Cover text comments revised

I am very grateful for the comments on my previous post, ‘Classical Economic Theory and the Modern Economy’ cover text comments, thoughts and suggestions sought with special thanks to Gerry on how to begin the text, which was also the point raised by Tim Neilson. However this is the length they are looking for. This is now my second draft.

‘Classical Economic Theory and the Modern Economy’

If you are interested in how economic theory became the wasteland it has become, this is the book you must read.

It starts with two premises: First, that economic theory reached its deepest level of understanding in the writings of John Stuart Mill and the classical economists of his time, and then, secondly, the author of this book has understood Mill and has accurately explained what the classical school of the late nineteenth century wrote. From these premises, this then follows.

To have any hope of understanding how an economy works, and how modern economic theory became the dead end it has become, this is where you must begin.

The classical economists, and John Stuart Mill in particular, lived through the Industrial Revolution, saw its astonishing economic transformation before their eyes, and explained, so others could understand for themselves, how their prosperity had been created through the emergence of the market economy.

Classical economics was entirely a supply-side theory.

Mill, the greatest utilitarian philosopher of his age, refused to use utility as anything other than a minor element in his theory of value. Mill explicitly and emphatically denied any role for aggregate demand in the creation of employment. In reaching these conclusions, there was no disagreement among the entire mainstream economics community of his time.

First through the Marginal Revolution of the 1870s, and then through the Keynesian Revolution of the 1930s, the entire edifice of classical theory has been obliterated and made virtually incomprehensible to anyone educated in modern economics. From a classical perspective, modern theory is Mercantilist trash.

This book explains why that is and how to understand the classics as they were meant to be understood.

From the comments, I can see that this business about utility among the classical economists is extraordinarily difficult to accept. Of course no one will produce anything that they do not believe they can sell, and no one will buy things that do not satisfy some need or desire.

Perhaps this will provide a clearer understanding which is taken from the text of the book. The heading in bold is my assertion, the quote that follows is by D.P. O’Brien from his 1975 Classical Economics Revisited which was such a tour de force that a second expanded edition was published thirty years later, in 2005. He says throughout his book many of the things I say myself, with only this difference, if it is a difference, that I believe the classics were right about what they wrote where he is only reporting.

The Classical Theory of Value was Not Based on Utility Although Mill was Himself a Utilitarian
“Mill advances a ‘cost of production’ theory of value…. He was not a subjective value theorist…. He treated utility as merely a condition of value.” (p.96)

Both Marginal Utility and Aggregate Demand are demand-side theories that completely divorce an economist from thinking in relation to supply. There is much more to it, but there are no easy points to score against Mill over his cost of production approach to value. He has 17 elements in his overview of the theory of value with this the second:

II. The temporary or Market Value of a thing, depends on the demand and supply; rising as the demand rises, and falling as the supply rises. The demand, however, varies with the value, being generally greater when the thing is cheap than when it is dear; and the value always adjusts itself in such a manner, that the demand is equal to the supply.

This is pretty well all that is taught about supply and demand today and I doubt most economists know much more than that, although we now have diagrams and pages of terminology to explain it all (e.g. “price elasticity of demand” or the distinction between “demand” and “quantity demanded”).

Mill’s first proposition, by the way, is that value is entirely a relative concept. The classics were not trying to explain just the temporary price of the moment, but how the relative price structure across an economy is determined. That is a much much more difficult question and I doubt most economists today have much of a handle on it assuming it is even brought to their attention. It is also a much more important issue than mere price determination of a single product in isolation from the rest of the economy.

For those interested in a classical approach to economic theory, there is the third edition of my Free Market Economics. I think of it as Mill’s Principles for the twenty-first century. It is, unfortunately, absolutely unique.

Comments, thoughts and suggestions welcome

You may have noticed my lack of regard for modern economic theory which the following might help you understand more clearly. This is the draft of the cover text for the book I have just completed and sent off to the publisher. Comments, thoughts and suggestions would be welcome. My disdain for Keynesian economics I have discussed on many occasions. My attitude to “marginal” analysis I mention far less often which is why certain passages below are highlighted in bold.

