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“Alas, this is Europe, so there is no capitalism”

I imagine Paul Marks probably has a faily good handle on it all, but if, like me, you’re struggling to keep up with the recent financial shenanigans in the EU, Detlev Schlichter has an excellent, brilliantly clear, summation of the “solution” on the Cobden Centre blog.

Summary of the summary? It’s not good. Not good at all. One thing that’s been bothering me with all this talk of recapitalization is how you can recapitalize anything when you don’t have any capital either. As Schlichter explains, you can’t.

Anyone who has any savings stored in the euro-area should be extremely concerned about what is going on here, and in particular about the tone of the debate. When the mainstream speaks of ‘unlimited’ resources of the ECB, they do in fact mean unlimited. The creation of new euro-currency units will be without ANY LIMIT. And the remaining inflation will also be without limit.

They’re just making it up. So much – as hinted by the quote I’ve used for the title here – for “capitalism”.

Indeed, I’ve been thinking a bit lately – prompted in part by other Cobden Centre posts (they’re very good over there) – about Keynesianism’s contempt for savings. Savings, say the Keynesians, are money that isn’t being spent – “idle” money – conveniently ignoring the fact that they’re being lent out by banks and invested in stuff; ie, being spent.

But here’s the thing: savings are capital, right? I mean, not all of the capital that exists is savings – there’s bricks and mortar, machines, and whatnot – but at the root of it all, you need actual wealth that’s been stored up so you can buy the sort of hardware-capital that Marx famously characterized as “the means of production” in the first place.

So – and here’s where I risk making a fool of myself even among Austrians – isn’t Keynesianism, in a very literal (if only partial) sense, actually anti-capitalist? In other words, it may be pro-market (for a certain value of “market”), but it’s not a capitalist market that it favours. Normally, I hate being proved wrong, but I can’t help feeling I’m missing something here. Keynes was wrong, but surely he wasn’t that wrong?


  1. Nelsontouch says:

    You’re right.
    Keynesianism has become (possibly not what the great man intended) a version of capitalism but without the control of market discipline.
    It’s statism; the state can deliver you prosperity, can protect you from consequences, can bale you out when you blunder or fail; the state is all.

    It will fail.

  2. Roue le Jour says:

    They are extremely good over there, I make a fresh cup of coffee and get comfy when a new post from Detlev or Sean appears.

    I think you are quite right, and it is based on a static view of the world. We’ve figured out how to make cars, now all we have to do is keep making them and get people to buy them and everything will be fine. What do you need R&D for? Worked out so well for the Russians.

    I am a little bemused at the euro crisis. Nobody seems to want to look at the larger picture. What we are witnessing is the death of the post-war dinosaur, the big state. The euro is merely a symptom, the rivets have to pop out somewhere, and the euro is the weakest point.

    The welfare states have passed the Laffer limit and the only thing stopping them hitting their credit limit is money printing. Bearing in mind governments have no money of their own, when they get together to ‘save’ one of their number, they are simply planing how to suck even more wealth out of tax payers. As cash becomes tight and states have to chose between themselves or their citizens, the situation will increasingly resemble the scene in Around The World In 80 Days where the ship’s superstructure is ripped up and consigned to the boiler to keep the thing going for a little while longer.

  3. John Galt says:

    The problem is that this 14th or 17th proposal (depending upon how many crisis meetings you’re counting) is just the most recent in a long line of patchwork temporary solutions whose only purpose is to kick the can a little further down the road, past the next local, regional, national elections in Germany / France / Ruritania / Wherever.

    These are only temporary solutions, what we need is to let those who need to go bust go bust (Greece, Italy, Portugal and possibly Ireland), allow the banks who have been supporting these loans and bonds to go bust and then see where we are.

    This is the only way to achieve a “Final Solution” – however the Germans seem to be a bit reluctant to go down this route, I’m not sure why – possibly because they fear they will be lumbered with the bill. However, as it stands at the moment, they are still being lumbered with the bill, just on a piecemeal basis.

  4. mike says:

    Keynes as anti-capitalist? Is his alleged contempt for savings as explicit and complete as that? I doubt it, but I haven’t read him so I don’t know. Yet “anti-capitalist” is, in my view, a correct reading of the notion that savings are, per se, bad for society.

  5. Sam Duncan says:

    My point exactly, mike. I find it hard to believe, and yet…

  6. Paul Marks says:

    Mike first – yes, Keynes was that bad. Read (for example) “Where Keynes Went Wrong” by Hunter Lewis (a poor title – but a good book).

