WEBVTT NOTE Crony Capitalism Revisited (Is Keynesianism What We Think It Is?) 1 00:00:00.000 --> 00:00:07.800 A few years ago I had an MBA macroeconomics course and I was looking to turn it into a 2 00:00:07.800 --> 00:00:14.840 seminar because it was a small group of students and one of the hot books at the time was the 3 00:00:14.840 --> 00:00:22.420 book by Animal Spirits by Shuler and Akerlof which purported to give us sort of a Keynesian 4 00:00:22.420 --> 00:00:29.980 explanation of financial crises based on psychological imperfections in the human mind and so on. 5 00:00:29.980 --> 00:00:35.980 But I also wanted an antidote to this, and I found two books that were extremely clearly written. 6 00:00:35.980 --> 00:00:40.980 A third book that I did also use was Meltdown by Tom Woods. 7 00:00:40.980 --> 00:00:44.980 You can give me the dollar later, Tom, for that. 8 00:00:44.980 --> 00:00:49.980 But I'm delighted to have the author of the two books that I used in that course. 9 00:00:49.980 --> 00:00:56.980 MBA students loved it because they were so clearly written compared to the Schiller-Akerlof bestseller. 10 00:00:56.980 --> 00:01:04.180 So, to give the Henry Hazlett Memorial Lecture, we have Hunter Lewis. Hunter Lewis graduated 11 00:01:04.180 --> 00:01:09.500 from the Groton School in Harvard University. After working at the Boston Company, which 12 00:01:09.500 --> 00:01:16.460 was then one of the largest investment managers, Lewis co-founded and served as the co-chief 13 00:01:16.460 --> 00:01:23.900 executive and then chief executive of Cambridge Associates, an investment advisor to American 14 00:01:23.900 --> 00:01:29.900 and colleges representing over three quarters of U.S. higher education endowment assets. 15 00:01:29.900 --> 00:01:34.900 Lewis has been active in the environmental and natural health fields. 16 00:01:34.900 --> 00:01:39.900 He has written for the New York Times, the Times of London, the Washington Post and the Atlantic Monthly 17 00:01:39.900 --> 00:01:43.900 as well as numerous websites including Forbes.com. 18 00:01:43.900 --> 00:01:48.900 His books on economics include one of the ones that I use and which I highly recommend 19 00:01:48.900 --> 00:01:53.900 which he has graciously donated copies to the attendees here, 20 00:01:54.500 --> 00:01:56.340 Where Keynes Went Wrong 21 00:01:56.340 --> 00:01:59.660 and Why Governments Keep Creating Inflation Bubbles and Busts 22 00:01:59.660 --> 00:02:01.740 and I highly recommend this. 23 00:02:01.740 --> 00:02:05.020 He has also authored Are the Rich Necessary, 24 00:02:05.020 --> 00:02:07.820 Great Arguments and How They Reflect Our Personal Value 25 00:02:07.820 --> 00:02:09.500 and The Real World War. 26 00:02:09.500 --> 00:02:11.780 He has also written books on moral philosophy, 27 00:02:12.780 --> 00:02:15.620 bringing, I'm sure, the same clarity to these questions 28 00:02:15.620 --> 00:02:18.420 as he has done to economics 29 00:02:18.420 --> 00:02:24.460 and they include a question of values, six ways we make the personal choices that shape our lives 30 00:02:24.460 --> 00:02:27.180 another book called The Beguiling Serpent 31 00:02:27.180 --> 00:02:29.860 and then the alternative values 32 00:02:29.860 --> 00:02:32.180 is the subtitle 33 00:02:32.180 --> 00:02:36.180 I'm sorry that's another book, alternative values for and against wealth 34 00:02:36.180 --> 00:02:39.460 power, fame, praise, glory and physical pleasure 35 00:02:39.460 --> 00:02:41.500 I'm for all of those things 36 00:02:41.500 --> 00:02:44.260 I hope he comes down on the right side also 37 00:02:44.260 --> 00:02:48.260 And without further ado, it really is my pleasure to introduce Hunter Lewis. 38 00:02:56.260 --> 00:03:01.260 Thank you, Joe, for your very generous introduction. 39 00:03:01.260 --> 00:03:06.260 It's an honor to deliver any lecture named for Henry Hazlitt. 40 00:03:06.260 --> 00:03:13.260 He's been a beacon light for me, as for many of you, and also to speak to this group. 41 00:03:13.260 --> 00:03:20.260 Some years ago, as I was leaving a radio program, I heard a technician say to the host, 42 00:03:20.260 --> 00:03:23.260 I didn't understand a single word he said. 43 00:03:23.260 --> 00:03:27.260 I don't think I'll have that problem here today with this group. 44 00:03:27.260 --> 00:03:31.260 The major topic today is crony capitalism revisited. 45 00:03:31.260 --> 00:03:33.260 Why revisit it? 46 00:03:33.260 --> 00:03:39.260 Because David Stockman, whom I've met and admire, gave the Hazlitt Lecture last year 47 00:03:39.260 --> 00:03:43.260 and called it Money and the Triumph of Chronic Capitalism. 48 00:03:43.260 --> 00:03:48.260 That talk focused on the crash of 08 and the subsequent bailout. 49 00:03:48.260 --> 00:03:54.260 It might seem odd to have two Hazlitt lectures in a row devoted to Chronic Capitalism. 50 00:03:54.260 --> 00:03:59.260 So far as I know, Henry Hazlitt did not use the phrase. 51 00:03:59.260 --> 00:04:05.260 Nor, so far as I know, did Mises or Hayek or Rothbard. 52 00:04:05.260 --> 00:04:16.260 Although, so far as I know, Haslund did not use the term, he was, and through his writing remains, the foremost expert on John Maynard Keynes. 53 00:04:16.260 --> 00:04:23.260 And at a deeper level, crony capitalism is Keynesianism, and Keynesianism is crony capitalism. 54 00:04:23.260 --> 00:04:31.260 Or, to be more precise, Marxism is to communism, as Keynesianism is to crony capitalism. 55 00:04:31.260 --> 00:04:36.140 One is the sacred text, the other the actual system. 56 00:04:36.140 --> 00:04:44.860 The relationship between Keynesianism and crony capitalism is an interesting one, and I'll return to Keynes shortly. 57 00:04:44.860 --> 00:04:48.940 But first, a word about the phrase crony capitalism. 58 00:04:48.940 --> 00:04:51.820 Where does this phrase come from? 59 00:04:51.820 --> 00:04:57.380 New York Times columnist William Sapphire wrote in 1998 that he had traced its first 60 00:04:57.380 --> 00:05:02.780 appearance to a Time magazine article in 1981. 61 00:05:02.780 --> 00:05:08.100 The article was written by many hands and it is not clear who coined the phrase, if 62 00:05:08.100 --> 00:05:10.980 indeed that is the origin. 63 00:05:10.980 --> 00:05:16.900 Arthur Kroc, New York Times Washington bureau chief, seems to have coined the phrase government 64 00:05:16.900 --> 00:05:24.700 by Crony back in 1946 and it may have been used earlier. Samuel Pepys, the 17th century 65 00:05:24.700 --> 00:05:31.720 diarist used the word crony but it wasn't so pejorative in those days. I think crony 66 00:05:31.720 --> 00:05:39.260 capitalism is a very useful phrase. My wife has a friend who loves books. When visiting 67 00:05:39.260 --> 00:05:46.100 my office he saw a bookshelf and his eyes lit up. Then approaching eagerly he saw they 68 00:05:46.100 --> 00:05:57.260 How do we explain Austrian economics to a person like that? 69 00:05:57.260 --> 00:06:00.360 Most people want the elevator speech version anyway. 70 00:06:00.360 --> 00:06:01.360 What are you for? 71 00:06:01.360 --> 00:06:07.860 And in particular, in today's tabloid media style, what are you against? 72 00:06:07.860 --> 00:06:11.400 There are pitfalls anywhere and everywhere. 73 00:06:11.400 --> 00:06:13.300 Am I for capitalism? 74 00:06:13.300 --> 00:06:17.900 I have to take care with my answer as David Gordon suggested yesterday. 75 00:06:17.900 --> 00:06:22.940 It's not just that Marx coined the term, a college professor friend of mine tells me 76 00:06:22.940 --> 00:06:29.360 that socialism is the economic system favoring workers, capitalism is the system favoring 77 00:06:29.360 --> 00:06:30.940 business owners. 78 00:06:30.940 --> 00:06:38.900 I responded no, capitalism is the system favoring consumers, who by the way are also often workers. 79 00:06:38.900 --> 00:06:43.620 So as we all know, many people don't have a clue what capitalism is. 80 00:06:43.620 --> 00:06:46.100 How about the term free markets? 