Is inflation necessary? Why Keynesian theory never wants the cost of living to recede

A common tenet of Keynesian theory is that a lack of inflation will slow down the “velocity of money”, encourage people to hoard money, spend less, and therefore stall an economy by reducing demand.

Keep in mind that Keynesian theory has only been en vogue for a century, and is merely a blip in history. It is still just a theory, with fiscal interventionism yet to be proven effective either by first principles or by historical observation.

Within the past fifty years, we can see the fruits of its implementation in a roughly stable climate post-World War II. Families in the 1940’s and beyond were able to support themselves with one blue-collar wage.  Now, it is normal for both parents having to work in order to support families with fewer children.  This is even truer in expensive cities that siphon more productivity away in the form of higher taxes, higher debts and fiscal intervention.

Of course, Keynesian theory rationalizes higher costs of living as all part of the plan to prevent supposed economic collapse if people saved money.

During the times where the interventionists raised interest rates which in turn discouraged spending, inevitably we see markets starting to collapse.  From a Keynesian perspective, this “proves” their theory.  From an outsider perspective, all we saw were artificially inflated markets correct to their true market values.  So who’s right?

The Keynesian perspective helps persuade the public with an “I told you so” moment. It persuades people with short-term memories and a lack of historical perspective.  “See what happens when you don’t have inflation? Everything is crashing!”

This line of persuasion relies on not recognizing why markets were overvalued in the first place. It relies on falsely attributing markets as improving, giving credit to fiscal intervention for these rising markets by suggesting more productivity is being encouraged due to rising demand. In reality, increased money supply and low interest rates results in people spending more than they produce, relying on unrealized (and uncertain) future productivity via debt to consume current levels of supply.  When you correct for the amount of overspending, a big withdrawal occurs.

It is like a cocaine addict continually getting a high, thus citing how effective and beneficial the drug is, and then saying after the horrible feelings of withdrawal when going cold turkey is an indication that not using cocaine is bad for you.

For those that can analyze the entire century where Keynesian policies have dominated economic discourse, they are the ones that can say “I told you so” simply by pointing out how in relative terms, people have been forced to work longer and harder to maintain the same purchasing power from each preceding year. From a long term perspective, you have a bigger, more measurable picture of the disastrous effects of Keynesian policy. It is like how you can visibly see the long term damage from a drug addict’s sustained cocaine use.

To argue against inflation from first principles, we need to take a step back from invented and misused terms like “velocity of money” and go back to the simple historical purpose of money.

The purpose of currency is to be a temporary store of value based on the goods and services produced at a certain period of time. The store of value, if kept consistent, means that the equivalent market value of that work can be exchanged with someone else at a later time, ideally at no loss in productivity for either party based on the market values of the future time of exchange.

Keynesian economics wants inflation to debase the value of that money, to supposedly encourage those that save their stores of production to spend it now, or otherwise face a loss at a future time of exchange.

With Keynesian theory, it is no longer a zero-sum game between the sender and recipient of currency.  The future recipient does not benefit from the inflation of money. He may break even by demanding more “old dollars” to match the current amount of production and services provided. For the sender, the longer he waits to use his stored value of goods and services from the past, he will receive less at the time of exchange. He clearly does not benefit from constant inflation.

So who benefits? Lenders (the central banking system) and by proxy, policy makers. Inflation is a very sneaky way to siphon money from those that actually produce things and give it to those that produce nothing. By allowing deficit spending, the accrual of debt and a controlled variable money supply, the Keynesians in charge can spend and acquire others’ goods and services without producing anything themselves. The stolen wealth spreads stealthily to themselves via cronyism and laundering. Increasing the supply of money reduces the amount they owe in relative terms as each day passes. The absolute value of the debt remains the same, but the relative value of that debt diminishes each time more value is extracted away from the producing public via inflation.

The zero sum equation is complete when you factor in the pushers of Keynesian theory. They are the sole beneficiaries of this corrupt economic system. Keynesian economics is a great tool to persuade the short-attention span of the public that inflation is “necessary”. Like many branches of postmodern thought that cannot be backed by first principles, Keynesian theory has become mainstream opinion after infiltrating all institutions: media, academia and government. This has allowed those that subscribe to Keynesian theory to maintain their power via the ballot box while simultaneously robbing the voting public of their wealth. It seems that the majority of tax paying citizens are complicit in their own demise.

I’m certain that John Maynard Keynes himself did not have evil intentions when he proposed his theories, and was employing mathematical principles such as probability, as shown in many of his works, to hypothesize about the cyclic nature of economics around the wars and the Great Depression. It is just unfortunate that his theories, cited as settled facts for the purposes of persuasion, have been tainted by those that recognize its implementation could be abused in a fashion to illegitimately gain wealth and power.

*     *     *

If you liked this article, be sure to leave a comment, share, bookmark and subscribe to the RSS feed. Consider a donation and support my other work.

0 thoughts on “Is inflation necessary? Why Keynesian theory never wants the cost of living to recede”

Leave a Reply

Your email address will not be published. Required fields are marked *