Abstract
J M Keynes carefully read Adam Smith’s The Wealth of Nations (1776) before he was 28. Of extreme importance to Keynes was Smith’s categorization of a group of upper income class citizens, whose speculative and financial interactions with the private banking industry created a very severe danger to the society as a whole, as being projectors, imprudent risk takers, and prodigals. Keynes’s description of Smith’s projectors, imprudent risk takers, and prodigals in the General Theory, as well as Keynes’s extremely important, early 1937 papers in the Eugenics Review and Quarterly Journal of Economics, is that Smith’s projectors, imprudent risk takers, and prodigals are Keynes’s Wall Street speculators and rentiers. It is the speculators and rentiers who are mainly responsible for the problems of inflation and deflation in the macro economy. Keynes realized that this destructive, casino-gambling type behavior that is so damaging to the macro economy is facilitated and financed by the “…forces of banking and finance”.
Keynes’s Chapter Twelve analysis on pages 147-162 in the General Theory of the speculative dangers resulting from the financial behavior of Wall Street speculators and rentiers is identical to Smith’s pages 114-115, 279-341 discussions in the Wealth of Nations of the dangers from projectors, imprudent risk takers, and prodigals.
Both Smith’s and Keynes’s analysis complements each other. Both Smith and Keynes could have given the exact, same, vastly superior analysis and policy advice to government officials facing the 2007-2009 Great Recession that would have been greatly superior to the type of very poor policy analysis provided by DSGE macroeconomists in the period 2006-2010.
Both Smith and Keynes explicitly point out and analyze the malign impacts(see Kennedy, 2008) on the macro economy perpetrated by either Smithian projectors, imprudent risk takers, or prodigals or Keynesian speculators and rentiers. The role of government is to impose constraints on these categories of upper income class members so as to prevent them from harming the sober people by proactive laws, rules, and regulations.
The obvious reason that DSGE macro models failed so egregiously is that there are no variables in their models representing the impacts of these types of decision makers on the macro economy over time. The reason for this misspecification modeling error by DSGE proponents is that they accept Bentham’s critique of Smith that there are no such individuals in the economy as Smith’s projectors, imprudent risk takers, or prodigals.SSRN
J M Keynes on the Enemies of Capitalism: The Internal, Endogenous Threat to the Macro Economy from Wall Street Stock Market Speculators and Rentiers
Michael Emmett Brady, California State University, Dominguez Hills
Written: May 18, 2018
4 comments:
Amazing obliviousness and know-nothingness result in Keynesian "analysis". The phenomenon at issue here was explained in detail by Rothbard in his book "The Panic of 1819" which describes factual examples of the original version of the Austrian Business Cycle Theory.
If you can't refute it, make sure you ignore it, right?
https://mises.org/library/panic-1819
“It is the speculators and rentiers who are mainly responsible for the problems of inflation and deflation in the macro economy.”
Exactly.
Why does it take $25.41 to buy what one dollar bought in 1913? The reason is that a piece of property is worth whatever a bank is willing to lend for it. Banks seek to lend as much money as they can on a piece of property, in order to maximize the interest that banks get paid. (The loan principle itself, which banks create out of thin air, gets progressively zeroed out or destroyed as the moirtgage is progressively paid off.)
Over time, as loan amounts increased, they caused property values to increase, driving up prices throughout the economy.
Put more simply, the main reason for price inflation in the USA is banker greed.
Q. Why are property prices (and with them, rents) skyrocketing in many parts of the USA?
A. Because banks are lending more and more money for property, in order to boost bank profits.
Q. But if banks are lending more and more of their money, how can they be making profits?
A. The money that banks lend is created out of thin air. Profits come from the interest paid on that loan money.
Q. How can we stop this?
A. Rent controls and price controls. Unfortunately we can’t have these, because politicians are paid off by the bankers.
Q. Suppose I take a mortgage on a property, and my monthly payments are so high that I have no hope of ever paying them?
A. No matter. Just by taking a ridiculously large mortgage, you have increased the property’s market value. Therefore you have opened the door for the bank to lend a giant mortgage to the next buyer. And by increasing the property’s market value, you have increased the market value of all other properties in the neighborhood. Therefore you have caused everyone’s property taxes to go up. This is why property prices go crazy. It is why so many people are leaving places like California. It is why Los Angeles has a vast sea of homeless people.