    As for the current bailout “debate”……

    It appears to be between people who think that the European Central Bank (ECB) should bailout nations and/or banks by increasing the supply of credit money even more (by the way Switzerland has chained itself to this corpse – as was likely ever since the vile new Swiss Constitution was approved back in 1999).

    And those who believe that the International Monetary Fund (IMF) should do the bailing out.

    Most likely the elite will do BOTH.

    When collectivism (endless regulations, out of control Welfare State, credit bubble finance of…) does not work at national (Greece) or State (California) level – the statists just demand a bailout (a Federal bailout in the United States, an E.U. bailout in this region of the world) and when this does not work they demand world government – for that is what regulations such as Basel I, II and III, and ever more spending (and taxing?) at a world (such as IMF) level actually are.

    But world collectivism will not work either.

    It will all fall apart.

    “Interesting times” are ahead.

  7. NickM says:

    It will all go Pete Tong because of one very simple obsession – creating jobs – how many times do we hear that quoted as a justification in and of itself. The reductio ad absurdam of that is of course a return to feudal subsistence agriculture. I think a certain Austrian wrote something about that once…

    I’ve been planning a post on this for a while – the fallacy of jobs as good rather than ill. I mean compare with every major advance in human standards of living. All involve jobs becoming redundant.

    I mean let’s face the simple truth. Job creation does not drive economic growth any more than carts drive horses. They have it completely pi radians out of kilter.

  8. Ian B says:

    To be fair to Keynes, as unpleasant as that is, the way States have been “Keynesian” has never been really what Keynes advised. His “theory”, wrong as it was, was that governments should spend less during the boom and more during the bust to smooth out the oscillations. A sort of ant and grasshopper thing. The money you’ve “saved” (or at least spent less of) in the boom times is available during the bust.

    There are lots of problems with this; anyone with an understanding of electronics or systems will know that feedback with a time delay is how you create an oscillator, rather than damping oscillations down. The time delay is the delay in statistical gathering; you are always applying the feedback required by a previous state of the system. Even if that would work. Which it won’t anyway. But the point is, his prescription isn’t quite so bad as what governments always actually do, which is spend like a 1960s lottery winner during the boom, then print even more money to spend during the bust, which creates a thermal runaway, the effects of which we are now seeing.

    Keynes did indeed hate savings for the reason Sam indentifies; a lack of understanding that saving is stored production. If an imaginary village wants to build a village hall- which requires labour and resources- they must store e.g. food so that the farm labourers can take some time off to build the village hall. If you’re hiring a builder to do it instead, you still need to save production to feed the builders. The problem with money is that it acts as a veil over that, and people lose sight of how it is just a placeholder for production. They start thinking that money is wealth, rather than the actual produced goods which it represents, which are the actual wealth in reality.

    It never ceases to amaze me how Keynesians can get away with this idea that savings are “dead” money. It seems to me that every stupid economic theory makes the same mistake of seeing an economy as a sort of linear one-shot model rather than as a set of interlocking cycles. The only way to take money out of the system is to stuff it in a mattress and never spend it. Otherwise, it’s circulating somewhere. But get away with it they do, nonetheless. It’s maddening.

  9. Paul Marks says:

    The weird thing is that many supposed “anti Keynesians” share some of the assumptions of the Keynesians.

    Perhaps the most damaging assumption being that we can have lending without real savings.

    To a “common” person – a “loan” is a transfer of money between a saver and a borrower (perhaps direct – perhaps via a banker or other such).

    But NOT to most “economists”.

    On the contrary – to them a loan (or a cheque or a credit card or…..) is the creation of “new money” that need have no connection to real savings.

    To them such book keeping tricks such as “crediting to the account” of a borrower (rather than transfering real savings to a borrower) are fine – no problem with them at all.

    In short (and I make no apology for the use of “common” language) most economists believe that people can HAVE THEIR CAKE AND EAT IT AS WELL.

    That lending (for various things) can occur – without anyone having to sacrifice present consumption (i.e. create real savings).

    This is barking mad – it really is.

    It is like basing society on a perpetual motion machine – a perpetual motion machine that does not really exist.

    And, also, assuming that the perpetual motion machine will SPEED UP (remember this is the perpetual motion machine that does not actually exist).

    This is what one has to assume if one wants to argue that the present “finance economy” will not fall apart.

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