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What’s so wrong with Keynes and Fiat, anyway?

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  • Thu, Feb 25, 2010 - 08:46pm

    #1

    Aaron M

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    What’s so wrong with Keynes and Fiat, anyway?

Silly question, right?
Well, during a conversation about the mismanagement of our nation today, a professor of mine essentially called me an idiot for blaming our nations adherence to Keynsian economic principles and a fiat currency. Now, while I didn’t have the prescience of mind to continue the fight for long (nor the interest), I did specifically take notes on his comments;

“The nations that adopted Keynsian economy survived the great depression. Those that didn’t died.”

“Fiat was around for a hundred years before Keynes was born.”
(Implied use in the American money system)

“All Keynes did was tell people to spend their money rather than horde it”

“We weren’t using a currency back by metals at the turn of the century”
(Obviously true – he meant 1900’s, however)

And my favorite, when I said there needed to be some fact checking, “I think I would know since I teach U.S. History”. The class is not U.S. History, but in the interest of shaping Political Philosophy. 

I cited Breton Woods, Nixon and the Gold Window, the redeemability of silver certificates well into the 1970’s and got …laughed at.

So, what’s wrong with Keynes and what’s wrong with Fiat?
What am I missing?

Aaron

  • Thu, Feb 25, 2010 - 09:37pm

    #2
    Peak Prosperity Admin

    Peak Prosperity Admin

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    Re: What’s so wrong with Keynes and Fiat, anyway?

“what’s wrong with Keynes”  – I would say Central planning. Assuming that it is the rightful role of government to manage and manipulate the money supply and economy..

 it’s a defensible position… but it does need to be defended rather than assumed.

 Keynesianism is just an approach to central planning.. it presupposes (wrongly?)  that central planning is a good thing. Monetarism is a patch/kludge applied to buggy Keynesianism – focus on the monetary aggregates as a guide to indicate when to tighten/loosen credit.

 “Fiat was around for a hundred years before Keynes was born.”

 AFAIK the chinese invented it in 1400-ish ..  meh… only 500 years out.

(edit- according to wikipedia it was around 1000 AD…)

 “We weren’t using a currency backed by metals at the turn of the century” – epic fail.

 This guy is both sloppy and confident… bad combination.

 

 

  Sloppy, wrong and arrogant is no way to go through life professor...

 – to misquote Animal House..

  • Thu, Feb 25, 2010 - 09:47pm

    #3
    Peak Prosperity Admin

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    Re: What’s so wrong with Keynes and Fiat, anyway?

Plato – Confident to the point of narcissistic.
He relies almost entirely on the “argument from point of Authority” and a very “obnoxious” approach to addressing questions or comments.
The approach is really demeaning and I’m about the only person in the class that still volunteers an opinion because of his habit of trying to just pound people into the ground with unanswerable questions.
Quite frankly, I’m convinced that subjectivity is the rule in all things and Objectivity is just our human attempt to make sense of it all.
2+2=5 and all that other double think just wears me down.

At any rate, I told him I’m going to fact check his BS and I aim to do so. Thank you kindly for your thoughts!

Cheers,

Aaron

  • Thu, Feb 25, 2010 - 10:18pm

    #4
    Peak Prosperity Admin

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    Re: What’s so wrong with Keynes and Fiat, anyway?

Aaron:

My 2 cents. Dont bother with him. I bet you he has a ton of money in his 401k. I bet you his portfolio is full of financials, retail, consumer discretionary, and maybe some commodity play. He believes in the system because he has skin in the game. He is also relying on his pension coming through during his “golden years”. Little does he know what is coming. Instead of asking YOU questions and taking into consideration your valid points and concerns, he laughs you off in his arrogance. In the end we will be laughing at him as he realizes that everything he thought he had wasnt ever really there.I bet you it scares him that you know something that he doesnt. He is just another mainstream in the box academic. Just like all the other academics that are driving this country off a cliff at 100 mph.

Pride always comes before a fall.

  • Fri, Feb 26, 2010 - 12:32am

    #5
    Peak Prosperity Admin

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    Re: What’s so wrong with Keynes and Fiat, anyway?

The best way to destroy the capitalist system is to debauch the currency.

