Steve Forbes explains in the latest issue of Forbes magazine where Keynesian analysis falls short of the mark regarding money.
THE GLOBAL ECONOMY is a mess today because most economists, bankers and political leaders don’t understand that most basic of subjects: money. When it comes to monetary policy, they have it backwards, thanks to the misbegotten ideas of John Maynard Keynes. Before Keynes and like-minded peers, economists understood that the real economy was the creation of products and services. Money was the symbol economy. It represented what people had produced. It was a facilitator of commerce.
The ability of people to trade with one another is how we achieve a higher standard of living. Money measures wealth; it is not wealth itself. It is a claim on products and services that people have created. That’s why counterfeiting is illegal; it’s thievery. But when government does this, it’s called quantitative easing, or stimulus.
Money reflects what we do in the marketplace. But instead of recognizing that basic truth, Keynes posited the exact opposite. To his way of thinking, money controls the economy. Change the supply and you can change economic output, just as a thermostat controls a room’s temperature. Government, not the marketplace, is the real driver of commerce. Other “economic actors,” such as investors, venture capitalists, entrepreneurs and business executives, are secondary; they merely respond to the prompts of government officials and central bankers. (While monetarists focus exclusively on the money supply, Keynes thought it useful to employ fiscal tools, such as spending and taxes, to help steer the economy. He and his acolytes, however, had virtually no concept of taxes being a barrier or hindrance to commercial activity; they simply saw them as a way of controlling an economy’s total purchasing power, or “aggregate demand.”) …
… The Forbes 400 list of the richest Americans and our list of global billionaires demonstrate that [Joseph] Schumpeter had it right. “Economic actors” are the drivers. Government can either impede their activities or create an environment in which they can rise and flourish.
This would seem self-evident. Yet economies all over the world are in trouble. Government leaders and economists galore talk about monetary policy as if it could rev up economies that are staggering under excessive taxation, suffocating regulation and massive government spending. (Remember, government doesn’t create resources. It gets them through taxation, borrowing or inflation, which is–Keynes got this right–another form of taxation.)
Most governments loathe the truth that the people on our lists are essential to prosperity and a higher standard of living. Government wants the benefits of what such people create, but it doesn’t want anyone to get rich from the creating.