‘Classical Economic Theory and the Modern Economy’

The book starts with two premises: First, that economic theory reached its deepest level of understanding in the writings of John Stuart Mill and the classical economists of his time, and then, secondly, the author of this book has understood Mill and has accurately explained what the classical school of the late nineteenth century wrote. From these premises, this then follows.

If you are to have any hope of understanding how an economy works, and how modern economic theory became the dead end it has become, you will need to read this book.

The classical economists, and John Stuart Mill in particular, lived through the Industrial Revolution, saw its astonishing economic transformation before their eyes, and explained, so others could understand for themselves, how their prosperity had been created through the emergence of the market economy.

Mill, the greatest utilitarian philosopher of his age, refused to use utility as part of his theory of value. Mill explicitly and emphatically denied any role for aggregate demand in the creation of employment. In reaching these conclusions, there was no disagreement among the entire mainstream economics community of his time.

First through the Marginal Revolution of the 1870s, and then through the Keynesian Revolution of the 1930s, the entire edifice of classical theory has been obliterated. From a classical perspective, modern economic theory is Mercantilist trash nonsense. If you are interested in how economic theory became the wasteland it has become, and wish to understand the classical theory no one any longer has the slightest clue about, this is the book you must read.

If you are interested in understanding all this more completely, you will have to read the entire book when it is finally published sometime this year.

A how-to guide to economic policy

For any single business, higher demand all other things being equal makes them more money and can often lead to an increase in the number of employees.

For an entire economy, higher demand has no bearing either on real incomes or on the level of employment.

This is straightforward and for me anyway, as obvious as the morning sun. It is the conclusion that comes from a proposition that now goes by the name Say’s Law.

There have been many examples in history where Say’s Law was shown to be an absolute truth in an economy. There have been even more where attempts to raise an economy from recession through increased public spending – through an increase in aggregate demand – have been abject failures. No stimulus in history has ever succeeded in pulling an economy out of recession, NOT A SINGLE ONE! The sad story since the GFC is the most recent, but there have been lots. Every single one made economic conditions worse.

On the other hand, we had the Peter Costello/John Howard years from 1996 to 2007 of the best economic management ever seen, possibly anywhere. Not only did we balance the budget for years on end, we ended up with zero national debt! Because of the idiocies of modern economic theory, even though this was done right there before our eyes, bad theory remains. Modern macro is economic poison, but it’s often lots of fun for both governments and the people who they spend the money on. And for everyone else, it looks sensible since higher demand must create higher levels of production. In reality, it is higher levels of production that allow for an increase in demand. That is why we are so much richer than a century ago. We produce more so that we can demand more.

We were reminded of all this here: John Howard and Peter Costello urge PM to keep building budget surplus.

John Howard and Peter Costello have urged the Morrison government not to squander the budget surplus on a short-term stimulus, while doubting whether monetary policy is still a useful economic instrument given the reduction in interest rates to historic lows.

“The government is absolutely right to be returning the budget to surplus and I think it’s right to anchor­ its fiscal policy to producing surpluses over the next four years,” Mr Costello, the nation’s longest-serving treasurer, told The Australian.

Treasury is filled with people who have no idea why this is the way to prosperity. Reserve Bank as well. A bit more here:

As forecasts for economic growth, household consumption and wages have been downgraded, and $21.6bn wiped from future surpluses, Mr Costello said he doubted whether monetary policy was still a useful economic lever.

“Monetary policy has run out of puff,” he said. “Once you get interes­t rates at near-zero levels, whether they’re at 0.75 per cent, 0.5 per cent, 0.25 per cent, it just doesn’t matter, it’s lost its power as an economic instrument and that is why when the Reserve Bank cut rates during the course of (last) year it had no discernible effect.”