By a continuing process of inflation,

government can confiscate,

secretly and unobserved,

an important part of the wealth of their citizens.

 

I work for a government I dispise for ends I think criminal.

 

John Maynard Keynes

  • Fri, Feb 26, 2010 - 02:39am

    #6
    Peak Prosperity Admin

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    Re: What’s so wrong with Keynes and Fiat, anyway?

“All Keynes did was tell people to spend their money rather than horde it”

Count me in on this one. I have spent more money the last few years on heavy & precious metals LOL. It really makes one wonder if they get so many zeros behind all these numbers that no one can keep up with it all…….so people just keep believing in this flawed system & it actually works??? I doubt it but in our life time I feel certain we are going to see some real amazing events. Like one crises after another & another.

  • Fri, Feb 26, 2010 - 02:55am

    #7
    Peak Prosperity Admin

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    Re: What’s so wrong with Keynes and Fiat, anyway?

 

idoctor.. to quote CM in his latest.. “the future has arrived…  ”  (and is continuing to arrive.. faster and faster..)

 

Carl: good quotes.. I’d heard the first, but not the second..

Wonder if Greenspan ever thought “ I work for a government I despise for ends I think criminal.” ….

 I don’t rule it out. Maybe his youthful idealism didn’t die..

 

 sudden random though….. greenspan .. the name….. green.. dollar.. (greenback) .. span.. lifetime..

 meh.. too much homebrew.

 

 

 http://en.wikipedia.org/wiki/Alan_Greenspan

 

 like the bio.. double dropout.. me too! ™

 

  • Fri, Feb 26, 2010 - 06:29am

    #8
    Peak Prosperity Admin

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    Re: What’s so wrong with Keynes and Fiat, anyway?

Aaron,

With all due respect to bearmarkettrader, I strongly encourage you to take this seriously and continue the discussion with this professor. I agree with BMT that the guy sounds clueless, but I also have a theory that there are three levels of understanding of any subject:

Level 1: You memorized enough facts by rote to pass the test and get a good grade, but you never really bothered to seriously question yourself and develop a deep conceptual undertanding of the subject. Sadly, this is the level of comprehension that the University system is designed to reward, and the reason I don’t take academic credentials very seriously.

Level 2: You have taken a strong enough interest in a subject to really understand it, and develop a conceptual framework in your own mind for how it works. You’ve questioned your own assumptions and feel pretty confident that you “really get it”.

Level 3: You have actually engaged in polite intellectual discourse with a bona fide expert who has a different view than yours, and you can honestly say that you were able to address each of his/her challenges intelligently. In your mind, at least, you won the debate and the other guy didn’t expose any gaping holes in your comprehension that caught you off guard.

My point is that getting from Level 2 to Level 3 is a really big step, and for most of us, we do uncover gaps in what we thought was a complete understanding of any subject when we engage in debate with an expert with a different view.

So while I share BMT’s opinion that your professor is what I sometimes call “yet another Keynsian retard”, I hope you’ll take seriously the opportunity to advance your own understanding from Level 2 to Level 3.

[quote=Aaron Moyer]

“The nations that adopted Keynsian economy survived the great depression. Those that didn’t died.”

[/quote]

That’s utter nonsense that cannot be supported by objective fact. He is entitled to that [rather ignorant] belief if he so chooses, but it’s a belief, not a fact.

First of all, the United States has never engaged in Keynsian economics. Keynes theory (distilled to very simple terms) was that governments should spend during private sector recession to stimulate the economy, then when the economy recovers, the government should increase taxes and pay down all debts incurred to achieve the stimulus. The United States has practiced the first half of that prescription (spend like crazy to stimulate), but has never followed through with the pay-down of debt during the following boom years.

It’s pretty easy to see that history has disproven the viability of Keynsianism in a democracy. As proven by history, politicians will never have the fortitude to carry out the 2nd half of the prescription because those policies are not conducive to re-election. Not even Keynes was stupid enough to ever suggest that governments should just spend borrowed money without regard for paying it back. His theory called for payback of borrowed money as soon as the economy recovered, and that’s never ever worked in practice.