81 00:06:46.100 --> 00:06:47.740 That's clear enough, isn't it? 82 00:06:47.740 --> 00:06:49.420 Well, no. 83 00:06:49.420 --> 00:06:54.380 Many people think that free markets refer to a place where you can do anything you want. 84 00:06:54.380 --> 00:06:57.740 They think it's the Wild West or maybe a brothel. 85 00:06:57.740 --> 00:07:02.980 In reality, of course, free markets operate according to some very specific and binding 86 00:07:02.980 --> 00:07:03.980 rules. 87 00:07:03.980 --> 00:07:05.780 Ignore them at your peril. 88 00:07:05.780 --> 00:07:11.900 Yes, you can be selfish, willful, take advantage of others and put yourself first, but that's 89 00:07:11.900 --> 00:07:18.220 a good way not to add to your capital, but to go broke, if not sooner than later. 90 00:07:18.220 --> 00:07:24.700 Markets are a place where you put your customers and employees first, or you suffer the consequences. 91 00:07:24.700 --> 00:07:29.820 As Mises said, being your own boss really just means that you have many bosses, all 92 00:07:29.820 --> 00:07:31.980 your customers. 93 00:07:31.980 --> 00:07:36.420 Markets are in fact a form of self-regulation, and because voluntary it works. 94 00:07:36.420 --> 00:07:41.220 This is the only form of regulation that does work, but it's dangerous to use the word 95 00:07:41.220 --> 00:07:42.220 regulation. 96 00:07:42.220 --> 00:07:49.940 That's become synonymous with government regulation, which does not work, which is oxymoronic. 97 00:07:49.940 --> 00:07:55.100 Better to say markets are a form of discipline, especially self-discipline. 98 00:07:55.100 --> 00:07:59.900 When speaking to people like my wife's friend, I usually speak of free prices rather than 99 00:07:59.900 --> 00:08:01.900 free markets. 100 00:08:01.900 --> 00:08:08.300 I sometimes imagine millions of people marching in Washington waving placards that say free 101 00:08:08.300 --> 00:08:12.340 prices now. 102 00:08:12.340 --> 00:08:17.540 Many people, perhaps most, understand that controlled prices are not such a good thing. 103 00:08:17.540 --> 00:08:22.660 Of course, there are plenty of economists who condemn price controls, love what the 104 00:08:22.660 --> 00:08:27.100 Fed does, and don't recognize any inconsistency. 105 00:08:27.100 --> 00:08:31.780 These economists are similar to the Occupy Wall Streeters who referred to the New York 106 00:08:31.780 --> 00:08:36.380 are fed building as the citadel of capitalism. 107 00:08:36.380 --> 00:08:38.780 That would be a good joke if it weren't so tragic. 108 00:08:40.780 --> 00:08:43.940 In these great debates, terminology matters. 109 00:08:43.940 --> 00:08:48.140 Look how FDR, how far he got by turning the word liberalism, 110 00:08:48.140 --> 00:08:51.220 which meant less government on its head, 111 00:08:51.220 --> 00:08:53.780 or by sending the word freedom into surgery, 112 00:08:54.660 --> 00:08:57.280 where the antecedent two was lopped off. 113 00:08:57.280 --> 00:08:59.580 The customary and logical two 114 00:08:59.580 --> 00:09:04.580 suddenly became freedom from, as in freedom from hunger. 115 00:09:04.900 --> 00:09:07.840 After this clever switch, an expansion of government 116 00:09:07.840 --> 00:09:10.940 became necessary in order to increase our freedom. 117 00:09:10.940 --> 00:09:12.620 It's too bad we didn't have Jefferson around 118 00:09:12.620 --> 00:09:14.300 at that point to call him down. 119 00:09:15.180 --> 00:09:19.300 An old friend of FDR's who went to my boarding school 120 00:09:19.300 --> 00:09:21.820 said that he was a champion liar from boyhood. 121 00:09:23.500 --> 00:09:28.240 But debates have not gotten any more honest since his time 122 00:09:28.240 --> 00:09:33.620 and it behooves us to set a standard both of honesty and clarity in our choice of terms. 123 00:09:33.620 --> 00:09:37.820 Mises spoke of capitalism, socialism and interventionism. 124 00:09:37.820 --> 00:09:39.920 These are crucial distinctions. 125 00:09:39.920 --> 00:09:44.340 Socialism and interventionism are both predatory and parasitical 126 00:09:44.340 --> 00:09:47.260 and thus in the long run self-destructive. 127 00:09:47.260 --> 00:09:49.520 But interventionism can persist 128 00:09:49.520 --> 00:09:51.940 for a very, very long time, 129 00:09:51.940 --> 00:09:56.040 living off of but not quite consuming its host, 130 00:09:56.040 --> 00:09:59.820 whatever survives of a free price system. 131 00:09:59.820 --> 00:10:03.140 The trouble with interventionism as a phrase, however, 132 00:10:03.140 --> 00:10:07.000 is that like capitalism, it requires an explanation 133 00:10:07.000 --> 00:10:10.000 and not a sound bite explanation. 134 00:10:10.000 --> 00:10:12.520 Crony capitalism has the advantage 135 00:10:12.520 --> 00:10:16.380 that people immediately understand that something is wrong 136 00:10:16.380 --> 00:10:19.640 and that people operating as crony capitalists 137 00:10:19.640 --> 00:10:22.300 may not be what they claim to be 138 00:10:22.300 --> 00:10:24.780 and indeed are somewhat unsavory. 139 00:10:24.780 --> 00:10:30.380 Now, some people on the Mises website do not like this phrase. 140 00:10:30.380 --> 00:10:35.500 People commenting on the Mises website, by the way, are a spirited lot, as I think you 141 00:10:35.500 --> 00:10:36.500 know. 142 00:10:36.500 --> 00:10:44.340 One, pen-named autocrat, cautions us against any use whatever of the term capitalism. 143 00:10:44.340 --> 00:10:46.080 Why? 144 00:10:46.080 --> 00:10:52.180 Because he says state capitalism is redundant, the state will always control capitalism, and 145 00:10:52.180 --> 00:10:58.580 So by extension, crony capitalism is also redundant. Autocrat adds that if we must use the word 146 00:10:58.580 --> 00:11:07.580 capitalism, we should modify it with the adjective utopian, as in utopian capitalism. Ouch, I 147 00:11:07.580 --> 00:11:13.980 don't think there's anything remotely utopian about capitalism, properly construed. I hope 148 00:11:13.980 --> 00:11:21.020 Autocrat is not here today. However, another blogger on freerepublic.com says there is 149 00:11:21.020 --> 00:11:26.900 There's no such thing as crony capitalism, it's a term created by the left in order 150 00:11:26.900 --> 00:11:30.620 to slander capitalism wholesale. 151 00:11:30.620 --> 00:11:36.420 Someone agrees it would be better if people on our side refrain from using the left's 152 00:11:36.420 --> 00:11:37.620 terminology. 153 00:11:37.620 --> 00:11:40.660 But is this the left's terminology? 154 00:11:40.660 --> 00:11:46.300 Noam Chomsky, long-time thought leader of the left, seems uncomfortable with such terms 155 00:11:46.300 --> 00:11:50.020 as crony capitalism or greeny capitalism. 156 00:11:50.020 --> 00:11:56.740 Why? Because in his view, such terms may confuse people into thinking that capitalism itself 157 00:11:56.740 --> 00:12:03.740 is not bad. Another blogger points out, we have something in our language called a qualifier. 158 00:12:03.740 --> 00:12:10.740 The word crony totally changes the meaning of capitalism the way non or anti or foe would. 159 00:12:11.920 --> 00:12:17.360 Someone else agrees, the two words together cannot possibly be taken as a slam against 160 00:12:17.360 --> 00:12:26.760 Another commentator, again on Mises, raises what I think is a very valid point. 161 00:12:26.760 --> 00:12:32.960 He or she argues that using the term crony capitalism is a serious strategic mistake 162 00:12:32.960 --> 00:12:39.320 because the phrase can be taken to describe an out-of-control, unregulated market. 163 00:12:39.320 --> 00:12:44.800 This is true, just as there are many people today who think the answer to a surfeit of 164 00:12:44.800 --> 00:12:49.800 of Spending and Debt is to pour on even more spending and debt. 165 00:12:49.880 --> 00:12:51.960 There are people who think that the answer 166 00:12:51.960 --> 00:12:55.280 to government economic cronyism is to give the government 167 00:12:55.280 --> 00:12:56.740 more power of the economy. 168 00:12:57.660 --> 00:12:59.840 So this commentator is right that if we attack 169 00:12:59.840 --> 00:13:03.540 crony capitalism, we'll attract some people 170 00:13:03.540 --> 00:13:05.960 who have little or no understanding 171 00:13:05.960 --> 00:13:08.480 about what causes crony capitalism 172 00:13:08.480 --> 00:13:09.880 or what we can do about it. 173 00:13:10.800 --> 00:13:13.080 But it's not really hard to explain. 