Low interest rates are the other side of the Keynesian economic model, a disastrous shambles of a policy, which inevitably puts money into the hands of many more people who will not earn a productive return on investment relative to the proportion of borrowers who will do so if rates are higher. Interest rates are near zero everywhere and no economy has found low rates of any benefit. Only value-adding investment can raise living standards. High levels of public spending and low rates of interest will not do that, just as they never have.

An outline of my economic beliefs in an email to an American colleague

A letter I sent to an American economist who had sent me two books to read. This is my reply.

I read the books you sent with great interest, one which I thought was part of the problem as I see it and the other of sublime excellence, better even than the authors know. But to help you understand where I am at, I will put in the cover note for this next book of mine that I have written but not yet submitted to the publisher [ie the book’s been submitted but not my version of the cover text]. I have highlighted the part of what I do that puts me outside the norm even among we on the free market side of things.

‘Classical Economic Theory and the Modern Economy’

The book starts with two premises: First, that economic theory reached its deepest level of understanding in the writings of John Stuart Mill and the classical economists of his time, and then, secondly, the author of this book has understood Mill and has accurately explained what the classical school of the late nineteenth century wrote. From these premises, this then follows.

If you are to have any hope of understanding how an economy works, and how modern economic theory became the dead end it has become, you will need to read this book.

The classical economists, and John Stuart Mill in particular, lived through the Industrial Revolution, saw its astonishing economic transformation before their eyes, and explained, so others could understand for themselves, how their prosperity had been created through the emergence of the market economy.

Mill, the greatest utilitarian philosopher of his age, refused to use utility as part of his theory of value. Mill explicitly and emphatically denied any role for aggregate demand in the creation of employment. In reaching these conclusions, there was no disagreement among the entire mainstream economics community of his time.

First through the Marginal Revolution of the 1870s, and then through the Keynesian Revolution of the 1930s, the entire edifice of classical theory has been obliterated. From a classical perspective, modern economic theory is Mercantilist trash. If you are interested in how economic theory became the wasteland it has become, and wish to understand the classical theory no one any longer has the slightest clue about, this is the book you must read.

I think of the Marginal Revolution in much the same way I think of the Keynesian Revolution. It shifted focus to the demand side of the economy, lost touch with actual measurable quantities, and replaced an utterly meaningless concept – utility – for what had mattered to the classicals, production costs relative to demand. They have rendered much of economics into a series of abstraction with little concrete to examine. So to the books.

The one I didn’t especially like was Economics and Free Markets which I won’t go much into. Starts with marginal analysis and then goes through supply and demand omitting the single most important element, which everyone else omits as well: no seller ever knows the position or shape of the demand curve for any product they are selling. Demand curves are not concrete entities but are nevertheless treated as if they represent known matters. In reality, everyone in an economy travels blind and has to guess their way into profitability. Some parts of the book were all right, but really, to my mind part of the problem.

On the other hand, I thought Applied Mainline Economics was excellent and even better than the authors themselves understood, which I hope they will forgive me for saying. And what they have done is put together a classical text without knowing it which they describe as “mainline economic thinking”. I wrote a blog post to myself on it which I hope will be sufficiently clear to see what I’m saying.

This is an astonishingly excellent text which understands a great deal but misses the most important part. This is the text: Applied Mainline Economics: Bridging the Gap between Theory and Public Policy by Matthew D. Mitchell and Peter Boettke. And there we find (pp. 2-3):

And though mainline concepts are constantly evolving, they draw their inspiration from, and are intimately connected with the enduring lessons of early economic thinkers. A line connects the contemporary variants of these ideas to insightes of Thomas Aquinas of the 13th century; the Scottish Enlightenment thinkers, such as Adam Smith of the 18th century; and the Neoclassical school of the early 20th century. Thinkers in the last few decades have extended this line of inquiry, including Nobel laureates F.A Hayek, James Buchanan, Ronald Coase, Douglass North, Vernon Smith, and Elinor Ostrom.

