The unholy trinity: collectivism, sovereignty, corruption

Source: thelibertarianalliance.com

The unholy trinity: collectivism, sovereignty, corruption

Neil Lock

“Know your enemy,” says the old adage of Sun Tzo. And this idea has, of late, been much troubling liberty lovers. We all agree that, from the point of view of freedom, justice, prosperity and peace, the political tone in Western societies today is bad and getting worse. But can we agree on the causes of this malaise, still less work out what to do about it? That’s hard.

It’s become plain that thinking of our enemies’ paradigm as “cultural marxism,” a diagnosis favoured by some on the political right, isn’t correct. Surely, our enemies are aiming to kill our economy, to destroy the liberal legacy of the past, and to divorce people from their cultural roots. But such policies, I think, aren’t so much characteristic of marxists, as of wannabe dictators of any stripe. Besides which, all our enemies need do to refute this diagnosis, is smirk and say “I’m not a marxist.”

Others see part of the problem as a resurgence of puritanism. There’s certainly something in this; for the hatred of pleasure and enjoyment, so characteristic of puritans, is obvious in our enemies. Smokers, alcohol drinkers, fox hunters and car drivers, among many others, know this from experience. But I don’t think this idea gives us anywhere near a full picture.

So, I’ll make my own shot at diagnosing the troubles of our times. I see three main problems in politics today: collectivism, sovereignty and corruption. These are all related. Indeed, they’re so hard to separate that I see them all as aspects of one whole; three in one, and one in three. And so, I dub them the unholy trinity.

I also know the name of the devilhead, the fount of evil from which the others flow. But I’ll come to that a bit later.

Collectivism

Collectivism, per Webster, is: “emphasis on collective rather than individual action or identity.” Encyclopaedia Britannica goes further, saying: “The individual is seen as being subordinate to a social collectivity.”

At its root, collectivism is a failure to have regard for the human being. It sees the individual as existing for the benefit of the collective, not the other way round. So, all too often, collectivism breeds an unreasoning intolerance and hatred of the individual. And it easily leads to victimization; of those different from others, or those who develop their particular talents, or those who just want to live their own lives in their own way. Thus, collectivism destroys any possibility of justice on an individual basis.

Worse, many collectivists see a dichotomy between “public” and “private” activities, and reject the private. It’s almost as if they think, in Orwellian terms: “Public good, private bad.” Thus they come to hate private industry, honest business and earned success.

Furthermore, collectivists often seem to believe that their collective has a will, or even a Grand Purpose; and one which is, conveniently, aligned with their own. So, they like to invent political Great Causes, out of thin air if necessary. And they like to use them as excuses to impose their arbitrary dictates on people. History is littered with examples: communism, fascism, racism (and anti-racism), religious persecutions, nationalism, wealth re-distribution and welfarism, and deep green environmentalism, to name but a few.

As several of these examples show, collectivists are brutally callous, too. When their Great Causes and the policies they spawn harass innocent people, or force them down into poverty, or even murder them in droves, they don’t care. They don’t show any concern at all for the victims of their unjust and burdensome taxes, or of their dislocations of the economy, or of their violations of human rights.

Collectivism is normally characteristic of the political left. But not always. Today’s brouhahaabout immigration, for example, comes mostly from the right. Yet the anti-immigration agenda is a collectivist one, based as it is on counting people as “in” or “out” merely by accidents of race or birth.

And it gets worse. All politics is collectivist! For that word, derived from the ancient Greekpolis, a city, in origin means “the business of the city.” Not, I say, the business of the many individuals who live in that city. But the business of the city as a unit. Aha.

As to democracy… for now, I’ll only say that democracy is collectivist too. For however many individuals there may be in a democracy, it has only one demos. Democracy means power to the collective, not power to individuals.

Sovereignty

Our friend Mr Webster tells us that sovereignty is: “supreme power, especially over a body politic.” The encyclopaedia, this time, is softer in tone, calling it: “the ultimate overseer, or authority, in the decision-making process of the state and in the maintenance of order.”

