What the World’s Most Prominent Economists REALLY Said

What Adam Smith and Keynes Really Thought

Adam Smith is widely trumpeted as the “father of free market economics”.

John Maynard Keynes is currently the most widely-followed economist in the world … credited with the idea of “stimulating our way out” of the economic downturns.

Most Americans have a cartoon image of both Smith and Keynes, assuming:

  • Smith was against all government oversight and regulation, or the intrusion of politics into the market
  • Keynes was for the government running unlimited deficits with abandon, and being wholly unconcerned about inflation or currency debasement

The reality is very different …

Adam Smith: Champion of Regulation … Crusader Against Monopolists and Warmongers

Smith was actually pro-regulation, so long as the regulation benefited the little guy, as opposed to the wealthiest:

When the regulation, therefore, is in support of the workman, it is always just and equitable; but it is sometimes otherwise when in favour of the masters.

He was for regulation of banks, and  supported a ban on high-risk, high-interest lending … the subprime lending of the day.

Smith believed in the “invisible hand” of free market capitalism, but he also railed against:

conspiracies on the part of employers ”always and everywhere” to keep wages as low as possible, and against monopolies and the political influence that accompanies too much concentration of economic power.

Smith also believed that inequality should not be a taboo subject.

And he heaped scathing criticism upon warmongers, and argued that every generation should pay off its own debts, incurred in financing war.

Keynes:  Crusader Against Most Deficit Spending … Critic of Inflation and Currency Debasement

Keynes was for running deficit finance in a depression … but not in normal times:

As a treasury official in the 1940s, he warned that deficit finance seemed a “rather desperate expedient”. He opposed governments going into debt in order to maintain personal levels of consumption. He thought prodigal spending was habit-forming, and destructive of nations as well as of companies and individuals.

Indeed:

The emergency never ends for politicians of both parties. This is how they have bastardized John Maynard Keynes’ theory. They love to implement spending when the economy is in the dumper, but they forget his admonition to pay down debt during the good times. It never happens. There will always be another emergency.

In addition, Keynes didn’t believe that inflation is harmless … as the Fed is today trying to claim. Nor did he believe that currencies could be debased with impunity.  Instead, Keynes said:

By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily ….

***

There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

Postscript: The purpose of this essay is not to endorse either Keynesian economics or pure laissez-faire capitalism. The purpose is solely to give a fuller and more accurate picture of what these two prominent economists actually believed.

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