Let’s see who’s included which adds in those mentioned in ftn 5 of Chapter 2:

  • Thomas Aquinas of the 13th century;
  • fifteenth and sixteenth century scholastics;
  • the Scottish Enlightenment thinkers, such as Adam Smith of the 18th century;
  • 19th century French liberals Jean Baptiste Say and Frédéric Bastiat;
  • the Neoclassical school of the early 20th century
  • thinkers in the last few decades, including Carl Menger, Ludwig von Mises, F.A Hayek, James Buchanan, Ronald Coase, Douglass North, Vernon Smith, and Elinor Ostrom

Now let’s see who is missing? Who is missing in particular is the English Classical School of the mid-19th century and especially John Stuart Mill.

And then there is a list of characteristics that have been suggested over the years that breed strong economies which include everything discussed by Mill and the his contemporary classical economists:

  • specialisation and the division of labour
  • institutional structures
  • natural endowments
  • geographical advantages
  • capital accumulation and growth
  • cultural inheritance
  • personal traits such as attitudes to thrift and hard work
  • technological sensibilities
  • individual liberty
  • social attitudes to commercial activity

And yet it is Mill and the Classical School whose perspective is the perspective most congruous with these characteristics which is left out. And you know why that is? Because no one has any idea what they said. There is a gap between Ricardo, who died in 1821 and the coming of the Marginal Revolution in 1870 that is almost entirely unknown to economists today.

My specialty is that gap. That is what my books are about and especially my textbook which is Mill’s Principles for the twenty-first century. I will leave you with the bits that I included in my Christmas letters to friends who are economists; no one else would be even slightly interested while my economist friends are slightly interested, mainly to see just how absurd my economic views have become, although I am happy to say some of my friends even agree with me. Hopefully you will also see my point.

I have finally submitted the full text of my next book in the proper format which is very nice but took a month of fiddling to get it exactly right and ready for publication, and that was after the two years it took to write. This is what it’s about via the blurb they put together:

“Economic theory reached its highest level of analytical power and depth of understanding in the middle of the nineteenth century among John Stuart Mill and his contemporaries. This book explains what took place in the ensuing Marginal Revolution and Keynesian Revolution that left economists less able to understand how economies operate. It explores the false mythology that has obscured the arguments of classical economists, providing a pathway into the theory they developed.”

There is also the second book I have been finishing off which I finally completed today. It is a near-definitive collection of all of the anti-Keynesian articles and excerpts from every anti-Keynesian book of any importance ever written.

Not entirely best-seller material, but fascinating to me. Since the basis for everything I believe about an economy is based on John Stuart Mill’s Principles of Political Economy which was the most used text in English from 1848 till around 1890 and remained as a major text used everywhere until around 1920 I am following along after someone who ought to have a few street creds you might think. But then classical theory went out of fashion and then there was the Keynesian Revolution and then economics became mathematical and then diagrams infested economic texts page after page and then economic students became illiterate and beyond that, reading nineteenth century prose became impossible to almost everyone, specially economists and even then Mill is beyond just trying to read Trollope and Dickens and even then Mill, who wrote his 1000-page text in around 18 months so his is not exactly a polished account filled as it is with 100-150 word sentences and worse, often going off on tangents to explain what he is getting at using examples that can go on for five pages where if you don’t already know what he is getting at cannot be followed. But I love what he says and how he says it. It is pure common sense to me – highest IQ of the nineteenth century; fifth highest of all times if you take these things seriously – and since nothing about how an economy works has changed all that much at a theoretical level since around 1776, I remain possibly the only economist, even among historians of economics, who understands not just what Mill was getting at, but also agree with virtually everything he says. So while my projections and forecasts have never been wrong, no one pays any attention to me because my reasoning is so foreign to everything an economist thinks, or is supposed to think. Since in my books it is not just Keynesian macro but also marginalist micro that I throw onto the dust bin of history, there is not much of “that modernist stuff gone sour and silly” left around by the time I am through with it – the quote, btw, is from Keynes in 1946 looking at what had become of The General Theory by the time it got into the hands of Joan Robinson.

