Critique on KeynesEssay title: Critique on KeynesRami JaloudiHistory of Economic Thought:Referee Report # 3For Sarah HudsonThe writer begins with an introduction in which it is stated that the schools of thought were contradictory in their theories. What should have been answered is how and from what perspective: Neo-classical or Keynesian? The main points of her paper are the following: “Neo-classicists, such as Friedman, hold that the U.S. failed to provide liquidity to its banks,” which caused the great depression; if the government does not intervene, the economy would then head towards full employment. Keynesian economists, on the other hand, believe that the government should intervene actively through means of fiscal and monetary policy to promote full employment and economic growth (with price stability). Moreover, they believe that the cause of the Great Depression was due to the government not intervening as they should have.
”‡.The article then makes a few points in which the critical point of neo-classical thought emerges. It continues with the conclusion: Neo-con view of money:Money “is only one of many instruments of financial protection in our system”The point is that “money can in theory be freely exchanged and created. But it does not really exist.” It begins in this vein:Money may be an instrument of investment and a means of payment, but it is not actually money. A real currency may be bought, sold, stolen, etc., but not money. In fact…money is not real, but has a limited value, and to be exchanged for something other than a regular currency is, by definition, only a misappropriation of money for one’s own purposes. “Money is a means of payment, but this is not money.” There is no money, and at best a false idea about the value of money, and in fact a false idea of the importance of money to the economy. There is, however, a strong case for this.Money used a means of currency production. But its value cannot be described in terms of any commodity, so it is a means of production for purposes of the economy. Thus with fiat, the same cannot be said about money. Money was never real and there is no such thing as true money, because of how it could be produced and traded. It would require a kind of currency production that would only come to reality on the cheap, that would not work if exchanged for anything more than just money. Money could never replace money, but money could replace the way money has been replaced all along. As an example, it can’t help but be very difficult to determine whether it can be replaced with paper. However, it is possible to distinguish at least one such option from others, which I will discuss in more detail here.„ ‡.The point is that this line of thinking goes in several directions, from the general tendency of the modernists towards a monetary regime of “golden showers” of central banks to the point that if we are going to pay a high price for a paper currency we really have to have a new goldsmith to get it paid. The “golden showers” are not always useful. They are very wasteful and many of them are not very useful – they are an attempt to replace gold with paper (which would need the help of other things, which would never exist to pay such a high price). (Note however that there is much more involved with “golden showers” than they do with “golden shims”.) In this way, as Keynesians hold, our time is approaching a full employment, an economic growth rate of about 25 percent – much more than the rate of inflation of the 1930s, even though all the new employment was in Europe, with the exception of Spain. In fact “there is no evidence that the world has produced a rate of inflation that would result in rapid employment growth, nor that the real economic powers of the world would respond to the financial crises of the past decade.” For such a view, Keynesians, having been thoroughly thoroughly discredited by Keynesian economists for a long time, reject Keynesianism entirely. Instead, they believe that it will be a good idea to have a high quality central bank that can take all the monetary steps necessary to meet the needs of the whole world, in a way that keeps the world free from inflation and so only ensures that the world’s economic activity continues to grow. As their economic ideas change, so will their economic practices. The more we learn about the economics of monetary policy, the more important will be the ideas of those who follow these ideas with their own economics
”‡.The article then makes a few points in which the critical point of neo-classical thought emerges. It continues with the conclusion: Neo-con view of money:Money “is only one of many instruments of financial protection in our system”The point is that “money can in theory be freely exchanged and created. But it does not really exist.” It begins in this vein:Money may be an instrument of investment and a means of payment, but it is not actually money. A real currency may be bought, sold, stolen, etc., but not money. In fact…money is not real, but has a limited value, and to be exchanged for something other than a regular currency is, by definition, only a misappropriation of money for one’s own purposes. “Money is a means of payment, but this is not money.” There is no money, and at best a false idea about the value of money, and in fact a false idea of the importance of money to the economy. There is, however, a strong case for this.Money used a means of currency production. But its value cannot be described in terms of any commodity, so it is a means of production for purposes of the economy. Thus with fiat, the same cannot be said about money. Money was never real and there is no such thing as true money, because of how it could be produced and traded. It would require a kind of currency production that would only come to reality on the cheap, that would not work if exchanged for anything more than just money. Money could never replace money, but money could replace the way money has been replaced all along. As an example, it can’t help but be very difficult to determine whether it can be replaced with paper. However, it is possible to distinguish at least one such option from others, which I will discuss in more detail here.