We are used to thinking that there is progress in knowledge. As we gain experience, the collective wisdom of mankind increases. The story of economics in the twentieth century provides the most amazing example of the opposite: How precious knowledge of vital importance for the welfare of humanity was gained and then lost. Many studies show that a meaningful job is the most important determinant of life satisfaction, and among the thing most desired by the general public. Economists learned how to create full employment, leading to a period of tremendous prosperity. How and why these lessons were forgotten provides a perfect illustration of the thesis that knowledge is shaped to protect the interests of the powerful.
Before the Great Depression of 1929, dominant economic theories stated that the free market automatically eliminates unemployment. Obviously, a theory which does not recognize the existence of a problem cannot provide solutions. Before the Great Depression, the economy was booming, with jobs for all and high levels of production. After 1929, factories lay idle, there was massive and persistent unemployment, and correspondingly high level of general misery. Why did unemployment persist, and how could we get the economy back to full employment of all the resources now lying idle? The revolutionary accomplishment of Keynes was to recognize the source of the problem, and provide an effective remedy.
Keynes argued that the key to the problem was depressed investor expectations about the future. Investors were afraid to produce goods because they did not foresee any demand. If they did take a risk and start producing, the demand would be created, because they would provide jobs to people in the process of production. People with jobs would have income and demand goods. Thus a favorable future forecast would create a self-fulfilling prophecy. People were not demanding goods because they did not have jobs. Producers were not providing jobs because they did not see any demand. This deadlock could be broken by the government in several ways. Lowering interest rates and making money cheaply available would reduce the costs of production, and might induce producers to take a risk on starting investments and production. Indeed, just printing a lot of money and throwing it from helicopters would be enough – people with money would demand goods, and producers would start hiring people to fulfill the demand for goods. The “Helicopter Money” scheme could fail for a number of reasons. The alternative was for government to step into the gap, and start hiring people itself. Even meaningless jobs like digging ditches and filling them up again would be enough to start off a chain reaction which would lead to full employment. Using the secrets of Keynesian demand management, Western governments managed to achieve near full employment, and widespread prosperity for fifty years.
Unfortunately, general prosperity of the 99% does not suit the interests of the 1%. Full employment leads to an unruly labor class, who can walk out of unsatisfactory jobs to find a better one. Secondly, direct government investment can interfere with business profits. Thirdly, before the Keynesian era, politicians understood that business confidence was essential to economic prosperity and votes. Keynes freed the government from this dependence, much to the annoyance of business leaders.
The story of how Keynesian theories were ridiculed and discredited, and completely fallacious pre-Keynesian theories were re-furbished to take their place is long and complex, and cannot be detailed here. The punchline is that the remedies to today’s economic ills are known, but they are not being implemented because they go against the interests of the powerful. There has been a huge increase in debt globally; Debt forgiveness would remove the heavy weight dragging down aggregate demand which is weighing down the economy. Helicopter money is being dropped but into the vaults of the banks instead of the pockets of the public, and Keynes is being blamed for the lack of effectiveness of this ridiculous policy. Zero interest loans to producers are not working, so negative interest rates are being talked about. Meanwhile, everyone ignores the elephant in the room, a fully effective Keynesian theory which explains exactly how we can stimulate aggregated demand to revive the global economy.