If you are still with me, I will leave you this which was published this year as a tenth anniversary reminiscence following an article I wrote in 2009:

It starts with a quote from an Australian Senator who was querying me during some Committee meeting in 2009 about my opposition to the stimulus which really does capture where I am:

Why have the IMF, the OECD, the ILO, the treasuries of every advanced economy, the Treasury in Australia, the business economists around the world, why have they got it so wrong and yet you in your ivory tower at RMIT have got it so right?
—Question to Steven Kates from Senator Doug Cameron, Senate Economic References Committee, September 21, 2009

Funny to me but no one pays any attention. To be right too soon makes everyone think you are wrong in principle. All they remember is that they disagreed with you about something, but what it was they never remember.

My aim is that eventually, around fifty years from now, when economics returns to where it once was, that someone will discover my book and say, look, this guy Steve Kates, he got it nearly right fifty years ago. “Nearly” because everything is always a little off centre and no two economists ever think about anything in exactly the same way. On the other hand, by then every economy in the world may be like Venezuela is today and no one will even be able to understand a word, just as no one can understand Mill today.

How to describe my next book

This was the outline of my next book that has been proposed to me by the publisher.

‘Classical Economic Theory and the Modern Economy’

Exposing the zenith of analytical power and depth of understanding that economic theory reached in the middle of the nineteenth century, this book discusses the importance of John Stuart Mill and his contemporaries. Steven Kates explains what took place in the ensuing Marginal and Keynesian Revolutions that hindered economists’ understanding of how economies truly operate.

Chapters explore the false mythology that has obscured the arguments of classical economists, providing a route into the theory they developed. Kates offers a theoretical understanding of the operation of an economy within classical economic theory by classical economists, providing a new perspective for viewing modern economic theory from the outside. This provocative book also not only explains the meaning of Say’s Law in an accessible way, but also the origins of the Keynesian revolution and Keynes’ pathway in writing The General Theory.

A crucial read for economic policy-makers seeking to better understand the key policies needed to generate economic recovery, this book will also be of keen interest to economics and economic history scholars. It offers an alternative theory to modern macroeconomics for those studying economic theory and policy.

OK, but not what I think is needed. This is what’s needed.

‘Classical Economic Theory and the Modern Economy’

The book starts with two premises: First, that economic theory reached its deepest level of understanding in the writings of John Stuart Mill and the classical economists of his time, and then, secondly, the author of this book has understood Mill and has accurately explained what the classical school of the late nineteenth century wrote. From these premises, this then follows.

If you are to have any hope of understanding how an economy works, and how modern economic theory became the dead end it has become, you will need to read this book.

The classical economists, and John Stuart Mill in particular, lived through the Industrial Revolution, saw its astonishing economic transformation before their eyes, and explained, so others could understand for themselves, how their prosperity had been created through the emergence of the market economy.

Mill, the greatest utilitarian philosopher of his age, refused to use utility as part of his theory of value. Mill explicitly and emphatically denied any role for aggregate demand in the creation of employment. In reaching these conclusions, there was no disagreement among the entire mainstream economics community of his time.

First through the Marginal Revolution of the 1870s, and then through the Keynesian Revolution of the 1930s, the entire edifice of classical theory has been obliterated. From a classical perspective, modern economic theory is Mercantilist trash. If you are interested in how economic theory became the wasteland it has become, and wish to understand the classical theory no one any longer has the slightest clue about, this is the book you must read.

If that’s your interest, then you should certainly read this book.

Mainlining classical economic theory

This is an astonishingly excellent text which understands a great deal but misses the most important part. This is the text: Applied Mainline Economics: Bridging the Gap between Theory and Public Policy by Matthew D. Mitchell and Peter Boettke. And there we find (pp. 2-3):

And though mainline concepts are constantly evolving, they draw their inspiration from, and are intimately connected with the enduring lessons of early economic thinkers. A line connects the contemporary variants of these ideas to insightes of Thomas Aquinas of the 13th century; the Scottish Enlightenment thinkers, such as Adam Smith of the 18th century; and the Neoclassical school of the early 20th century. Thinkers in the last few decades have extended this line of inquiry, including Nobel laureates F.A Hayek, James Buchanan, Ronald Coase, Douglass North, Vernon Smith, and Elinor Ostrom.