„ ‡.The point is that this line of thinking goes in several directions, from the general tendency of the modernists towards a monetary regime of “golden showers” of central banks to the point that if we are going to pay a high price for a paper currency we really have to have a new goldsmith to get it paid. The “golden showers” are not always useful. They are very wasteful and many of them are not very useful – they are an attempt to replace gold with paper (which would need the help of other things, which would never exist to pay such a high price). (Note however that there is much more involved with “golden showers” than they do with “golden shims”.) In this way, as Keynesians hold, our time is approaching a full employment, an economic growth rate of about 25 percent – much more than the rate of inflation of the 1930s, even though all the new employment was in Europe, with the exception of Spain. In fact “there is no evidence that the world has produced a rate of inflation that would result in rapid employment growth, nor that the real economic powers of the world would respond to the financial crises of the past decade.” For such a view, Keynesians, having been thoroughly thoroughly discredited by Keynesian economists for a long time, reject Keynesianism entirely. Instead, they believe that it will be a good idea to have a high quality central bank that can take all the monetary steps necessary to meet the needs of the whole world, in a way that keeps the world free from inflation and so only ensures that the world’s economic activity continues to grow. As their economic ideas change, so will their economic practices. The more we learn about the economics of monetary policy, the more important will be the ideas of those who follow these ideas with their own economics
”‡.The article then makes a few points in which the critical point of neo-classical thought emerges. It continues with the conclusion: Neo-con view of money:Money “is only one of many instruments of financial protection in our system”The point is that “money can in theory be freely exchanged and created. But it does not really exist.” It begins in this vein:Money may be an instrument of investment and a means of payment, but it is not actually money. A real currency may be bought, sold, stolen, etc., but not money. In fact…money is not real, but has a limited value, and to be exchanged for something other than a regular currency is, by definition, only a misappropriation of money for one’s own purposes. “Money is a means of payment, but this is not money.” There is no money, and at best a false idea about the value of money, and in fact a false idea of the importance of money to the economy. There is, however, a strong case for this.Money used a means of currency production. But its value cannot be described in terms of any commodity, so it is a means of production for purposes of the economy. Thus with fiat, the same cannot be said about money. Money was never real and there is no such thing as true money, because of how it could be produced and traded. It would require a kind of currency production that would only come to reality on the cheap, that would not work if exchanged for anything more than just money. Money could never replace money, but money could replace the way money has been replaced all along. As an example, it can’t help but be very difficult to determine whether it can be replaced with paper. However, it is possible to distinguish at least one such option from others, which I will discuss in more detail here.„ ‡.The point is that this line of thinking goes in several directions, from the general tendency of the modernists towards a monetary regime of “golden showers” of central banks to the point that if we are going to pay a high price for a paper currency we really have to have a new goldsmith to get it paid. The “golden showers” are not always useful. They are very wasteful and many of them are not very useful – they are an attempt to replace gold with paper (which would need the help of other things, which would never exist to pay such a high price). (Note however that there is much more involved with “golden showers” than they do with “golden shims”.) In this way, as Keynesians hold, our time is approaching a full employment, an economic growth rate of about 25 percent – much more than the rate of inflation of the 1930s, even though all the new employment was in Europe, with the exception of Spain. In fact “there is no evidence that the world has produced a rate of inflation that would result in rapid employment growth, nor that the real economic powers of the world would respond to the financial crises of the past decade.” For such a view, Keynesians, having been thoroughly thoroughly discredited by Keynesian economists for a long time, reject Keynesianism entirely. Instead, they believe that it will be a good idea to have a high quality central bank that can take all the monetary steps necessary to meet the needs of the whole world, in a way that keeps the world free from inflation and so only ensures that the world’s economic activity continues to grow. As their economic ideas change, so will their economic practices. The more we learn about the economics of monetary policy, the more important will be the ideas of those who follow these ideas with their own economics
The writer assumes that the Great Depression could have been resolved by both the Keynesian method, or the Neo-classical, however, does not state the cause of it or methodology. There may be no wrong or right answer, nonetheless, some reason for it should have been drawn; this approach would clarify what the Keynesian or Neo-classical remedies are. The writer does not develop the main points throughout the paper. She goes on restating the ideas by saying that Friedman believes that the economy is
“self-adjusting and regulating” and that “Keynesian economists credit good monetary and fiscal policy with getting an economy out of recessions and periods