But more to the point, there is no factual evidence to support the assertion that Keynsian stimulus ever solved anything or kept any government “alive”. The counter-argument is that the reason you never hear mention of the great depression of 1920-21 is that the government did not apply Keynsianism, and therefore they didn’t prolong the recovery that a free market economy achieves much more efficiently and quickly.

Your professor’s belief that Keynsian economics saved governments from demise is no more or less legitimate than the Austrian’s belief that Keynsian stimulus serves to worsen and prolong a problem that free markets would have solved in less time with a better net outcome. Neither camp can cite conclusive, irrefutable evidence that their belief is the correct one. Your professor would do well to get real about the fact that he is confusing belief and fact.

The United States did NOT apply Keynsian economics to the Depression of 1920-21, and not only did we not die, we also didn’t endure the 10 years of misery that followed application of Keynsian economics to the ’29 crash. [Although Keynes’ theory was not published until ’36, FDR’s New Deal programs began in ’33 and essentially implemented the first half of Keynes’ prescription]

[quote]

“Fiat was around for a hundred years before Keynes was born.”
(Implied use in the American money system)

[/quote]

More like a thousand. And each and every fiat currency in all of history has collapsed and become worthless in time.

In the case of the present U.S. fiat currency system, the present experiment began in 1971 when Nixon completely terminated the quasi-gold standard that was first fractured by FDR in ’33. But the present “pure-fiat” currency experiment is only 39 years old. That’s an immutable fact.

Your professor is correct that fiat currency was right at home in America long before Keynes. Example: The Continental dollar, now worthless. Or the numerous state-issued (colony-issued) fiat currencies that pre-dated the constitution which banned them precisely BECAUSE they were shown by history to always result in a complete collapse.

[quote]

“All Keynes did was tell people to spend their money rather than horde it”
[/quote]

No, that’s completely untrue. What Keynes proposed was to tame the business cycle through a policy of government spending and borrowing to stimulate the economy, followed by a pay-back cycle once the economy recovered. As noted above, the second half of the cycle has never even been tried because it has been proven politically impractical in a democracy.

[quote]

And my favorite, when I said there needed to be some fact checking, “I think I would know since I teach U.S. History”.
[/quote]

Well I certainly agree that the fact that this guy chose to stay in academia rather than get a real job in Finance says a lot about his qualifications to opine so authoritatively on the subject. But I fear that my view of the significance of his occupation may differ from his in a material way! 🙂

Back to the point: Aaron, I recommend that you either order Where Keynes Went Wrong by Hunter Lewis, or if you’re not ready to spend money on a book, listen for free to Jim Puplava’s interview of the author several weeks ago on FSN. You should still be able to find that episode at FinancialSense.com.

Incidentally, the belief of many Austrians (myself included) is that Keynes was a socialist idealogue, who contrived his General Theory of Employment, Interest and Money not as a bona fide attempt to understand economics, but rather for the purpose of justifying his socialist political agenda. If I remember correctly, Hunter Lewis alleges that Keynes actually admitted this to be the truth to several people late in his life, including John Williams of shadowstats.com fame. Obviously that’s heresay and impossible to verify, but it makes perfect sense to me.

Hope this helps, and I look forward to reading about how your next interaction with professor “I teach so I know” goes. I can’t get the image of the business professor in Back to School with Rodney Dangerfield out of my mind…

Erik

 

  • Fri, Feb 26, 2010 - 07:54am

    #9
    Peak Prosperity Admin

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    Re: What’s so wrong with Keynes and Fiat, anyway?

I second wanting to hear an update. I get in debates like this fairly often around the base….so its always nice to hear others encounters…..=)

 

Mike

  • Fri, Feb 26, 2010 - 01:11pm

    #10
    Peak Prosperity Admin

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    Re: What’s so wrong with Keynes and Fiat, anyway?

Welcome to ‘higher education’ Aaron.

Step one: Convince students (clients) that it is a privilege to be at the university or college (how lucky you are and how much better you are than those that don’t or can’t attend). Never mind the fact that you are paying for it.

Step two: Convince students (clients) that the university/college is not a business but rather an altruistic, benevolent quasi social endeavor.

The fact is that the number one rule of academia is to sustain and perpetuate academia. The second rule is to sustain and perpetuate the instructor’s careers and pet projects. Your education, as far as the university is concerned, isn’t about you at all.

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