“Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some.”
– John Maynard Keynes, The Economic Consequences of the Peace, 1919
Keynesian economic theory was adopted by the US in the early 20th century. It was a part of the supportive reasoning for central economic planning through the Federal Reserve. Keynesian economic theory is also responsible for the massive government debt that has been created since then, supported with the theory that government can boost the economy by increasing its own spending. This has encouraged loose fiscal policy and spending binges that can only be rivaled by drunken sailors.
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Keynesian Economic theory is best summed up by this example: The government pays someone to dig a hole and pays someone else to fill it. The fact that nothing productive is taking place doesn’t matter, according to Keynes, the spending alone stimulates the economy.
That is about as far from common sense as one can imagine. The reason being, is that prosperity comes from wealth creation. Jobs and ‘work’ alone are not sufficient. Value must actually be produced in order for prosperity to increase. If the workers aren’t doing anything productive, why have them go through the illusion of work? Just send them checks for doing nothing. The net result will be the same. It is the subsidization of non-production. This makes everyone poorer, not more wealthy.
Interestingly enough, Keynes acknowledged the observation by Lenin where capitalism can be destroyed by inflation, Keynes was preaching against “uncontrolled” inflation. The interesting thing is, however, Keynes’ theory accepts mild inflation. Inflation is still a hidden tax. The reason the government inflates the money supply is primarily because it can no longer tax directly or borrow from the market in order to pay for its own expanding bureaucracy and programs, so it borrows the money from the Federal Reserve instead. This money of course is simply printed.
Just as taxes take money out of the hands of private citizens immediately, inflation takes money out of the hands of citizens in the future by reducing the purchasing power of their savings. There are many things wrong with Keynesian Economic Theory, but this is certainly one of the most destructive. The other problems with this theory are discussed in the video below.