174 00:13:13.080 --> 00:13:18.000 If more and more government intervention in the economy is further corrupting government 175 00:13:18.000 --> 00:13:24.480 and business and all the other special interests such as unions and lawyers, even more government 176 00:13:24.480 --> 00:13:28.240 intervention cannot possibly be the answer. 177 00:13:28.240 --> 00:13:30.880 Some people no doubt will never get it. 178 00:13:30.880 --> 00:13:36.840 To provide a moment of light entertainment, I shall read you a few sentences from an article 179 00:13:36.840 --> 00:13:43.280 Describing Crony Capitalism in the International Encyclopedia of the Social Sciences, Volume 180 00:13:43.280 --> 00:13:50.280 2, 2008, quote, some sociologists and political scientists have maintained that forms of crony 181 00:13:52.360 --> 00:13:58.340 capitalism may be indispensable for capitalist development, particularly when those forms 182 00:13:58.340 --> 00:14:05.340 of cronyism help prevent untrammeled corruption. 183 00:14:06.840 --> 00:14:12.320 So you see, cronyism prevents corruption. 184 00:14:12.320 --> 00:14:18.480 The article continues, as modern China shows, personal political networks tying central 185 00:14:18.480 --> 00:14:25.080 government leaders to regional industrialists may be invaluable in combating entrepreneurial 186 00:14:25.080 --> 00:14:26.080 corruption. 187 00:14:26.080 --> 00:14:33.460 Right, so big industrialists working with the government combat entrepreneurial corruption. 188 00:14:33.460 --> 00:14:40.100 The article continues, Chinese increased movement away from state-owned enterprise has greatly 189 00:14:40.100 --> 00:14:45.500 increased opportunities for corruption at the higher ranks of society. 190 00:14:45.500 --> 00:14:51.860 Again, sure, if government ownership prevents corruption, then why did the Russians give 191 00:14:51.860 --> 00:14:53.580 it up? 192 00:14:53.580 --> 00:14:56.080 The article then really tops itself. 193 00:14:56.080 --> 00:15:03.740 Much of the success of the Chinese economy may be due to an uncorrupted political elite. 194 00:15:03.740 --> 00:15:11.340 Well, as this audience knows, China is a massively corrupt place, top to bottom. 195 00:15:11.340 --> 00:15:16.200 It's our partner in blowing up worldwide economic bubbles, and it's only a matter of time before 196 00:15:16.200 --> 00:15:23.320 its present financial system, always insolvent to one degree or another, finally collapses. 197 00:15:23.320 --> 00:15:30.160 After reading this last passage from the so-called International Encyclopedia of the Social Sciences, 198 00:15:30.160 --> 00:15:35.440 we can all agree that crony capitalism is not a perfect phrase to describe what we are 199 00:15:35.440 --> 00:15:40.280 against, but I think it's still better than the alternatives. 200 00:15:40.280 --> 00:15:46.200 Fascism carries far too much non-economic baggage, although I like one blogger's reference 201 00:15:46.200 --> 00:15:49.160 to fascism light. 202 00:15:49.160 --> 00:15:54.640 Mercantilism is an obscure term for most people and suggests that corporations are somehow 203 00:15:54.640 --> 00:15:59.080 the root of the problem or inherently evil. 204 00:15:59.080 --> 00:16:01.920 Mercantilism is another alternative. 205 00:16:01.920 --> 00:16:07.680 It too is obscure for most people, although it has the advantage that Keynes himself flew 206 00:16:07.680 --> 00:16:10.720 this particular flag overhead. 207 00:16:10.720 --> 00:16:16.960 That he did so is just one more example of his numerous self-contradictions, and not 208 00:16:16.960 --> 00:16:23.440 Not just because he mocked mercantilism in the early years of his career before deciding 209 00:16:23.440 --> 00:16:27.400 to embrace it at the end of the general theory. 210 00:16:27.400 --> 00:16:32.380 Note also that in the beginning of the general theory, Keynes says that his ideas will no 211 00:16:32.380 --> 00:16:36.960 doubt be rejected because they're so novel and revolutionary. 212 00:16:36.960 --> 00:16:41.340 So at the end of the same book, he seems to have forgotten this because now he says he's 213 00:16:41.340 --> 00:16:48.100 He's reviving the same centuries old ideas that he had dismissed before as the most absurd 214 00:16:48.100 --> 00:16:54.140 fallacies. At least he acknowledges that he's changing his position, although he does not 215 00:16:54.140 --> 00:17:02.180 explain how his ideas can be new, revolutionary and also centuries old. This is of a piece 216 00:17:02.180 --> 00:17:07.500 with describing himself as a member of the, quote, the brave army of rebels and heretics 217 00:17:07.500 --> 00:17:14.380 down through the ages." Even as he recommends policies that appeal to the basest and most 218 00:17:14.380 --> 00:17:21.580 self-serving instincts of politicians, and even as he enjoys all the privileges of being at the top 219 00:17:21.580 --> 00:17:28.300 of the existing financial and political elite, it may be true, as the art historian Kenneth Clark said, 220 00:17:28.300 --> 00:17:34.460 that Keynes, quote, never dimmed his headlights. But it cannot be said that he knew how to drive 221 00:17:34.460 --> 00:17:36.980 on the same side of the road. 222 00:17:36.980 --> 00:17:43.460 If we stay with crony capitalism as the least bad way to describe what's wrong with economy, 223 00:17:43.460 --> 00:17:49.340 that brings us back to Keynes, since he became the principal apologist for the system. 224 00:17:49.340 --> 00:17:54.580 As all of you know, much of Keynes' writing is intentionally obscure, although the threads 225 00:17:54.580 --> 00:18:00.500 can be unraveled and rebutted, as Henry Hazlitt so brilliantly proved in The Failure of the 226 00:18:00.500 --> 00:18:02.660 New Economics. 227 00:18:02.660 --> 00:18:10.540 What I'd like to do in the balance of my time is to ask, what is the very essence of Keynesianism? 228 00:18:10.540 --> 00:18:17.900 Can we describe it in the briefest and simplest terms so that anyone can understand what's 229 00:18:17.900 --> 00:18:24.500 wrong with it and thus strip away the intellectual fog that surrounds and protects crony capitalism? 230 00:18:24.500 --> 00:18:31.420 At first glance, it might seem that the essence of Keynesianism is simply the endless self-contradiction 231 00:18:31.420 --> 00:18:33.820 to which I've already alluded. 232 00:18:33.820 --> 00:18:36.660 He was never in one place, intellectually or otherwise, 233 00:18:36.660 --> 00:18:38.060 for long. 234 00:18:38.060 --> 00:18:42.140 For a further example, he railed at the love of money. 235 00:18:42.140 --> 00:18:44.340 He called it, quote, the worm gnawing 236 00:18:44.340 --> 00:18:47.100 at the insides of modern civilization. 237 00:18:47.100 --> 00:18:50.140 But he also desperately wanted to be rich. 238 00:18:50.140 --> 00:18:52.740 He railed against investment speculation, 239 00:18:52.740 --> 00:18:55.740 but avidly speculated himself. 240 00:18:55.740 --> 00:18:58.460 At one point, he was completely wiped out, 241 00:18:58.460 --> 00:19:02.260 and he had to turn to his father, a teacher, for rescue. 242 00:19:02.260 --> 00:19:04.660 Two more times he could have been wiped out, 243 00:19:04.660 --> 00:19:08.060 once in 1929, again in 1937, 244 00:19:08.060 --> 00:19:09.740 neither of which he anticipated. 245 00:19:10.580 --> 00:19:12.980 Cain's relationship with gold is a good example 246 00:19:12.980 --> 00:19:15.540 of his continual self-contradiction. 247 00:19:15.540 --> 00:19:18.520 In 1922, he wrote in the Manchester Guardian, 248 00:19:19.380 --> 00:19:22.140 if the gold standard could be reintroduced, 249 00:19:22.140 --> 00:19:27.140 we all believe that the reform would promote trade 250 00:19:27.140 --> 00:19:30.300 and Production, like nothing else. 251 00:19:30.300 --> 00:19:32.980 A little later, of course, he described gold 252 00:19:32.980 --> 00:19:34.540 as the quote, barber's relic. 