Nkrumahism, The Can Of Worms I Opened – Keynesian Economics II

By | July 20, 2015

Feature Article of Monday, 20 July 2015

Columnist: Baidoo, Philip Kobina


I tried to prove in the first part that Keynes was a Marxist in capitalist clothing, but I did not come around to conclude that claim. So I am going to have a crack at it in this piece. John Maynard Keynes was a true and true Marxist. In a letter he wrote to his mum in December 1917 he said, ‘My Christmas thoughts are that a further prolongation of the war, with the turn things have taken, probably means the disappearance of the social order we have known hitherto. With some regrets I think I am on the whole not sorry. The abolition of the rich will be rather a comfort and serve them right anyhow. What frightens me more is the prospect of general impoverishment. In another year’s time we shall have forfeited the claim we had staked out in the New World and in exchange this country will be mortgaged to America. Well, the only course open to me is to be buoyantly Bolshevik; and as I lie in bed in the morning I reflect with a good deal of satisfaction that, because our rulers are as incompetent as they are mad and wicked, one particular era of a particular kind of a civilization is very nearly over.’ See Sir Henry Roy Forbes Harrod, The Life of John Maynard Keynes, p. 224.

The above was not just a passing comment from a bored bureaucrat. In September 1918, when the Bolsheviks have by now consolidated power, he wrote in confidence to his mother again, ‘My most amusing job just lately has been to invent a new currency for Russia. Dudley Ward and I have been spending a great deal of time on the details, as we have had to design the notes, get them printed, choose the personnel, answer conundrums and do the whole thing from top to toe. We hope to have the plan launched on the world in two or three weeks’ time.’ And this can be found in the same book page 227 by Harrod. Therefore, based on the prima facie evidence I have provided, it is very clear that Keynes was a Trojan horse planted by the communist, or for a more polished word socialist to change capitalism from within. And, to some degree, he succeeded. How can a Marxist save capitalism? It is insane, and some snivelling capitalist also believe this nonsense.

The foregone can be pardonable, because I consider them as the rumblings of a precocious mind, perhaps still very idealistic. However, in the preface to the German edition of ‘The General Theory of Employment, Interest and Money’ he made it clear that he was side stepping from the classical English economists, ‘Perhaps, therefore, I may expect less resistance from German, than from English, readers in offering a theory of employment and output as a whole, which departs in important respects from the orthodox tradition. But can I hope to overcome Germany’s economic agnosticism? ….. How hungry and thirsty German economists must feel after having lived all these years without one! Certainly, it is worthwhile for me to make the attempt. And if I can contribute some stray morsels towards the preparation by German economists of a full repast of theory designed to meet specifically German conditions, I shall be content. For I confess that much of the following book is illustrated and expounded mainly with reference to the conditions existing in the Anglo-Saxon countries.

Nevertheless, the theory of output as a whole, which is what the following book purports to provide, is much more easily adapted to the conditions of a totalitarian state, than is the theory of the production and distribution of a given output produced under conditions of free competition and a large measure of laissez-faire.’ This shows clearly that John Maynard Keynes supports totalitarianism. And what’s more, this was not a puny mind; the latter quote was written when he was in his fifties and, most probably, a seasoned thinker. I am definitely certain that he studied the French Revolution. Without doubt, he knew hundred percent what was happening in totalitarian Bolshevik Russia. To write this is unforgiveable. And these are the people that Mr Kwarteng wants me to warm up to; to read their Machiavelli style political economics. I am sorry; I have conscience. I can feel the pain of other people when they are being tortured. I don’t believe one single soul should be sacrificed for the many. Please, don’t do it again; don’t ask me to read any of your writers who cannot see an inch beyond their noses.

Now, having proved beyond all reasonable doubt that Keynes was a Marxist let’s proceed to analyse the nonsense that he wrote. Based on the books that made him popular, ‘A Treatise on Money’ and ‘The General Theory of Employment, Interest and Money’, Keynes was reacting to the events of the time, which anybody at all can be able to accomplish. It wasn’t a sage-like re-organisation of the chessboard. It was more of the mind of a typical political economist who took advantage of the ignorance of the majority on economic principles.

In his General Theory he made it clear that Capitalism or free market lacks self sustaining mechanism to guarantee full employment. He argued, that flaw is predicated on the relationship between savings and investment. In that, savings turn to outstrip consumption when people’s income rise. Therefore, it takes out the motor that drives investment, stressing that savings is ‘non-spending’ and this will not incentivise businessmen to invest thereby employing all those who are willing to work at prevailing wages. And this couldn’t be farther from the truth; besides, for a person of his intelligence to write that is regrettable.

The notion that savings is not spending is intellectually myopic, and in the case of Keynes it is unpardonable. To start with, excessive savings even the bible will tell you is good. And what’s more, economically, it leads to lower interest rate when bankers have more cash sitting in their volts – that is, if the central bank will allow free floating of interest rate. Besides, figures from the various banks will allow the central bank to know the savings level, which should give them indication where the interest level should be. If due to excessive savings interest is driven down investors into businesses involving heavy capital equipments like oil rig will take advantage of the lower rate to drill. Meaning manufacturer of oil rigs will increase their employment. It’s not just heavy industry that will benefit; even ordinary businesses will also take the opportunity to upgrade their decrepit capital investment. And, of course, this will increase employment when they buy new machines from their manufacturers. It beggars the imagination that Keynes cannot see this simple analysis unless he was bent on abolishing the market – the best way to allocate resources.

The solution to the problem he created in his mind is complex. During the Great Depression when he wrote his theory prices of goods were coming down, yet unemployment was on the rise creating a downward spiral. So the solution is to cut wages to increase employment, which in real terms will not affect the living standard of the workers. Yet, he argued that workers suffer from what is called ‘money illusion’, a term coined by the economist, Irving Fisher, who was a contemporary of Keynes. He stressed that workers will refuse to accept less money instead of arguing at the time for workers to demand lower wages his ridiculous solution was price inflation. In other words Keynes favoured raising prices across the board in order for employers to make profit without having to reduce wages. That is when the ugly face of government deficit spending came to the fore. The idea is government spending provides additional market demand forcing prices up and kicks start the economy. This is the fundamental idea behind the autobahn in Germany, the public works in United States etc. and this should be maintain until full employment is achieved.

During the 1907 crisis, by December the following year the worse was over and the country returned to growth. But what happened during the 30s depression? The stock market crashed in 1929 and the economy actually recovered when America entered the Second World War in December 1941. After emasculating the American tax payer of every ounce of resources to build all those useless public works, in the first eight years in office the economy couldn’t recover. Were those ideas, which according to Mr Kwarteng, the brain child of Keynes worked comparatively? No, it failed by far. Thank you.

Philip Kobina Baidoo Jnr