The idea of sovereignty goes all the way back to a 16th century Frenchman named Jean Bodin. And, when you think about it, it’s a completely mad way to run any society. That any individual, or any group, should be allowed supreme power over all others in a territory isn’t a recipe for freedom, justice or prosperity for anyone else. And as people become more and more discontented with such a system, they will eventually see no option but to overthrow the supreme power by violence – as the English did in 1649. Not to mention Bodin’s own lot, 140 years later.

To give him his due, I don’t think Bodin was really one of the bad guys. For he lived in the time of the Reformation, amid squabbling nobility and bloody religious wars. What he set out to do was to counteract the problems of his day, by justifying an increase in the power of the French king. But the legacy he left us is, to say the least, unfortunate.

In Bodin’s scheme, the sovereign – the king or ruling élite – is fundamentally different from, and superior to, the rest of the population in its territory, the subjects. In particular, the sovereign has moral privileges; rights to do certain things, which others don’t share.

Bodin listed seven privileges of the sovereign: (1) To make laws to bind the subjects. (2) To make war and peace. (3) To appoint the top officials of the state. (4) To be the final court of appeal. (5) To pardon guilty individuals if it so wishes. (6) To issue a currency. (7) To levy taxes and impositions, and to exempt, if it wishes, certain individuals or groups from payment.

Furthermore, the sovereign isn’t bound by the laws it makes. And it isn’t responsible for the consequences of what it does (also known as “the king can do no wrong.”)

And we’re still using Bodin’s system today. Isn’t that crazy? We don’t use 16th century medicine any more, or 16th century technology, or 16th century transport. And we’ve been through the Enlightenment since then, for goodness’ sake! So why are we still using a 16th century political system? Why are we still suffering a system that lets an élite do to us exactly what it wants, with no accountability or come-back? This may, perhaps, have something to do with our malaise.

Surely, we’ve put some bags on the side of this system over time. We’ve tried parliaments that are meant to “represent” us. But they don’t – their members have merely become part of the élite, and so part of the problem. We’ve tried constitutions meant to limit the sovereign’s power. But they haven’t worked. We’ve tried to separate powers between legislative, executive and judiciary. But that hasn’t worked either. We’ve tried ideals of “social contract,” but the élite don’t even try to keep to their side of any bargain. We’ve tried charters and bills of rights and human rights acts. But the ruling élite either simply ignore them, or seek to destroy them.

We’ve even tried to bolt on the rule of law as a bag on the side of the state. But did we get, in John Adams’ words, “government of laws, not of men?” Not a bit of it. What we got, instead, was government of bad legislation made by evil politicians. What we suffer today is exactly what Edmund Burke warned against almost 250 years ago, when he said: “Bad laws are the worst sort of tyranny.”

Even where they seemed to have some beneficial effects in the short term, none of these bags on the side have done any good in the long term. They’re like putting lipstick on a pig, or a gaily coloured sticking plaster on a haemorrhage.

And then, in recent times, we’ve been graciously (not!) invited to take part in a charade called “democracy.” Each of us gets a chance to vote every so often for which of several lying, thieving criminal gangs, none of them showing even the slightest concern for us human beings, will be given the reins of all but absolute power over us for the next few years.

Has democracy brought the freedom, justice, peace and prosperity we deserve? No; it’s actually made things worse. For, first, it brings opportunities for power to those that want power; that is, to exactly those least suited to be allowed power. Second, it pollutes the mental atmosphere with lies, spin and empty promises. Third, it allows the ruling élite to victimize minorities, and to rob Peter to buy Paul’s vote. And fourth, voting gives the whole charade a veneer of false legitimacy.

It’s worse yet; for democracy divides people from each other. The victims of bad policies feel harshly treated, and become disaffected. They come to view politics and politicians with contempt and loathing. And, slowly but surely, they lose all fellow feeling, not only with the criminal gangs, but also with those that support the criminal gangs by voting for them. Thus, today’s democracy breaks apart the very sense of “we” that gave it legitimacy in the first place. It destroys the social cohesion, the glue which was supposed to keep the democratic political unit together.