253 00:19:35.620 --> 00:19:38.460 Yet even when he called gold the barber's relic, 254 00:19:38.460 --> 00:19:40.980 he privately continued to recommend it 255 00:19:40.980 --> 00:19:42.780 as an investment diversifier. 256 00:19:43.660 --> 00:19:45.860 When we turn to Keynes' economics, 257 00:19:45.860 --> 00:19:49.080 perhaps the most fantastic self-contradiction 258 00:19:49.080 --> 00:19:51.980 was that an alleged savings glut, 259 00:19:51.980 --> 00:19:54.600 too much supposedly idle cash, 260 00:19:54.600 --> 00:19:59.040 could be cured by flooding the economy with more cash 261 00:19:59.040 --> 00:20:01.440 newly printed by the government. 262 00:20:01.440 --> 00:20:03.760 Perhaps even more bizarrely, 263 00:20:03.760 --> 00:20:06.360 Keynes said that we should call this new cash 264 00:20:06.360 --> 00:20:08.680 quote, savings unquote, 265 00:20:08.680 --> 00:20:11.800 because it represents saving just as genuine 266 00:20:11.800 --> 00:20:15.840 quote, as traditional savings unquote. 267 00:20:15.840 --> 00:20:18.040 That is, the money rolling off the government 268 00:20:18.040 --> 00:20:20.940 printing presses is in no way different 269 00:20:20.940 --> 00:20:24.000 from the money that we earn and choose not to spend. 270 00:20:24.600 --> 00:20:31.600 All this new, quote, savings, unquote, enters the economy principally through the mechanism of low interest rates. 271 00:20:31.600 --> 00:20:40.600 At this point, Keynes further confounds his forerunners and elders by arguing that it is not high interest rates, as always thought, 272 00:20:40.600 --> 00:20:48.600 but rather low interest rates that increase savings, even though we started by positing too much savings in the first place. 273 00:20:48.600 --> 00:20:57.080 Kane's followers echo this even today. Greenspan, Bernanke and Krugman have all written about 274 00:20:57.080 --> 00:21:03.480 his savings glut, which is supposed to be at the root of our troubles, and have proposed 275 00:21:03.480 --> 00:21:10.020 more money and lower interest rates as a remedy, although they no longer call the new money 276 00:21:10.020 --> 00:21:17.860 genuine savings. They prefer quantitative easing and similar obscure euphemisms. Keynesian 277 00:21:17.860 --> 00:21:24.400 Gregory Mankiw, one of the two chief economic advisors named by Mitt Romney, has even proposed 278 00:21:24.400 --> 00:21:32.400 ramping up CPI inflation to create deeply negative interest rates. He hasn't said how negative, 279 00:21:32.400 --> 00:21:38.940 but his colleague Ken Rogoff says probably minus six percent. In other words, today's 280 00:21:38.940 --> 00:21:46.000 negative giveaway interest rates are still too low. We are to increase official inflation 281 00:21:46.000 --> 00:22:10.560 The General Theory does argue that interest rates could and should be brought to a zero 282 00:22:10.560 --> 00:22:18.200 Level Permanently, that's page 220, 21, and 336 in the general theory. 283 00:22:18.200 --> 00:22:23.820 This idea of permanent zero interest rates appears first in Proudhon, although Keynes 284 00:22:23.820 --> 00:22:27.180 does not acknowledge or perhaps does not know that. 285 00:22:27.180 --> 00:22:32.520 And it does seem absurd on its face, lending money at no interest is equivalent to giving 286 00:22:32.520 --> 00:22:39.400 it away, which is of course what Mr. Bernanke is doing, and it's hard to understand how 287 00:22:39.400 --> 00:22:43.680 and how anything can have value that's given away. 288 00:22:43.680 --> 00:22:46.760 Nevertheless, Keynes said that it would be reasonable 289 00:22:46.760 --> 00:22:49.160 to get to zero interest rates 290 00:22:49.160 --> 00:22:54.160 and also zero dividend rates within a generation. 291 00:22:55.580 --> 00:22:58.940 By that standard, we've clearly failed him 292 00:22:58.940 --> 00:23:03.880 because we should have reached that utopia by 1966. 293 00:23:03.880 --> 00:23:06.360 But note that even Keynes did not suggest 294 00:23:06.360 --> 00:23:08.880 negative interest rates. 295 00:23:08.880 --> 00:23:14.720 The idea of engineered negative interest rates reminds me of a Yiddish phrase, which I've 296 00:23:14.720 --> 00:23:22.840 been told may be translated roughly as smart, smart, stupid. 297 00:23:22.840 --> 00:23:27.680 It takes very smart people to think it up, but that doesn't mean it isn't stupid. 298 00:23:27.680 --> 00:23:34.280 And it's worrying that it isn't coming just from President Bush or President Obama. 299 00:23:34.280 --> 00:23:38.400 One can't be surprised in anything coming from those quarters. 300 00:23:38.400 --> 00:23:43.720 President Bush, as David Stockman mentioned last year, said that, I quote, I have abandoned 301 00:23:43.720 --> 00:23:48.520 free market principles to save the free market system, unquote. 302 00:23:48.520 --> 00:23:54.600 His successor, President Obama, said in his first budget message that he was taking us 303 00:23:54.600 --> 00:24:02.040 from, quote, an era of borrow and spend to, quote, an era of save and invest. 304 00:24:02.040 --> 00:24:04.000 Wasn't that good to hear. 305 00:24:04.000 --> 00:24:10.800 Now we have Mitt Romney not only relying on a retread Bush advisor, but even a proponent 306 00:24:10.800 --> 00:24:16.680 of deeply negative interest rates. A very nice man, I might add, but not somebody that 307 00:24:16.680 --> 00:24:23.040 we need in Washington again. These Romney advisors also, of course, believe in the fairy 308 00:24:23.040 --> 00:24:31.040 tale of borrow and spend stimulus. It's usually forgotten that Keynes assured us that each 309 00:24:31.040 --> 00:24:40.220 Each dollar of stimulus would produce as much as $12 of growth, and not less than $4. Even 310 00:24:40.220 --> 00:24:47.180 the most ardent Keynesians have of course been unable to demonstrate as much as $1. 311 00:24:47.180 --> 00:24:54.080 How did Keynes know that you could get at least $4 of growth? He didn't. He told the 312 00:24:54.080 --> 00:25:00.080 governor of the Bank of England, Norman Montague, that his ideas were, quote, a mathematical 313 00:25:00.080 --> 00:25:07.080 certainty. But that, of course, was just a crude bluff. What is empirically verifiable 314 00:25:07.480 --> 00:25:13.920 is that all debt, private and public, has been generating less and less growth for decades. 315 00:25:13.920 --> 00:25:20.920 In the 10 years following 1959, the official figures say that you got 73 cents of growth 316 00:25:22.240 --> 00:25:29.240 for each dollar borrowed. By the time of the crash of 08, that was down to 19 cents, and 317 00:25:29.240 --> 00:25:35.240 And I think it was really negative by then, and it's certainly deeply negative by now. 318 00:25:35.240 --> 00:25:41.240 Rather than follow Keynes and his disciples down this and so many other rabbit holes, 319 00:25:41.240 --> 00:25:46.240 let's ask ourselves, is there a common theme to this nonsense? 320 00:25:46.240 --> 00:25:49.240 And there is a common theme. 321 00:25:49.240 --> 00:25:54.240 The common theme is that market prices don't matter. 322 00:25:54.240 --> 00:25:59.660 In a system replete with paradoxes, this is the ultimate paradox. 323 00:25:59.660 --> 00:26:04.900 In order to fix the price and profit system, we must subvert it. 324 00:26:04.900 --> 00:26:10.260 No free price or profit relationship must be left alone. 325 00:26:10.260 --> 00:26:18.860 The price-profit system must be poked, pushed, pulled apart, only to be left in complete shambles. 326 00:26:18.860 --> 00:26:24.500 The assault on interest rates and currency rates are particularly destructive, but all 327 00:26:24.500 --> 00:26:29.140 of this madcap tinkering with prices is destructive. 328 00:26:29.140 --> 00:26:36.580 Is this then the essence of Keynesianism, its blind destruction of the price mechanism 329 00:26:36.580 --> 00:26:40.620 on which any economy depends as Mises demonstrated? 330 00:26:40.620 --> 00:26:45.060 Yes, but there may be an even deeper essence. 331 00:26:45.060 --> 00:26:51.140 When we think of Keynes' headline ideas, they have a kind of formulaic quality. 