Let’s see who’s included:

  • Thomas Aquinas of the 13th century;
  • the Scottish Enlightenment thinkers, such as Adam Smith of the 18th century;
  • the Neoclassical school of the early 20th century
  • thinkers in the last few decades, including F.A Hayek, James Buchanan, Ronald Coase, Douglass North, Vernon Smith, and Elinor Ostrom

Now let’s see who is missing? Who is missing in particular is the Classical School of the mid-19th century and especially John Stuart Mill.

And then there is a list of characteristics that have been suggested over the years that breed strong economies which include everything discussed by Mill and the his contemporary classical economists:

  • specialisation and the division of labour
  • institutional structures
  • natural endowments
  • geographical advantages
  • capital accumulation and growth
  • cultural inheritance
  • personal traits such as attitudes to thrift and hard work
  • technological sensibilities
  • individual liberty
  • social attitudes to commercial activity

And yet it is Mill and the Classical School whose perspective is the perspective most congruous with these characteristics which is nevertheless left out. And you know why that is? Because no one has any idea what they said. There is a gap between Ricardo, who died in 1821 and the coming of the Marginal Revolution in 1870 that is almost entirely unknown to economists today.

Geoff Mann in a Marxist critique of Keynesian economics

The video is found at the book launch of Geoff Mann’s In the Long Run We are All Dead.

Geoff Mann lives in Vancouver, where he teaches political economy and economic geography at Simon Fraser University, and he directs the Centre for Global Political Economy.

In the ruins of the 2007–2008 financial crisis, self-proclaimed progressives the world over clamoured to resurrect the economic theory of John Maynard Keynes. The crisis seemed to expose the disaster of small-state, free-market liberalization and deregulation. Keynesian political economy, in contrast, could put the state back at the heart of the economy and arm it with the knowledge needed to rescue us. But what it was supposed to rescue us from was not so clear. Was it the end of capitalism or the end of the world? For Keynesianism, the answer is both. Keynesians are not and never have been out to save capitalism, but rather to save civilization from itself. It is political economy, they promise, for the world in which we actually live: a world in which prices are sticky, information is asymmetrical, and uncertainty inescapable. In this world, things will definitely not take care of themselves in the long run. Poverty is ineradicable, markets fail, and revolutions lead to tyranny. Keynesianism is thus modern liberalism’s most persuasive internal critique, meeting two centuries of crisis with a proposal for capital without capitalism and revolution without revolutionaries.

If our current crises have renewed Keynesianism for so many, it is less because the present is worth saving, than because the future seems out of control. In that situation, Keynesianism is a perfect fit: a faith for the faithless.

Far-left, all about Hegel and Marx, but not an ounce of economic understanding from what he has to say. But the book is coming and will see what we find then. His conclusion is that “poverty is produced by the system itself”. This is the kind of drongo idiocy only a self-satisfied utterly pampered member of the academic bourgeoise would believe.

Economics is stale and worthless

This is the abstract for a paper on “The Focus of Academic Economics: Before and After the Crisis”.* As is quite obvious from watching Treasuries and central banks around the world, no one learned a thing. In fact, no one even tried to investigate. Economics as now taught is stale and worthless.

Has the global financial crisis of 2007ff had a visible impact on the economics profession? To answer this question we employ a bibliometric approach and compare the content and orientation of economic literature before and after the crisis with reference to two different samples: A large-scale sample consisting of more than 440,000 articles published between 1956 and 2016 and a smaller sample of 400 top-cited papers before and after the crisis. Our results suggest that unlike the Great Depression of the 1930s the current financial crisis did not lead to any major theoretical or methodological changes in contemporary economics, although the topic of financial instability received increased attention after the crisis.