The biggest problem I find with sovereignty, though, is that it contradicts the only civilized way to run a political society; the rule of law. For the key feature of the rule of law is moral equality. What is legal, and what is not, must be exactly the same for everyone. Yet the sovereign state claims, for the ruling élite and its functionaries, rights to do things others may not. If you or I extorted money from people like the taxation system does, for example, wouldn’t it be theft or worse? Or if you or I premeditatedly killed an innocent person like Jean Charles de Menezes, wouldn’t it be murder?

And a claim of sovereignty over a territory is a claim of ownership over that territory, and everyone and everything in it. It’s a claim that the subjects, along with all their property, are actually owned by the sovereign; that they are, in essence, its slaves. Today’s élites treat us like slaves, too. For they make bad laws to bind us, while taxing us out of existence, inflating the currencies we depend on, and violating our human rights.

If you doubt that sovereigns claim ownership, consider why states claim a right to erect borders around their territories, and to seek to control movement across those borders. The logic is, that just as an individual has a right to control who enters his property, so does a state have a right to control who enters (or exits) its property. Aha.

A desire for sovereignty – or to use a slightly softer word, authority – has, for centuries, been characteristic of the political right. They’re on top, and they want things to stay that way; that’s why they’re “conservatives.” And they don’t care a damn about anyone else.

Moreover, authoritarians or – if I may coin a word – sovereigntarians are just as brutally callous as collectivists. And the thing they love most of all is war. For war, as Randolph Bourne rightly told us, is the health of the state.

But it isn’t just the right that have a liking for sovereignty. Sovereignty, and the irresponsibility which goes with it, have inspired (if that’s the right word) all the worst mass murderers of the 20th and early 21st century; including Mao, Stalin, Hitler, Pol Pot, George W. Bush and Blair.

Corruption

Corruption, says the dictionary, is: “impairment of integrity, virtue, or moral principle.” Wikipedia is more succinct, defining “corrupt” as “utterly broken.”

There are many kinds of corruption. The most usual is where officials use their positions of power for personal financial gain. Many people seem to think that such corruption, at least on a large scale, only happens in third world countries. But that’s not so. Remember the House of Commons expenses scandal of a few years back?

Indeed, it’s possible to view receiving tax money, even in exchange for doing a job, as corruption. Though many government employees would object to this, saying: But I earn my living! It’s true, indeed, that the best government workers really do earn every penny they are paid. (Even I have, in the past, taken government money to do defence or NHS work). The problem is that, from the point of view of the individuals who paid the taxes, many such government jobs have costs far greater than any benefits they bring. This is clearly not according to any sane moral principle. It’s corruption, even if some may find that hard to see.

This corruption is even more serious, when we unwillingly finance bureaucrats that actively harm us. For example, when we’re made to pay for rapacious tax bureaucrats, or for goons that intercept our e-mails.

Welfare recipients too, though many of them probably don’t realize it, are embroiled in corruption. They are, in effect, receiving stolen goods.

Now, to take freely offered charity isn’t corrupt. To take an insurance pay-out isn’t corrupt. To take at need from a fund, to which you and others have voluntarily contributed for the purpose of mutual aid in need, isn’t corrupt. But to take, without a by-your-leave or a thank you, money which has been taken against their wills from those who would rather have done something else with it, shows lack of integrity. It’s a corrupt act. And those quite capable of earning their living, but choosing the lazy option of sponging off others, are even more corrupt.

Another form of corruption is crony capitalism. This is where company bosses lobby government to try to get advantages for themselves, or to damage their competitors. Officials are usually more than happy to listen, particularly if the scheme will result in increased tax revenue. I myself am a victim of a scam (IR35) of exactly this type, which – from the evidence I can see – was almost certainly perpetrated by the big software development companies like EDS, with intent to destroy the one-man competitors who took business away from them during the Y2K panic.

Then there is systemic corruption in academe, education and the media. The academics promote collectivist and authoritarian ideas. The teachers teach only what is politically correct. The media – of all political stripes – spout lies, hype, spin, scares, propaganda and emotional manipulation, all designed to keep people under control.

Then there is political corruption. We know that politicians habitually lie and mislead; for example, about carbon dioxide emissions causing catastrophic global warming, or Saddam Hussein’s weapons of mass destruction. We know that the promises they make are usually empty. And we know that many of them seek power primarily to impose their evil agendas on people they don’t like. Remember the old labour slogan, “Let’s make the rich squeal?”