332 00:26:51.140 --> 00:26:56.540 You take a long-established observation, for example, that overspending and debt are the 333 00:26:56.540 --> 00:27:01.100 road to bankruptcy and ruin, and turn it on its head. 334 00:27:01.100 --> 00:27:05.260 No, says Keynes, spending and debt are the road to wealth. 335 00:27:05.260 --> 00:27:11.500 For the Victorians, spending within your means and avoiding debt were not just financial 336 00:27:11.500 --> 00:27:17.900 Principles. They were moral principles. Keynes, who was rebelling consciously against these 337 00:27:17.900 --> 00:27:24.380 same Victorians, described their, quote, copybook morality, unquote, as, quote, medieval and 338 00:27:24.380 --> 00:27:32.220 barbarous. He told his own inner circle, quote, that I remain and always will remain an amoralist, 339 00:27:32.220 --> 00:27:38.860 unquote. You will recall Mr. McCauber's famous admonition in Charles Dickens' 19th century 340 00:27:38.860 --> 00:27:47.460 History novel David Copperfield, annual income 20 pounds, annual expenditure 19.19.6, result 341 00:27:47.460 --> 00:27:54.360 happiness, annual income 20 pounds, annual expenditure 20 pounds, ought and six, result 342 00:27:54.360 --> 00:27:56.640 misery. 343 00:27:56.640 --> 00:27:59.800 Kane certainly subverted that idea. 344 00:27:59.800 --> 00:28:06.760 In particular, he insinuated the very odd, but now very prevalent idea that old-fashioned 345 00:28:06.760 --> 00:28:13.560 Wisdom and morality is out of date, even a bit retarded, and odd or still, even in conflict 346 00:28:13.560 --> 00:28:15.560 with science. 347 00:28:15.560 --> 00:28:19.820 This is all nonsense, but it permeates our culture. 348 00:28:19.820 --> 00:28:26.320 And the very people who preach honesty and sustainability outside of economics, for example, 349 00:28:26.320 --> 00:28:31.440 in our treatment of the environment, entirely fail to understand that Keynes is preaching 350 00:28:31.440 --> 00:28:36.600 dishonesty and unsustainability in economics. 351 00:28:36.600 --> 00:28:43.600 So in conclusion, when we strip down Keynesianism to its very essence, the relationship to crony 352 00:28:43.600 --> 00:28:47.200 capitalism becomes even clearer. 353 00:28:47.200 --> 00:28:54.560 Crony capitalism represents both a corruption of capitalism and a corruption of morals. 354 00:28:54.560 --> 00:29:00.800 Keynesianism also represents both a corruption of economics and a corruption of morals. 355 00:29:00.800 --> 00:29:07.360 Many capitalism and Keynesianism are just two sides of the same debased coin. 356 00:29:07.360 --> 00:29:12.360 Thanks for having me. 357 00:29:12.360 --> 00:29:20.960 Do we have time? 358 00:29:20.960 --> 00:29:28.480 So I hope we have time for a question or a comment or even better a contrary observation. 359 00:29:28.480 --> 00:29:36.480 Back in the Middle Ages, they had good understanding of some of the biblical values in the Old Testament related to no usury and everything like that. 360 00:29:36.480 --> 00:29:41.480 There were two groups of people who couldn't be buried in cemeteries with ordinary good people. 361 00:29:41.480 --> 00:29:44.480 Those were the moneylenders, the usurers, and the middlemen. 362 00:29:44.480 --> 00:29:50.480 Now, if we had that same rule and effect, it would have to be a cemetery from San Francisco to New York City, about 100 miles wide. 363 00:29:50.480 --> 00:29:53.480 And that's part of the reason I think we're in the difficulty we're in. 364 00:29:53.480 --> 00:29:59.480 But there should be something, it shouldn't be allowed for the, I mean, people can borrow money at interest if they need it to do something, 365 00:29:59.480 --> 00:30:08.480 but the loaning of money at interest to member banks or the Federal Reserve in a collective nature like that, puts everybody in debt, that should be absolutely prohibited, right? 366 00:30:08.480 --> 00:30:16.480 Well, we actually got into this yesterday with David Gordon's talk when he was talking about Judaism and capitalism, lending and so on. 367 00:30:16.480 --> 00:30:34.480 But, I mean, to me, in 2008, with all the immoral behavior that was going on, the behavior that struck me the most immoral was when the Federal Reserve decided to make Goldman Sachs a bank and to give them access to the Federal Reserve borrowing window. 368 00:30:34.480 --> 00:30:48.480 So Goldman Sachs, the chief speculator in Wall Street, could then borrow newly printed money from the Federal Reserve at no interest at all and speculate with it, which is exactly what they did. 369 00:30:48.480 --> 00:31:00.480 And so then later, of course, Goldman Sachs said, oh well, you know, we paid back all our TARP money, but to this very day, they're still borrowing money from the Fed window and speculating with it. 370 00:31:00.480 --> 00:31:09.480 So, you know, to me, that is just such a shocking dereliction of any kind of moral duty on the part of the Fed. 371 00:31:09.480 --> 00:31:14.480 The group, I think it's called the Bloomberg group that Keynes was a part of, 372 00:31:14.480 --> 00:31:22.480 they always seem to get a slight kick out of always being the contrarians in the room, the ones who said that, oh, I'm sorry, 373 00:31:22.480 --> 00:31:27.480 the ones who said that society isn't really as great as we think and we have a new revolutionary idea. 374 00:31:27.480 --> 00:31:33.480 Could that be a part of what led Keynes to say the exact opposite of what actually should be done? 375 00:31:33.480 --> 00:31:39.480 I mean, that it was just some sort of ideological pursuit of contrarianism. 376 00:31:39.480 --> 00:31:45.480 Yes, and it also had the element of wanting to be sort of the smartest student in the room. 377 00:31:45.480 --> 00:31:52.480 He was kind of the student in the classroom. He always had his hand up to tell the teacher that he got it wrong. 378 00:31:52.480 --> 00:32:00.480 and he was always searching for something that he could say that would shock conventional wisdom 379 00:32:00.480 --> 00:32:06.480 and at the same time that he could somehow impress them as being completely true. 380 00:32:06.480 --> 00:32:10.480 So this was one of his great pursuits in life. 381 00:32:10.480 --> 00:32:17.480 And again he had this conflict in that he wanted to be the heretic, he wanted to be the bad boy, 382 00:32:17.480 --> 00:32:21.480 he wanted to be the moralist, he wanted to be outside the pale 383 00:32:21.480 --> 00:32:26.280 and on the other hand he wanted to be a member of the establishment he wanted all the privileges 384 00:32:26.280 --> 00:32:33.080 he wanted to be a lionized he wanted to be a media figure so you know both themes were going on at 385 00:32:33.080 --> 00:32:40.040 the same time. Hi my name is Walter Block thanks for your wonderful lecture. I join you as a fan 386 00:32:40.040 --> 00:32:46.840 of Henry Hazlitt and an opponent of Keynes of course. My comment is the bad guys not only do 387 00:32:46.840 --> 00:32:50.960 they steal our money but they try to steal a lot of words for example we used 388 00:32:50.960 --> 00:32:55.080 to be the liberals we're no longer they're trying to steal libertarianism 389 00:32:55.080 --> 00:33:00.840 from us they have no limits as to what they're going to steal some Austrian 390 00:33:00.840 --> 00:33:05.760 economists want to jettison the Austrian name call it market process or God knows 391 00:33:05.760 --> 00:33:12.000 what they keep changing that maybe it's coordination economists or economics so 392 00:33:12.000 --> 00:33:16.160 I wanted to congratulate you for standing up for capitalism or whatever 393 00:33:16.160 --> 00:33:25.160 What are the words we can use? Because if we can only fight the battle of ideas with words and if they keep taking words away from us, we're not going to win. 394 00:33:25.160 --> 00:33:37.160 Well, first of all, I'm a fan of yours. Second of all, that was really my principal theme that I was opening with because I think we need to concentrate on words more. 395 00:33:37.160 --> 00:33:45.160 We need to really consciously think about the words we're using and we need to try to unite in terms of what words we're using 396 00:33:45.160 --> 00:33:50.840 and we need to propagate them and we need to fight and not let other people steal them from us. 397 00:33:50.840 --> 00:33:55.880 And that's very important if we're going to win the battle of public opinion. 