The year 1776 still resonates with many Americans: The year of the Declaration of Independence. Fewer can recall the contents of the Declaration — a lot fewer these days –and very few can identify the publication of Adam Smith’s “The Wealth of Nations” in that year. We might be living in a very different economy if more could remember that book.
Smith wrote in a heyday of mercantilism, the doctrine that exports were good and imports, bad for a notion. A heyday then, of protectionism. And therefore, of government intervention into the economy. Smith’s book expelled the government from what needed to be a free market. Well, noticeably at least. Smith since is accounted the “Father of economics” since his was the first major best seller on the subject. So effective were his arguments that governments were stuck with the desirability of free trade for a century and a quarter after he wrote. More or less, anyway.
Around 1926, J.M. Keynes saw opportunity; he wrote government intervention back into economics with his “General Theory of Employment, Interest and Money.” The grateful politicians made him a Lord, far more reward than Smith ever attained. Since then, western governments have used him for cover in their ever more detailed takeovers of their economies.
Today, Keynes plus subsequent politicians have equated to: Government needs to take your money and spend it for you to make us all rich and eliminate poverty. Naturally, politicians don’t put it quite that way, but that’s what it all adds up to. The predictable final result is nearly all western governments are broke, papering over that inconvenience with debt that will not be repaid, thus crashing the currencies and economies involved.
Ok, don’t believe us. But explain for us how the present U.S. national, states, counties and cities (and their pension plans) debts will be repaid as retirees expand and workers shrink in a diminishing U.S. economy. We will be most interested in your explanation …
Of course, Europe is no different; neither are China, India, Argentina, Brazil and others. And we suspect, neither are a lot of Americans, what with student debt, low quality mortgages and Obamcare to pa. Oh, and credit cards. And all the banks capitalized with those sorts of illusions.
Our leading economists are largely paid by government, directly and indirectly and somehow, cannot predict anything useful. A very few who are usually not dependent upon government are capable of such prediction and considerable effort is needed to keep their predictions out of general sight. On outstanding example, Paul Craig Roberts, was handed a Nobel prize before his attachment to reality was fully realized; an award much more regretted we suppose, than the awards of Peace Prizes to Yasser Arafat and Barack Obama. He has warned of what we are bring down on ourselves. So too have various Austrian school economists at mises.com. Never mind, we are in a recovery!
Keynes is in full cry still in government even as his nostrums fail; Smith remains buried under dismissive praise. Yes, he wrote the book, but he didn’t know much; read Keynes! Yeah … As the entire world trade system enters recession in a welter of ersatz, fiat money from desperate central banks nearly everywhere.
If a dozen bananas represent all the wealth and twelve paper dollars represent all the money, then each banana is worth $1, right? And if the central bank then issues $12 more dollars, the bananas will be worth $2, right? And those holding a banana will remain exactly as well off as before while those holding dollars will be only half as well off as before, also right, no? Think about it. It’s why you could have bought a new Chevrolet in 1937 for $750 while it costs rather more today. Thank your favorite politician in general and the Federal Reserve in particular, for making it all possible.
And rather than bananas, keep a few silver dollars under the bed. Even some paper ones for while they last; a lot of banks aren’t looking so healthy these days. While you are doing that, we will iron the tinfoil lining for our hat …