But there’s also a case that taking any part in politics is corruption. Even voting for a politician or political party is an act of corruption, because it underwrites a corrupt system. (It’s an act of aggression, too. It’s an aggression against all those who have been, are being or will be harmed by the policies of that politician or party).

There’s corruption in government itself, too. In the UK, it’s hard to know how much judicial corruption there is, because the subject isn’t aired. But it’s clearly a big problem in the USA, where many judgments are political, and “judge shopping” has become a common idiom.

Executive corruption is also a big issue. And the symptoms are obvious. Police brutality. Rigorous “law enforcement,” that often looks to be merely for the sake of enforcement. Zealous policing of arbitrary limits, like speed limits and minimum age limits. Routine violations of our privacy, like cameras on street corners and intercepting our e-mails. Bureaucrats that try to behave as judge, jury and executioner. And a culture of seeking to “get” anyone who deviates, even slightly, from the political correctness du jour.

But legislative corruption is perhaps the biggest problem. Almost every “law” made today – certainly in the UK, the EU and the USA, and probably in other Western countries too – is made to satisfy some evil ideological agenda, or to buy votes, or to appease some political pressure group. Moreover, the modern puritans are out in force, baying for more and yet more regulation. So, virtually all legislation made today is bad. If Edmund Burke was brought back to life now, he would have a fit.

The unholy trinity

So, there you have the unholy trinity. Collectivism, sovereignty and corruption; the three faces of the devilhead.

Collectivism is the first of the trinity; the devil’s mother, if you will. I put it first, because historically it came first. For, as the old testament tells us, there were tribes before there were kings. Sovereignty, and the state it spawns, is the second, the mischief maker or the devil’s daughter. And the “unholy spirit” is the name I give to the miasma of corruption, which we see, hear, feel and smell all around us. While each of them tends to be favoured by different factions of our enemies, the three faces of the devilhead work together against us human beings.

In Western societies, not so long ago, there was a fairly clear divide between the political left and right. The left were collectivist, but not so much authoritarian; that’s why they called themselves “liberals.” The right were authoritarian, but not so much into collectivism. So, those who hated collectivism voted for the right. And those, whose pet hates were sovereignty and privilege, supported the left. But in recent decades, the two have converged. If there’s any difference between Blair and Cameron, for example, or Obama and Bush, it’s that one lot are collectivists first and authoritarians second, while the other are authoritarians first and collectivists second. So, today, both “left” and “right” are evil. And to vote for either of them is an act of evil.

I don’t find this convergence surprising. For the ideologies of both left and right are well past their last-use-by dates. There was a time, perhaps, when collectivism may have been a viable way to run a city-state; but the age of city-states is now long gone. And sovereignty may have been a half way reasonable idea in Jean Bodin’s time; but even a quick glance at recent history shows that it has become a Bad Idea.

So, feeling a need to bolster their weakness, both sides have found it convenient to take on the practices of the other as well as their own. It’s easier to foist your collectivism on to people, if you start making strict laws to hem them in, and brutally enforcing those laws. And it’s easier to keep your position as a ruling élite, if you start inventing ruses – like the global warming fraud – designed to, in H.L.Mencken’s words, “keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary.”

And so, collectivism fuels sovereignty, and sovereignty fuels collectivism. Thus does evil beget evil.

They both fuel corruption, too. For, as Lord Acton told us, power tends to corrupt. And power without responsibility – and that’s what, in essence, sovereignty is – corrupts absolutely. On the other hand, collectivists don’t have any idea of individual responsibility; so they don’t feel any shame for what they do, however badly they behave.

The biggest enabler of corruption, though, is taxation. Franz Oppenheimer, a century ago, identified the divide between what he called the economic means and the political means for obtaining satisfaction of needs. Those who use the economic means (work), seek to provide goods or services valuable to others. They seek to do good for others, in return for those others doing good for them. Those that use the political means (robbery), on the other hand, simply take, take, take. They offer nothing in any way valuable to the victims of their larceny.