398 00:33:55.880 --> 00:34:02.320 Yes sir, you touched briefly on the esteemed Dr. Bernanke's quantitative easing policies. 399 00:34:02.320 --> 00:34:15.000 A recent Federal Reserve arbitrated audit of the Reserve system revealed that there were 16 trillion dollars in what you could term shadow bailouts. 400 00:34:15.000 --> 00:34:45.000 Let's see, you know, they were all issued to the likes of like JP Morgan Chase, Goldman Sachs, Tiddy Group, you know, the crony commercial banks that work under the central banks, keeping in mind that the audit was both partial and arbitrated by the Federal Reserve, do you find it likely that the World Reserve Petrodollar is in fact already hyperinflated, but the liquidity necessary for it to become apparent in the market just hasn't been released into the money supply yet? Is that feasible? 401 00:34:45.000 --> 00:34:51.000 Let's take several points at a time here. 402 00:34:51.000 --> 00:34:59.000 First of all, Mr. Bernanke, of course, got very outraged over those figures being put about, 403 00:34:59.000 --> 00:35:06.000 because he said, we didn't have 16 out at the same time. 404 00:35:06.000 --> 00:35:13.000 We had a certain amount out Tuesday and a certain amount out Wednesday, and you're accumulating it. 405 00:35:13.000 --> 00:35:20.600 but it was certainly trillions anyway and he was certainly enriching a lot of people who didn't 406 00:35:20.600 --> 00:35:25.640 deserve to be enriched and he was impoverishing people who didn't deserve to be impoverished at 407 00:35:25.640 --> 00:35:32.840 the same time so that's certainly true now in terms of this question of liquidity showing up 408 00:35:33.560 --> 00:35:40.120 you know in different forms of inflation of course it has principally gone into asset classes as has 409 00:35:40.120 --> 00:35:45.520 has been pointed out, it has principally not gone into commodities, but I tend to agree 410 00:35:45.520 --> 00:35:51.840 with John Williams, I'm sure you're familiar with the shadow stats website, that the commodity 411 00:35:51.840 --> 00:35:57.640 inflation is grossly under-reported, and I've looked into this and I think he's right, 412 00:35:57.640 --> 00:36:03.840 that if you applied the earlier methodologies, particularly the pre-Clinton methodology, 413 00:36:03.840 --> 00:36:09.040 for some reason under President Clinton, they changed the methodology in inflation and unemployment 414 00:36:09.040 --> 00:36:14.480 particularly. Don't know why that happened under him. But if you go back to the earlier method, 415 00:36:15.520 --> 00:36:20.960 commodity inflation is higher than is currently reported. And that's not just in oil, I mean that's 416 00:36:20.960 --> 00:36:25.520 that's in everything. And then of course also when you get into the the different you know where the 417 00:36:25.520 --> 00:36:30.880 inflation is and where the inflation isn't, in order even to get to the reported level of inflation 418 00:36:30.880 --> 00:36:35.760 you have to have tremendous inflation going on in some sectors with so many others deflating. 419 00:36:35.760 --> 00:36:39.760 I'm not sure I covered all of your points, but... 420 00:36:39.760 --> 00:36:43.760 Mr. Lewis, I think I remember reading Haslett saying that 421 00:36:43.760 --> 00:36:47.760 he thought that the general theory was sort of a bad joke 422 00:36:47.760 --> 00:36:51.760 that Keynes is a joke. Do you put any credence in that? 423 00:36:51.760 --> 00:36:55.760 Because Haslett wrote that, and I was kind of surprised. 424 00:36:55.760 --> 00:36:59.760 Well, no, I don't think it was a bad joke, and I don't think 425 00:36:59.760 --> 00:37:03.760 Haslett meant it was a joke. I think that Haslett meant 426 00:37:03.760 --> 00:37:08.840 that Keynes thought he was kind of putting one over, you know, and that I think Keynes 427 00:37:08.840 --> 00:37:13.560 wrote that book, The Way a Lawyer Writes a Brief for a Client. You know, he just sort 428 00:37:13.560 --> 00:37:17.480 of grabbed everything he could think of and threw it in and made it as obscure as possible 429 00:37:17.480 --> 00:37:22.040 so you couldn't quite follow it. And the objective was simply to support certain policies, which 430 00:37:22.040 --> 00:37:27.360 of course he had already arrived at previously. So it was kind of a brief in that way. And 431 00:37:27.360 --> 00:37:32.440 I do think that had Keynes lived, then he would have written different briefs, which 432 00:37:32.440 --> 00:37:37.440 which would have been entirely different and what is today Keynesianism would not exist 433 00:37:37.440 --> 00:37:39.840 as a result. 434 00:37:39.840 --> 00:37:44.440 I think he was already getting worried and upset by the way Keynesianism was being interpreted 435 00:37:44.440 --> 00:37:45.440 when he died. 436 00:37:45.440 --> 00:37:48.120 I just have a question. 437 00:37:48.120 --> 00:37:53.040 I know that the word Keynesian, there's a lot of so-called Keynesian School of Economics. 438 00:37:53.040 --> 00:37:56.460 There's the post-Keynesians, the neo-Keynesians, the new Keynesians. 439 00:37:56.460 --> 00:38:01.280 Do you really think that in the end they're all saying the same thing or do you think 440 00:38:01.280 --> 00:38:07.280 Do you think that there are different strands of so-called John Maynard Keynes' thought? 441 00:38:07.280 --> 00:38:17.280 Well, I think there are unquestionably different strands and there are important differences and important distinctions and so on. 442 00:38:17.280 --> 00:38:28.280 I often point out that even Mundell or Friedman and people like that are not, you know, they're sort of half Keynesian themselves. 443 00:38:28.280 --> 00:38:32.960 So, but in general, despite all these differences and similarities, 444 00:38:32.960 --> 00:38:35.800 and I would invalidate the similarities more than the differences, 445 00:38:35.800 --> 00:38:41.120 in the end, it all kind of falls together as a support system 446 00:38:41.120 --> 00:38:43.720 for what I was calling crony capitalism. 447 00:38:43.720 --> 00:38:49.400 And there is a consensus, and the consensus is very destructive, 448 00:38:49.400 --> 00:38:54.560 particularly destructive of billions of people's lives 449 00:38:54.560 --> 00:38:58.040 who are living on a dollar and two dollars a day around the world. 450 00:38:58.040 --> 00:39:06.040 You know, those people are really suffering because of these ideas being propagated, and there's more in common than there are differences. 451 00:39:06.040 --> 00:39:17.040 And I think it's proper to describe it all as broadly Keynesian, and even to describe, you know, many of these conservatives, so-called conservatives, as half Keynesian or three-quarters Keynesian, 452 00:39:17.040 --> 00:39:23.040 or in the case of Romney, you know, or in the case of George W. Bush, 100% Keynesian. 453 00:39:23.040 --> 00:39:28.200 Yes, sir, I was wondering if you could briefly elaborate on one point you made. You mentioned 454 00:39:28.200 --> 00:39:37.200 1929 and 1937, which were both recession years, and Keynes missed that, unlike some of the 455 00:39:37.200 --> 00:39:42.280 Austrians who did see the 29 event. Could you just briefly comment on that passing reference 456 00:39:42.280 --> 00:39:43.280 you made? 457 00:39:43.280 --> 00:39:51.120 Sure. Keynes had no idea that 1929 was coming, unlike Mises, who of course did, and so he 458 00:39:51.120 --> 00:39:55.880 He was caught, and he was speculating, he was very leveraged, he always borrowed a lot 459 00:39:55.880 --> 00:40:02.840 of money in his investments, so he was almost completely wiped out again. 460 00:40:02.840 --> 00:40:07.360 It wasn't so bad as the first time he was totally wiped out and had to go to his father, 461 00:40:07.360 --> 00:40:11.740 but he was down, I forget what the number is, but let's say at least 60, 70%, something 462 00:40:11.740 --> 00:40:13.440 like that. 463 00:40:13.440 --> 00:40:20.340 It's also interesting that when 1929 happened, Keynes did not recommend stimulus. 