Mainstream
economics is a primitive pseudo-science based upon false premises and
invalid assumptions. In effect. It is little more that a superstition
whose practitioners, with all of their models and algorithms, are simply
modern day shamans, pretending that their tools of magic can produce
real truths.
It
wasn't always that way. The classical economists began to provide light
in a world drenched in the medieval darkness of mercantilism.
Mercantilism, is the belief that money is wealth and that the hoarding
of money denies others useful wealth. Adam Smith, the Physiocrats, and other classical economists applied common sense to expose the rules of mercantilism as a set of fallacies.
Unfortunately,
the enlightenment of the classical economists was eclipsed by a return
of mercantilism disguised by the seductive "new" ideas of John Maynard
Keynes. The foolishness of Keynes has somehow lived on in the
influential teachings of Paul Samuelson, Paul Krugman, and even Milton
Friedman and his so-called Chicago School. Only the Austrian School of
Economics has carried the torch of classical economics through the
modern era of monetary obsession.
Keynesianism
(neo-mercantilism) can be exposed as a silly superstition by using a
simple example. Consider a man who hoards his savings in his mattress,
reducing, according to Keynes, the "aggregate demand" within the
economy. The key to exposing this fallacy is to look at the real purpose
of money. Money itself, is not wealth. Money represents our ability to
obtain something of value (wealth) and it reflects the value or wealth
that we have traded in order to obtain the money. Money is the medium we
use between giving and obtaining wealth, but it has no intrinsic value
of its own and is therefore not wealth.
To
make the example more clear, let us say that the hoarding man has
obtained his money by selling a factory that he has built with his
labor. The factory allows laborers to become more productive and the
output of their productivity benefits all of society. His factory is
wealth and it remains wealth after he has sold and put his money under
his mattress. The factory does not go into hiding and remains a benefit
of society. In fact, the wealth of the society remains the same
regardless of whether the man uses his money or hoards it.
The
single influence that the man's hoarding has on society is that he has
lowered the money supply, or, at least, that part of it that is in
circulation. The man has, in effect, deflated the economy. The total
wealth of society remains the same, but the amount of money used to
trade that wealth has changed, and, thereby, the man has caused the
all-important pricing mechanism to become inaccurate. He has done some
damage to the economy, but it is only an informational injury that has
occurred. Some things are now overpriced because there is less money and
will therefore not sell as easy. This does have a recessionary effect
on the economy but it only lasts until the prices are corrected. This is
the same thing that happens when the Federal Reserve increases the
money supply and therefore has an inflationary influence that makes the
pricing system inaccurate and leads (less directly) to the same
recessionary problem.
Furthermore,
the man's hoarding does not change the total demand in the economy.
Since all of the members of the economy are always willing to make an
exchange that improves their lot, they will always demand things if the
price is right. What appears to the members of the cult of Keynes as
insufficient demand is really just the adjusting of economic agents to a
new pricing level based upon the change in the money supply, and the
only cure for a recession is to let this adjustment occur.
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