Not only does taxation take away wealth from productive people, and re-distribute it to the ruling élite and their lackeys and cronies, and to the lazy and the feckless. Not only does it provide the corrupt with the time, resources and social status that enable them to promote their evil Great Causes and to carry out their destructive schemes. But it also encourages perverse incentives, for example where people prefer to claim benefits instead of working, or to work less hard to avoid paying more tax. And these perverse incentives, slowly but surely, cause the miasma of corruption to spread through the population like a horrible disease.

The devilhead

I said earlier that I know the name of the devilhead. I know the name of that which stands in the same relationship to the unholy trinity, as the godhead does to the Christian trinity. That name is… dishonesty.

We can see dishonesty in our enemies at many levels. First, we see it in their failure to appreciate human nature. They don’t see us as individuals. They don’t acknowledge our free will and its consequence, individual responsibility. They don’t acknowledge that human beings are naturally good and honest, and that they themselves are aberrations.

Second, we see it in their disregard for truth and objectivity, and their constant use of lies, deceit and propaganda.

Third, we see it in their disregard for ethical conduct. They fail to behave according to any sane code of civilized behaviour. Instead, they set themselves up on a moral pedestal, and assert for themselves privileges which they deny to others. And they commit, and seek to get away with, real crimes such as theft, harassment, perjury, murder and even incitement to mass murder.

Fourth, we see it in their disregard for sane principles of government and social organization. They fail to uphold objective justice, the condition in which individuals are treated, overall, as they treat others. They pervert the rule of law into the rule of bad legislation. They violate our human rights, and show no concern at all for our freedom.

Fifth, we see it in their choice to use the political means (robbery) of getting their needs satisfied, in preference to the economic means (work). We see it, too, in their desire to suppress economic prosperity, to deny it to those who earn it and deserve it.

But most obviously of all, we see it in their hypocrisy; in their abject failure to practise what they preach. We see it, for example, in those that bleat about energy from fossil fuels causing damage to the planet, yet don’t stop using that energy, or even cut their use of it. Or those that moan that the world is overpopulated, yet have families. Or those that shed crocodile tears for the “poor” and “needy,” yet don’t give away any of their own wealth, or make any sacrifices for those “poor” and “needy.”

So, there you have my diagnosis. The main causes of our troubles today are collectivism, sovereignty and corruption; the unholy trinity. And each of the three faces is an aspect of the devilhead, the deadly disease of dishonesty.

And the cure? That’s for another day. For now, I’ll just say: To hell with the unholy trinity. To hell with collectivism, and with the promoters and supporters of its Great Causes. To hell with sovereignty, with the state and its politics, and with the ruling élites, their lackeys and their cronies. To hell with corruption, and with those that take part in it.

To hell with the devil. To hell with dishonesty. To hell with the dishonest.

The Pre-History of Freedom

Source: thelibertarianalliance

The following is an article written by Matthew John Hayden, a libertarian blogger. To see more of his work, click HERE.

Daniel Harding

Everything is scarce. As any rocket scientist will tell you, every gram counts. Everything is, then, subject to economic choice. I think all sane schools of economics agree on this. For all that David Graeber and others seek to make out as though the market process introduces unnecessary scarcity calculation into our lives, I’m confident a gift economy cannot give rise to the thousands of layers of today’s division of labour, and so today’s prosperity. Markets are just the consequence of and the setting for voluntary exchange between consenting human beings. That’s it. No brutality required. It is an Ur form of human interaction with strangers.

The idea, in common circulation among anthropologists, that gift economies gave rise to debt in its modern form, and that debt predates mutual exchange, while attractive, and even somewhat identifiable praxeologically, does not stand up to serious investigation because we have a very, very long history – assuming the new thesis to be correct, debt only goes back 5000 years – and at no time has it been standard operating procedure to give away gifts to total strangers, such as people from a different tribe.

So, the praxeological approach. The human actors in a pre-civilised – pre- division of labour – society will most likely operate in small social groups where everyone knows pretty much everyone else and the social graph is closed. This means a group of about 150 people or less, likely a lot less. Inside these groups every individual will be inclined toward gift giving, knowing the satisfaction that can be had from doing so – gift-giving is a category of human action – and will also expect to receive gifts in turn. Not an Xbox One, admittedly, and certainly no chance to play Halo 5, but we’re talking pre-division of labour here. These satisfactions, of the giver and recipient at the time of the giving, are the primary reasons to do so.