464 00:40:20.340 --> 00:40:25.380 and he recommended lowering interest rates and he said, if we lower interest rates that 465 00:40:25.380 --> 00:40:29.860 will cure the problem, we don't really need to do anything else. So it's only later that 466 00:40:29.860 --> 00:40:34.900 he changed his mind and decided that stimulus of the sort that we know today would be a 467 00:40:34.900 --> 00:40:37.900 good idea. 468 00:40:37.900 --> 00:40:45.140 I asked Jim Rogers if Austrian theory had any factor in making investment decisions 469 00:40:45.140 --> 00:40:50.260 and he said none. He said theory doesn't matter in making investments decisions. How 470 00:40:50.260 --> 00:40:56.460 How does Austrian theory play at all in your role as an investment advisor in making investment 471 00:40:56.460 --> 00:41:02.460 decisions and asset classes and specific assets to purchase? 472 00:41:02.460 --> 00:41:09.140 It's very interesting because I know Jim and I respect Jim greatly and I'm surprised that 473 00:41:09.140 --> 00:41:17.260 he said that because I find Austrian theory to be invaluable in my investing. 474 00:41:17.260 --> 00:41:22.700 It's only because of my, of what I've learned from Austrian economics, that I knew that 475 00:41:22.700 --> 00:41:29.980 the crash of 07, 08 was coming, for example, and that was very useful information to have. 476 00:41:29.980 --> 00:41:38.140 It certainly led me to buy gold, you know, back when it was $250 an ounce. 477 00:41:38.140 --> 00:41:43.360 Gosh, you know, it's been a tremendous help. 478 00:41:43.360 --> 00:41:50.940 So I'm surprised that Jim said that and of course one of the advantages is that since 479 00:41:50.940 --> 00:41:56.060 so few other people you know have seen the light of course it gives you a great investment 480 00:41:56.060 --> 00:42:01.040 advantage as well because in investments it's not the insights you have, it's the insights 481 00:42:01.040 --> 00:42:05.400 you have that others don't have which enable you to make money. 482 00:42:05.400 --> 00:42:14.280 Look, I wanted to ask you to comment on the 1933 article by Keynes, National Self-Sufficiency, 483 00:42:14.280 --> 00:42:18.220 which is sort of, the people who are Keynesians distance themselves from that article, they 484 00:42:18.220 --> 00:42:23.480 don't mention it really, in which he said something like he wished Mussolini and Hitler 485 00:42:23.480 --> 00:42:28.080 well in their experiments, and he said we have our own experiments in view, and he says 486 00:42:28.080 --> 00:42:32.440 anything, any experiment is better than that good old Wall Street rationality, or something 487 00:42:32.440 --> 00:42:33.440 to that effect. 488 00:42:33.440 --> 00:42:34.960 Could you comment on that? 489 00:42:34.960 --> 00:42:42.000 Yes. Well, first of all, of course, it's no surprise that the only piece of Kansas' collected writing 490 00:42:42.000 --> 00:42:48.080 that didn't make it into the official collected multi-volume set was the introduction to the 491 00:42:48.080 --> 00:42:56.320 German edition of the General Theory, which nobody really wanted to reproduce, because it was 492 00:42:56.320 --> 00:43:02.480 written in complimentary terms about the fascism going on under Hitler. But in general, 493 00:43:02.480 --> 00:43:10.160 In general, Keynes's attitude toward protectionism was, again, on and off. 494 00:43:10.160 --> 00:43:16.440 He was against it, he was for it, and he was very much for it, and he fought vigorously 495 00:43:16.440 --> 00:43:21.560 for it, and he was for all sorts of different forms of it, and then, of course, as we go 496 00:43:21.560 --> 00:43:26.360 into Bretton Woods and so on, now he's against it again, and he's back for free trade. 497 00:43:26.360 --> 00:43:30.760 So he just went all around the block on that subject. 498 00:43:30.760 --> 00:43:35.720 I think that most Keynesians today just ignore that phase of Keynes, and it's well that 499 00:43:35.720 --> 00:43:36.720 they do. 500 00:43:36.720 --> 00:43:43.600 What we need to do is ignore all the phases. 501 00:43:43.600 --> 00:43:51.360 The Smoot-Hawley tariff in the 30s was not a macro problem, I guess, or more of an international 502 00:43:51.360 --> 00:43:52.360 problem. 503 00:43:52.360 --> 00:43:57.240 But what would be your empirical assessment as to how much harm that tariff did, and what 504 00:43:57.240 --> 00:44:02.600 What is your assessment nowadays with this buy American kind of stuff in the modern day? 505 00:44:02.600 --> 00:44:04.320 How serious is that? 506 00:44:04.320 --> 00:44:08.360 How badly will that exacerbate the macro problem? 507 00:44:08.360 --> 00:44:11.240 Well, let me start with the back end of that. 508 00:44:11.240 --> 00:44:17.040 I think that most of the protections in today is just through currencies and that that's 509 00:44:17.040 --> 00:44:20.240 the overwhelming factor and it's tremendous. 510 00:44:20.240 --> 00:44:24.800 We have a tremendous amount of protections going on right now with all the controlled 511 00:44:24.800 --> 00:44:31.520 Currencies and Manipulated Currencies, and that's really what's behind it, so that it's not 512 00:44:31.520 --> 00:44:34.960 that different from what was going on in the 30s. 513 00:44:34.960 --> 00:44:41.960 And see, the first part of your question was the Smoot-Harley. 514 00:44:41.960 --> 00:44:48.240 That's an interesting question, particularly interesting, because people like Steve Forbes, 515 00:44:48.240 --> 00:44:52.720 who are not Austrian have to come up with some explanation 516 00:44:52.720 --> 00:44:55.160 for why the crash happened. 517 00:44:55.160 --> 00:44:57.680 And of course, Smoot-Hawley was passed after the crash. 518 00:44:57.680 --> 00:45:00.840 So they say, oh, well, you know, the market is anticipating. 519 00:45:00.840 --> 00:45:03.560 And so they knew that that was gonna be passed. 520 00:45:03.560 --> 00:45:05.840 And therefore the 29 crash happened 521 00:45:05.840 --> 00:45:08.680 because of the worry about Smoot-Hawley in Congress. 522 00:45:08.680 --> 00:45:10.000 I mean, they have to come up with something 523 00:45:10.000 --> 00:45:12.840 because they don't have proper Austrian theory 524 00:45:12.840 --> 00:45:15.880 to explain to them, you know, why the crash happened. 525 00:45:15.880 --> 00:45:17.640 But of course, so I don't look at it that way. 526 00:45:17.640 --> 00:45:33.640 To some degree, people think in words and all these changes that you were talking about, liberal and liberalism having different meanings as 10 years go by, it's the opposite meaning. 527 00:45:33.640 --> 00:45:44.640 There was a Soviet KGB man by the name of Yuri Bezmenov, he was interviewed by G. Edward Griffin on ideological subversion as a thing that they were imposing on the United States. 528 00:45:44.640 --> 00:46:14.640 the Lavrenti School, Beria School of Psychopolitics, the Tavistock Institute, and he was talking about how it would take essentially a generation to get all that confusion of the words in the minds of people so they wouldn't be able to understand their way out of a bad situation and about generation to get them back to normal thinking if they were given those types of things. So communism is not dead. That's what the perestroika deception is all about. The book by Anatoly Golitsyn, he was the only legitimate KGB detector. This stuff is being done by Tavistock, 529 00:46:14.640 --> 00:46:20.640 and the Black-Lavrenti School of Psychopolitics in Russia, ideological subversion make it that we can't understand what's going on. 530 00:46:20.640 --> 00:46:23.640 That's why so many people don't understand what's going on. 531 00:46:23.640 --> 00:46:28.640 Well, I think it's just, you know, we have Orwellian language. 532 00:46:28.640 --> 00:46:32.640 And it's not just communist, unfortunately, it's here in the United States. 533 00:46:32.640 --> 00:46:38.640 Most of the political conversation right today is totally Orwellian. 