It’s tempting to say that this is all caused by the bankers and their bought politicians, but in reality it is all caused by the average person’s selfishness. The bankers and politicians get away with it because the masses let them.
Don’t add to this. Be kind and compassionate to everyone you know, and everyone you meet.
But what can you do as one individual? Not much, but at least you will not waste your precious lifetime in a mental box (like the person above).
For average people, everything in this physical world is difficult. Matter is dense. It takes a long time to see mental ideas become physical reality. This is a great advantage for is. An inch of spiritual progress in this physical world is worth a mile of progress in non-physical worlds, we were all are headed whether we like it or not.
“Spiritual progress” means...
[1] Using love and compassion to step outside our ego-boxes, and therefore step outside our limiting beliefs
[2] Taking responsibility for our thoughts, attitudes, and beliefs
[3] Claiming our creative power as spiritual beings. That is, getting control of our minds. (Most people are only partly in control of their minds. That is, most people are slaves.)
And so people get maxed out on their mortgages, and then have to work all the hours under the sun to repay the loan. Most, nearly all, don't realise they have been had, they see it as being just how it is, like earthquakes. Most think they are getting rich as house prices rise and so like idea, except when they move they get stun with massive house prices again and so have so work tons is hours.
Years ago a single person could buy a flat and many could afford even a one bedroomed one. But now only couples can afford to buy a flat and so friends now get together and have to share the bedroom, our turn the living room into another bedroom. Boom, the price of flats double.
People buy a flat and then rents rooms out. Boom the price of property greatly increases.
Other people do two or three jobs, and some finish work and go mini cabbing at night and this means that can buy a more expensive property. Boom, house prices increase again.
Bankers create the money out of thin air and see the interest come rolling in.
People see house prices double and when double again and think they are getting rich, but how will they realise the money, go and live in a tent, or move to somewhere no one else wants to live. Or perhaps they dream of selling up one day and going to live by the seaside, or in a nice country town, except millions of old people are doing the same thing and these properties have soared in value too.
When they get old and have to go in a care home the government will make then sell their Houses to pay for it. Other old people release the equity in their house but the bankers, thinking that people might live until they are eighty, or more, don't really pay people a lot back, and so the banks, which create the money of nothing to give the equity loans, sit back waiting for the houses to roll in. So people work hard all their lives making themselves "rich" only to give most of it back to the bankers. What a racket?
Some lucky children will get to inherit their parents houses and so see themselves as winners and many will vote Conservative, but they probably lived with their parents until they were thirty or more, and when they moved out got stung with high house prices and did endless hours at work. Then at about 50 years old they get to inherit their parents house and finally get rich. But under a different system they could have left home when they were in their early twenties, or earlier, bought a house or flat for a reasonable amount, and then lived the good life while doing less hours at work, and being able to spend more time with the kids. You only live once, why spend most of your life at work working for the bank man.
“And so people get maxed out on their mortgages, and then have to work all the hours under the sun to repay the loan. Most, nearly all, don't realize they have been had, they see it as being just how it is, like earthquakes.” ~ Kaivey
Exactly. More and more of the nation’s energy is sucked away by the bankers. This is why the West is doomed. And yes, most people see this banker theft as “just how it is.” As though theft by bankers is part of natural law.
Many will vote Conservative, but they probably lived with their parents until they were thirty or more, and when they moved out got stung with high house prices and did endless hours at work.
Labour is no better. In the USA the Democrats are controlled by establishment Democrats (sometimes called “blue dog Democrats”) who are the same as Republicans. The UK equivalent is the “New Labour Party.”
Jeremy Corbyn claims that he is not part of New Labour. However Corbyn favors deficit reduction (i.e. austerity).
“You only live once. Why spend most of your life at work working for the bank man?”
This happens because, as you said above, most people believe that banker theft is just “how it is, like earthquakes.”
When you explain the truth to them, they reject it. The bankers laugh at their stupidity.
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