So why markets? Why abandon this egalitarian gift-giving society where each is kept from gaining above any else by the expectation that they will give in turn? David Graeber correctly surmises that any attempt to get ahead in terms of wealth will be self-defeating as those who seek to do so would have to resolutely avoid asserting any political influence over their peers, and vice versa, anyone seeking influence will have to give gifts until they descend back to parity with their peers. The gift economy is self-reinforcing, which is why all present-day gift-giving societies are still pre-industrial tribes with a standard of living that can charitably be described as basic.

Societies at some point experience a transition, though the reason is obscure. Eventually, just gift-giving isn’t enough any more. Why not? Possibly one gift economy tribe conquers and enslaves another, introducing the beginnings of the division of labour through slavery. Or possibly a group of socially manipulative individuals within a tribe manage to codify their dominance, likely for religious reasons, in the realisation of their desire to enjoy privilege and prestige. The lust for power is a want that we act to satisfy as much as any other. The gift and market economies are the two mechanisms anarchists of whatever stripe can offer as limiting mechanisms. And on the subject of markets, where do they fit into all this pre-history?

A pre-civilisation human being looks outward and is unsatisfied. It is the universal human condition to feel one’s present situation is in some way unsatisfactory, and that a better future lies just beyond one or more actions, like maybe settling down and figuring out a way to keep the wind and rain at bay while taking a bit more time to sow now that you’re in one place than when you kept moving around. The finer points of the settling process here are mysterious to say the least, but it seems there was nothing intrinsically feudal about the establishment of settlements, with their increased cultivation and domestication. Indeed, it’s likely that people settled gradually over time, but what of our pre-historic comrade?

He or she lays claim to a patch of land and builds on it. Remember that land is always subject to scarcity as there is always a limited supply of the stuff. Even if in theory you could just move horizontally to settle on virgin land, it might be more costly in terms of opportunities foregone than staying right where you are. What opportunities? You might want to be close to certain other people, or close to an open area for trading. And here we get into a bit of history. The free market, with its division of labour, is admittedly similar – at least when looking at these ancient examples – in its superficial appearance to the feudalism of the totally agrarian societies of the Nile, Euphrates-Tigris and Yellow Rivers. I missed one, didn’t I; the Indus River.

The Indus River, in present-day Pakistan, was the cradle of the most sophisticated of all the four Ur civilisations. Instead of transitioning from gift-giving egalitarianism to feudalism the society in this series of values in Asia went the route of private property. That means that gift-giving retreated in importance, presumably gradually, from the entire social graph of each individual – the up to 150-ish peers any one person would know – to just family members or those with serious and dire need. The rest was slowly appropriated by the market exchange mechanism using debt and currency which, like in the other three ancient civilisations, took in agricultural produce and precious metals.

The striking aspect to all of this is that the Indus Valley Civilisation‘s – hereafter referred to Harappaas after the first city of the culture to be rediscovered in modern times – response to the problem of scarcity appears to have been free-market anarchy. It is important to add the proviso that it only appears this way. As yet, no palaces or temples whatsoever have been unearthed in any of the cities, whereas highly developed sewer systems, private property title documents, and roomier homes than those of the common folk in any of the other Ur civilisations are volubly attested at almost every site until the Late Harappan, when this civilisation gave way to the Vedic Civilisation which is the first modern Hindu culture, combining the building and writing of the Harappans with the religious beliefs and myths of the incoming Northern invaders, the Aryans, who ultimately enslaved the natives of the valley and further South also and created the modern caste system, thus replacing the free markets of Harappa with the feudalism that has lasted, in a mutated and socialistic form right down to the present day.

So the land now trodden by the Urdu- and Pashtu-speaking peoples of Pakistan can lay claim to being the first free society, with both individual liberty and a division of labour, in history. Jolly good show. In the millennia before the agricultural and industrial revolutions a free society lived and thrived for thousands of years, with a ‘Golden Age’ as we would recognise it lasting about 700 years. Not bad. So surely the civilised, highly specialised peoples of the Earth in the 21st Century have reason to look backward and think on the possibility that, just maybe, we are mature enough to handle statelessnesss.