534 00:46:38.640 --> 00:46:43.640 I mean, when President Obama gives his first budget message, as I alluded to, 535 00:46:43.640 --> 00:46:48.200 says that, you know, I'm going to replace borrow and spend with save and invest. 536 00:46:48.200 --> 00:46:50.680 And then it's not just what he did subsequently. 537 00:46:50.680 --> 00:46:56.280 You can look at the actual budget he was presenting in that budget message, which had nothing 538 00:46:56.280 --> 00:46:58.680 whatever to do with what he was saying. 539 00:46:58.680 --> 00:47:03.200 So you say one thing and you do something totally different, and that's just the Orwellian 540 00:47:03.200 --> 00:47:05.240 level that we're at. 541 00:47:05.240 --> 00:47:10.960 Roy Pridado with John Locke Foundation. 542 00:47:10.960 --> 00:47:15.680 Another part of Keynes's thought that Keynesians don't like to acknowledge is that he was 543 00:47:15.680 --> 00:47:22.720 a huge fan of eugenics, was on the first treasure of the British Eugenics Society. 544 00:47:22.720 --> 00:47:28.600 I was wondering, do you see any connection to his strong belief in eugenics and his economics, 545 00:47:28.600 --> 00:47:33.000 or do you just view them as two totally separate pieces of his worldview? 546 00:47:33.000 --> 00:47:38.840 Yeah, I mean, I wouldn't say that he was a strong or major fan of eugenics. 547 00:47:38.840 --> 00:47:44.520 I think he just sort of took that for granted, as a lot of people did in that day and age. 548 00:47:44.520 --> 00:47:48.680 It's like his anti-Semitism, it wasn't really something he thought about, it was just something 549 00:47:48.680 --> 00:47:54.880 of kind of part of the air he breathed, part of the cultural background, that of course 550 00:47:54.880 --> 00:47:58.880 there were superior races and of course, you know, you needed to get more of that and less 551 00:47:58.880 --> 00:48:02.720 of the other and, you know, that was just part of his time, I would say. 552 00:48:02.720 --> 00:48:08.160 And I don't think it's a major part of his psyche or his work. 553 00:48:08.160 --> 00:48:14.560 I would like to go back to the beginning of your talk where you discussed the usage of words. 554 00:48:14.560 --> 00:48:20.080 I noticed that some writers operate with this expression, welfare capitalism. What do you think? 555 00:48:20.080 --> 00:48:27.280 Could it be used successfully if people are on our side or it's less loaded, less powerful than 556 00:48:27.280 --> 00:48:34.080 crony capitalism? Because welfare capitalism, I think by using welfare capitalism, you can target 557 00:48:34.080 --> 00:48:41.200 Two evils, the first corporate welfare and excessive public welfare. What's your take on this? 558 00:48:41.200 --> 00:48:45.600 Well, unfortunately, you have to define it. You have to say welfare for the rich or 559 00:48:46.160 --> 00:48:54.080 better welfare for the undeserving rich. It's not a quick and easy phrase. You've got to explain 560 00:48:54.080 --> 00:49:00.720 if you're talking about welfare may sound good to a lot of people. One of the underlying problems 561 00:49:00.720 --> 00:49:08.220 One of the problems here again is that so many people think that the rich are the problem, 562 00:49:08.220 --> 00:49:12.020 that they're getting richer and richer and richer, and the poor are getting poorer and 563 00:49:12.020 --> 00:49:17.140 poorer and so on, that they don't understand that they're deserving rich and undeserving 564 00:49:17.140 --> 00:49:23.220 rich, and that the problem is that the undeserving rich are getting so rich thanks to their relationship 565 00:49:23.220 --> 00:49:27.500 to the government, which is emblematic of the crony capitalism going on. 566 00:49:27.500 --> 00:49:32.500 These are all subtle distinctions and it's hard to get one slogan that captures it all. 567 00:49:32.500 --> 00:49:40.500 I think there's a case to be made that the term capitalism was originally used by classical 568 00:49:40.500 --> 00:49:42.500 liberals to mean something like crony capitalism. 569 00:49:42.500 --> 00:49:47.420 You look at the way that, for example, Thomas Hodgkin uses it, and then Marx in effect steals 570 00:49:47.420 --> 00:49:54.060 it from us and uses the term to mean the free market, as though to imply that the free market 571 00:49:54.060 --> 00:49:57.500 by its nature privileges capital at the expense of labor. 572 00:49:57.500 --> 00:50:03.100 So, in effect, if we use capitalism to mean this business is more in favor of, we may 573 00:50:03.100 --> 00:50:06.020 in effect be letting ourselves be duped by Marx. 574 00:50:06.020 --> 00:50:12.660 Well, you know, I was not aware of any antecedent reference to Marx, so is that right that somebody 575 00:50:12.660 --> 00:50:14.620 used the term before Marx? 576 00:50:14.620 --> 00:50:20.820 Yeah, there are a number of references, but Hodgkin is one of the ones. 577 00:50:20.820 --> 00:50:23.060 And how much earlier was he? 578 00:50:23.060 --> 00:50:28.060 Thomas Hodgkin, he was writing in like the 1820s, 1830s. 579 00:50:31.300 --> 00:50:34.700 Marx quotes him, though, completely misunderstands him. 580 00:50:34.700 --> 00:50:37.100 Deliberately or accidentally, I don't know which. 581 00:50:38.980 --> 00:50:41.500 I didn't get into the question of what we say we're for. 582 00:50:41.500 --> 00:50:43.420 I just got into the question of what we could say 583 00:50:43.420 --> 00:50:47.820 we are against, because I don't know a quick and easy 584 00:50:47.820 --> 00:50:50.420 and descriptive way to say what you're for. 585 00:50:50.420 --> 00:50:56.660 But I think we can, I come down on the side of saying that crony capitalism is a good description of what we're against. 586 00:50:56.660 --> 00:50:59.140 We have time for one more question. 587 00:50:59.140 --> 00:51:08.180 In the general theory, Keynes supports fiscal surpluses in the boom time as to regulate the economy. 588 00:51:08.180 --> 00:51:14.100 This obviously hasn't been incorporated into his intellectual descendants. 589 00:51:14.100 --> 00:51:20.260 Do you think that this is even more evidence that Keynesianism is just a scapegoat or a 590 00:51:20.260 --> 00:51:25.560 way to sneak in bigger government programs without the fiscal responsibility? 591 00:51:25.560 --> 00:51:31.940 And also in Human Action, Mises wrote an excellent chapter debunking even the, the chapter was 592 00:51:31.940 --> 00:51:36.740 called the Chimera of Contrapsychical Policies, I think. 593 00:51:36.740 --> 00:51:39.920 Do you think, but do you think this is a scapegoat for a bigger government? 594 00:51:39.920 --> 00:51:46.460 Well, I think it's largely a myth that, you know, Keynes wanted to have fiscal surpluses 595 00:51:46.460 --> 00:51:47.460 in good times. 596 00:51:47.460 --> 00:51:48.940 It's more of an inference. 597 00:51:48.940 --> 00:51:52.680 He was so concerned with the problem of the moment, you know. 598 00:51:52.680 --> 00:51:55.620 He was always focused on the immediate moment and so on. 599 00:51:55.620 --> 00:51:57.180 So he was just thinking about the depression. 600 00:51:57.180 --> 00:52:01.200 He wasn't really thinking about what would happen later and under other circumstances 601 00:52:01.200 --> 00:52:02.200 and things. 602 00:52:02.200 --> 00:52:06.680 So you have great difficulty, you know, finding passages that support what you just said. 603 00:52:06.680 --> 00:52:11.320 And when you do, you know, you could argue whether he's really saying that or not. 604 00:52:11.320 --> 00:52:15.880 So I think that that's really a misconception, that that's more that the later people come 605 00:52:15.880 --> 00:52:18.160 along to tidying him up. 606 00:52:18.160 --> 00:52:22.380 And so they say, oh, we're going to have surpluses and, you know, during the good fiscal times 607 00:52:22.380 --> 00:52:26.880 and that'll offset the deficits and so on. 608 00:52:26.880 --> 00:52:30.520 And of course, it's never happened anyway, and it never can happen. 609 00:52:30.520 --> 00:52:34.360 So in a way, who cares? 610 00:52:34.360 --> 00:52:36.360 Thank you very much, Hunter, for a great stimulating session.