Political Economy

John C. Medaille on Keynesian Economics

Toward a Truly Free MarketJohn C. Medaille provides these insightful paragraphs on Keynesian economics:

“We can summarize Keynes’s theory as one of a managed economy. At the start of a recession, the government would lower taxes and increase spending, thereby running up debts, to increase economic activity. As the economy improves, the government would raise taxes and lower spending to pay off the accumulated debts, and thereby choke off any wasteful booms. Between the two poles, the boom-and-bust cycle would be broken. Governments were more than willing to follow the first part of the prescription, and pile up debts to prevent or lesson recessions. But when it came to the second part, they lacked the will. As the saying goes, nobody wanted to take away the punch bowl just as the party was getting started, or at least nobody who was facing an election campaign. Thus, the debts tend to accumulate, which makes high taxes a structural part of the economy; unless a government is willing to default on its debts, it must first pay the interest before any other function of government can be funded. This half-baked Keynesian policy is effective at managing recessions, but isn’t normally attempted to manage booms.”

Medaille continues,

“Keynes accepted the neoclassical dictum of a value-free economics; he merely denied that such an economic system could maintain itself in equilibrium for long, if at all. He felt that such a system led inevitably to great disparities in wealth and income, and that no economy could balance itself in the face of these manifest imbalances. ‘The outstanding faults of the economic society in which we live,’ he said, ‘are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes.’”

“What Keynes actually proposed was not so much an overturning of the capitalist system, as a neat division of labor: the capitalist system would create wealth, and the political system would redistribute it in sufficient amounts to maintain aggregate demand and keep the economy from collapsing. In other words, Keynes bowed to the abandonment of justice as an economic principle, and made it into a purely political concern; distributive justice became re-distributive, not so much a matter for economists as for bureaucrats. Insofar as Keynes had some consideration for distributive justice, economies built on his principles have been able to function. But insofar as they depend on an ever-growing bureaucracy, they are always in danger of consuming themselves.”

 

– Lucas G. Westman


*Toward a Truly Free Market: A Distributist Perspective on the Role of Government, Taxes, Health Care, Deficits, and More, Pg. 16, 20.

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