Remember that the division of labour in agriculture, textiles, housing, utilities, retail and logistics comes entirely from the private sector – that is, from civil society – meaning the state is an unnecessary feudal vestige left over because we all escaped gift tribalism the wrong way all those countless centuries ago. We are orders of magnitude more ready for anarchy than the tribes-people who embarked on the scary and original experiment of settled civilisation in the Indus Valley. Take heart in their success, and even if their culture is not with us today, let its voices ring out, in their thousands, a cacophony buying and selling and exchanging and peacefully living in liberty.

The Keynesian Circular Flow of Nonsense

Source: thelibertarianalliance

by Keir Martland

To all with an A-level in Economics, the Keynesian circular flow of income will be familiar. It is a representation of the macroeconomy, including the household, the firm, the global economy, the banks, and the government.

Injections are often represented on this diagram by a green arrow and they include consumption, investment, government spending, and exports while leakages are often represented by a red arrow and they include savings, taxes, and imports. While consumption is sometimes not included in the list of injections, injections are defined as expenditures on aggregate production, that is, money flowing into firms. On the other hand, leakages are defined as non-expenditures on aggregate production.

Keynes believed that the higher the levels of spending on aggregate production in the form of consumption, investment, government spending, and exports, and the lower the levels of non-expenditure on aggregate production in the form of savings, taxes, and imports, the better off the macroeconomy is.

Keynes, it can be seen from the above, then, was of the belief that saving, for instance, was a bad thing, to put it plainly. Since savings are just sat in the bank and are not doing anything productive, what really is the point of them? In a recession, especially, savings represent a leakage in that they are not being spent on consumer goods. Consumption, Keynesians might argue, drives the economy; when goods and services are consumed, firms are better off and can employ more workers and these workers now have wages which they can spend on goods and services, the producers of which can now afford to employ more workers, ad infinitum. Why on earth, then, would anyone save money when saving simply represents a restraint on the expansion of firms? Since saving is not investment or consumption or government spending or exports, it is a no-no.

One problem with this view of savings is that it is not up to John Maynard Keynes to tell savers that their savings are not also an investment. What is an investment, after all? A very general definition of investment is that it is the act of not consuming today in the expectation of a reward in the future. Applied to economics, investment is the acquisition of a good which will ‘pay for itself’, so to speak. A hairdresser invests in a pair of scissors only because she expects the income derived from the scissors to be more than the initial cost. What, then, of the saver? Does he not first acquire his money and then put it to some non-consumption use in the expectation of a reward in the future? The answer is: of course he does. If the saver did not expect such a reward, that is, if he did not expect to be better off as a result, then he would not save. Yet, this does not rule out the possibility that the saver could be wrong, that is, that he could actually make a loss (perhaps due to inflation). Nor does the reward have to be monetary. Indeed, even if the expected reward for not consuming was purely psychic, then the saver would still be making an investment. For saving is not simply keeping resources idle without reason. Every actor, and saving is an action carried out by an actor, has an end, and he would not act unless the end was perceived to be an improvement in some sense over his present situation. So, I repeat, it is not up to the Keynesians to tell savers that they are not also, by saving, making an investment.

Yet there is another, more fundamental problem with the Keynesian view of savings. Where does the money for investment come from in the first place? According to the Keynesian view, investment is a Good Thing, and Amen to that. Investment, though, as I have just said, is the act of not consuming – that is, saving, albeit temporarily – in the expectation of a reward. To invest, one must first save. That is, to accumulate the capital with which to buy a factory, one must first have not spent this capital on consumption. But, saving is bad. So, how, if saving is to be minimised and consumption maximised, is investment ever to take place? Perhaps one answer could be that the investor might borrow the funds with which to buy the factory. Even so, these funds, to the extent that they represent the freeing up of resources by actors in the economy and not the printing of additional loanable funds through credit expansion, would not have existed had not someone else saved. Also, what happens once the investor has borrowed these funds? Must he not refrain from consumption in order to pay them back? In a future article I shall deal with credit expansion and why this does not relieve us of the task of saving and why much of the present economic malaise is actually due to it.