Moreover, given the dating of the papers examined, no one has learned a thing from the absence of a recovery anywhere in the world in the decade following the GFC. Of course, what they learned after the Great Depression was Keynesian economics, which was a universally-understood fallacy among the entire mainstream of economic theory before 1936, accepted only by Marxists and economic cranks, but I repeat myself.

I might mention that I have just been sent the book description being used by my publisher for my next book which is on classical economics and how to understand it.

Economic theory reached its highest level of analytical power and depth of understanding in the middle of the nineteenth century among John Stuart Mill and his contemporaries. This book explains what took place in the ensuing Marginal Revolution and Keynesian Revolution that left economists less able to understand how economies operate. It explores the false mythology that has obscured the arguments of classical economists, providing a pathway into the theory they developed.

On this, let me again quote Senator Cameron from when I appeared before the Economic References Committee in 2009.

Why have the IMF, the OECD, the ILO, the treasuries of every advanced economy, the Treasury in Australia, the business economists around the world, why have they got it so wrong and yet you in your ivory tower at RMIT have got it so right?

Best question ever. My book will provide the answer.

* Ernest Aigner (Vienna University of Economics and Business); Matthias Aistleitner (Johannes Kepler University); Florentin Glotzl (Vienna University of Economics and Business); Jakob Kapeller (Johannes Kepler University). “The Focus of Academic Economics: Before and After the Crisis.”

Economic policy for idiots

Here’s a misleading headline: Interest rate cuts causing pain for no substantial gain. The reality is that interest rate cuts have done substantial harm to the economy, but at least people are beginning to see just how harmful these cuts have been.

The letter challenges the central bank’s strategy as it struggles to meet its inflation target and follows a groundswell of disquiet with the direction of monetary policy — including from former treasurer Peter Costelloformer RBA governor Ian Macfarlane and a trio of Liberal backbenchers.

The cuts have also sparked alarm for reigniting house prices in Sydney and Melbourne without boosting economic growth, or household or business confidence.

Mr Costello — Nine chairman — said record low interest rates and tax cuts had failed to stimulate consumer spending, which had hit advertising spending.

It’s this modern macroeconomic junk science that never ever gets anything right. I will again mention my Free Market Economics, Third Edition An Introduction for the General Reader where in its final two chapters sets out the flaws in Keynesian monetary policy as clear as you might like. Keynesian economics has evolved into the modern form of socialism, giving blanket approval to public spending, massive deficits and incompetent monetary policy. Think how incredible it is that the approaches taken to fix the Global Financial Crisis have never worked in a single instance in any country in the world. For an abbreviated version of all of this see The Dangerous Persistence of Keynesian Economics which begins with these two quotes:

Just as the causes of this downturn cannot be charted through a Keynesian demand deficiency model, neither can the solution. The world’s economies are not suffering from a lack of demand and the right policy response is not a demand stimulus. Increased public sector spending will only add to the market confusions that already exist.
What is potentially catastrophic would be to try to spend our way to recovery. The recession that will follow will be deep, prolonged and potentially take years to overcome.
—Steven Kates, Quadrant, March 2009
Why have the IMF, the OECD, the ILO, the treasuries of every advanced economy, the Treasury in Australia, the business economists around the world, why have they got it so wrong and yet you in your ivory tower at RMIT have got it so right?
—Question to Steven Kates from Senator Doug Cameron, Senate Economic References Committee, September 21, 2009

Great question. For the answer see my text. I might also mention that I have just sent off to the publisher my “Classical Economics for the Modern Economy” but that won’t be around till next year. But these central bankers and Treasury economists do only harm every time they touch the economy. And just for the record, infrastructure spending, beyond a minimum – and we are well beyond that minimum – will only make things worse.

The basis for value

For a Keynesian, value is determined by demand. For classical economists it is production costs in relation to scarcity that determines the exchange value of a good or service.

More to the point, however, do they mean value in use or value in exchange? Unless you know, both the question and the answer are meaningless.

And as for the answers given, the one thing that never determines exchange value are consumers by themselves. Ever seen a supply curve?