat; brought up with servants and a governess. Second, Keynes was made wealthier by his own acumen for investing, and succeeded so well that he was able to arrange and partly finance the transition of the London School of Economics (LSE) to Cambridge during World War II; including Fredrick Hayek, who was a professor at the LSE in this period. Third, whilst I do not agree with many of his counter-measures for economic instability, intellectual honesty requires that we at least admit what he actually stood for, before we attribute to him the curdled intellectual custard liberal-minded spirits assign to him and for which conservative spirits demean him.
As a late-Victorian, Keynes shared with the English upper classes a fear of the great masses of people, who in the grip of searing poverty, may have arisen to commit violence against the “higher social classes.” For this reason, he gave his mind to consider a means by which, in periods of economic instability, where ‘consumer (effective) demand’ was low and unemployment was rising, how and to what degree governments should or could provide a temporary “priming of the economic pump” by financing consumer demand.
It should be noted, again: Keynes did not believe in “managing” an economy by these means in normal times. To the extent that economists or politicians – as in France – believe in this method of economic practice in normal times, they are a ways from what Keynes himself argued for and advanced in his writing.
This is the principle distinction between Keynes and Keynesians.
Let us be frank in our understandings and admissions here: every economist – whether of liberal or conservative spirit – believes government should be proactive in crisis. If you are in the former camp, perhaps you would favour an injection of spending. In the latter camp, you would speak invariably for a temporary relaxation of certain regulations, together with a close husbanding of the public purse, supported by cuts in specific taxes as a means to spur demand.
Either way, national economic crisis anticipates government action. And either way it amounts to borrowing.
Keynes – as it turns out – would be at home with each of these strategies, and in their exercise would demand and exhibit greater disciplinary caution than either side seems willing to contemplate.
For instance, in recent weeks, there has been a call for infrastructure spending. I oppose it because it means excessive borrowing without discipline, for projects, the income-generation capacity of which remains unaccounted for. Keynes would have added a layer of discipline by insisting that the feasibility of the projects be assessed expertly. He would have added that the projects themselves must be proved capable of paying for themselves within the time horizon required to settle national debts and that every dollar invested be shown to capable of producing its return.
The main and proper argument by those opposed to even this level of discipline in infrastructure spending, in hopes to lift consumer demand, is that the government – despite its promises – never adheres to discipline. And according to Hayek – in particular – any and all government management of large-scale investment produces the “unintended consequence” of an expansion of the government’s role in economic life; with the effect of the rise of new bureaucracies hardened in place through new rules by which they are made permanent.
Last, even when I consider the discipline Keynes would’ve imposed in periods of instability, I am sympathetic to Hayek’s position, with a further caveat: the provision of stimuli in conditions of economic crisis ought to aim at competitive manufactures; about which invariably, no government can claim expertise. That is to say, in times of economic instability, sustainable demand is best assured by the removal of those impediments to competition, which renders the nation unable to compete with other nations, thereby to earn actual income on the export of its manufactured surpluses, as Adam Smith advised rightly, so long ago.