Turning to government spending, in what sense is government spending ‘good’? That is, how can government spending create anything of value? The Keynesian view of government spending is that, as it generates activity, or boosts aggregate production, it reduces unemployment of factors of production. This is why the Alphabet Agencies of Franklin D. Roosevelt must be regarded as sound by Keynesian standards; they employed previously unemployed factors of production in some activity and thus boosted aggregate production.

The absurdity of this position may be more obvious. For the Keynesians, the aim is only to increase aggregate production (and aggregate demand). Production of what? That really does not matter. The production of waste is just as valuable as the production of goods. In this way, what is produced is likely to be of no value at all to consumers.

However, there is another flaw: just as investment must follow saving, government spending must follow taxation. Taxation, according to the Keynesian, is a leakage. Once again, the aim of the Keynesian economist is to maximise injections and minimise leakages. How would this work? Must we eliminate all taxes and yet simultaneously increase government spending to infinity? This is nothing but the logical conclusion of the Keynesian fiscal policy recommendations. We see that today most governments are actually making some progress towards this, with most of them running budget deficits, but none of them have actually gone so far as to run a deficit of infinity. Why is this? If governments are benevolent agencies which merely wish to increase the general welfare and which also have the power to minimise Keynesian leakages and maximise Keynesian injections, then why is there still poverty in the world? Why, in fact, do governments tend to run into problems when they run deficits? Surely, if Keynesian economics were true, a fiscal stimulus would boost aggregate production and thus increase real incomes. And so, what we ought to expect, if we accept Keynesian economics as true, is that the bigger the deficit the faster the rate of economic growth. I needn’t point out that this is not so.

Then we have to consider the opportunity cost of government spending. Everything has a cost and if something doesn’t have a monetary cost then at the very least it has opportunity cost, i.e. what was given up for it. Even if government spending does lead to the production of something identified as a good by a consumer, the money the government spent was forcibly taken from a citizen. How might he have spent the money? He would have put the money to its most highly valued end, at least in his own eyes. By taxing and then spending, the government is necessarily removing money, time, and other resources from more highly valued ends to lesser valued ends. The result of this can only be relative impoverishment. Government spending may well be an injection, but it is an injection of less value to consumers than the use which would have been made had not the government taxed.

Lastly, Keynesian economics strikes me as rather mercantilist in that it suggests that imports make us poorer. This is because Keynes’ circular flow of income shows imports to be a leakage, or a non-expenditure on aggregate production. This is true, in a sense. It is true that a firm or household which imports goods exchanges money for goods and does not contribute funds to the production of goods in the domestic economy. The mistake is the assumption that this will necessarily make the domestic economy shrink.

In fact, the opposite is true. Given that any actor will purchase the most highly valued good, at least in his eyes, and that goods are considered valuable because they are cheaper and of higher quality than less valuable ones, if actors in the domestic economy import goods then they are doing so because the equivalent goods in the domestic economy are either of an inferior quality or simply do not exist. Now suppose that a Keynesian, only wanting to minimise leakages, were to impose import tariffs or to ban all imports (Keynes argued for protection in the 1930s) . What would be the result? The result would be that more highly valued goods would now become either more expensive or simply unavailable and the actors would now turn to inferior substitute goods in the domestic market. Firms and households would now be worse off, since they can now get less for their money, so to speak. All else remaining constant, if a firm is worse off, it will have to either lower wages or lay off workers. Is this good for the domestic economy?

Rather than one being ‘good’ and another ‘bad’, one an injection and the other a leakage, exports and imports are simply two sides of the same coin. When a firm exports goods, it imports money, and vice versa. If an economy were to refrain from importing goods then the effect, all else remaining constant, would be a reduced demand for this economy’s goods in foreign markets. By importing goods from other countries, we give them the money with which they can import our goods. We cannot have the one without the other.

So, the circular flow of income is, I think, a very pretty diagram which does a good job of illustrating just how a domestic economy works. If the diagram were in black and white and if the terms leakage and injection were kept away from it, then that would be one way of improving it. Only by avoiding the Keynesian colouring of the circular flow of income can we avoid the palpable falsehoods that follow from it.