Above 700 Words published in Express Tribune on Tuesday 30th For short posts on diverse Topics see my author page on LinkedIn. Other works: Index . More material on Keynesian Economics. Some additional materials for readers of WEA Blogs:
Some of ideas are taken from Kalecki’s insightful note on why captains of industry resist full employment, even though it bring benefits to them as well. There is very strong evidence from multiple sources that their is a finance mafia in operation globally, which thrives on poor economic performance. This enables them to make multi-billion dollar loans and reap in interest payments. Enforcement of austerity is a crucial element in this scheme, since creation of Sovereign money — which is also done indirectly by deficit financing – by states would deprive them of their most valuable weapon — they have money while others don’t. Keeping an economy starved of the money lubricant required for smooth functioning helps the 1% at tremendous cost to the 99%
WEA Pedagogy Blog 
This article does not properly explain what the “capitalists” are doing to spoil the progress of our social system. They are not actually capitalists that are doing it, and it is not about limiting the use of money, but simply about the control of the opportunity through availability of useful land. A wise and sensible government would recognize this. It can be solved by the use of a tax system which encourages the proper use of land and which stops penalizing everything and everybody else. Such a tax system was proposed 136 years ago by Henry George, a (North) American economist, but somehow most macro-economists seem never to have heard of him, in common with a whole lot of other experts. (I would guess that they don’t want to know, which is worse!) In “Progress and Poverty” 1897, Henry George proposed a single tax on land values without other kinds of tax on produce, services, capital gains etc. This regime of land value tax (LVT) has 17 features which benefit almost everyone in the economy, except for landlords and banks, who/which do nothing productive and find that land dominance has its own reward.
17 Aspects of LVT Affecting Government, Land Owners, Community and Ethics
Four Aspects for Government:
1. LVT, adds to the national income as do other taxation systems, but it replaces them.
2. The cost of collecting the LVT is less than for all the production-related taxes–tax avoidance becomes impossible.
3. Consumers will pay less for their purchases due to lower production costs (see below). This means greater satisfaction with the way the nation manages it affairs.
4. The national economy stabilizes–no longer experiences the 18 year business boom and bust cycle, due to past speculation in land values (see below).
Six Aspects Affecting Land Owners:
5. LVT is progressive–owners of the most potentially productive sites pay the most tax.
6. The land owner pays his LVT regardless of how the land is used. A large proportion of the ground-rent from tenants is taken as LVT, with the result that land has little sales-value but a significant “rental”-value (even when it is not used).
7. LVT stops the current speculation in land prices–any withholding of land from proper use is not worthwhile.
8. The introduction of LVT initially reduces the sales price of sites, even though their value will continue to grow over a longer term. As more sites become available, the competition for them is less fierce.
9. With LVT, land owners are unable to pass the tax on to their tenant renters, due to the reduced competition for access to the additional land that comes into use.
10. With LVT, land prices will initially drop. Speculators in land values will foreclose on their mortgages and withdraw their money for reinvestment. Therefore LVT should be introduced gradually, to allow these speculators sufficient time to transfer their money to company-shares etc., and simultaneously to meet the increased demand for produce (see below).
Three Aspects Regarding Our Community:
11. With LVT, there is an incentive to use land for production or residence, rather than it being unused.
12. With LVT, greater working opportunities exist due to cheaper land and a greater number of available sites. Consumer goods become cheaper because entrepreneurs have less difficulty in starting-up their businesses and because they will pay less ground-rent–demand grows, unemployment decreases.
13. Investment money is withdrawn from land and placed in durable capital goods. This means more advances in technology and cheaper goods too.
Four Aspects About Ethics:
14. The collection of taxes from productive effort and commerce is socially unjust. LVT replaces this extortion by gathering the surplus rental income, which comes without any exertion by the land owner or their friends the banks– LVT is a natural system of money-gathering.
15. Bribery and corruption cease. Before, this was due to the leaking of news of municipal plans for housing and industrial development causing shock-waves in local land prices and municipal engineers’ bank balances.
16. The improved use of the more central land reduces the environmental damage due to a) unused sites being dumping-grounds, and b) the current fossil-fuel use when traveling between home and workplace.
17. Because the LVT eliminates the advantage that landlords currently hold over our society, it provides a greater equality of opportunity to earn a living. Entrepreneurs can operate in a natural way– to provide full employment. Then earnings will correspond to the rise in the value that the labor puts into the product or service. Consequently, after LVT has been properly introduced it will eliminate poverty and raise business ethics.
Taxes are not about government income. Taxes do NOT provide “income” to the government. If that is the source of government income then someone has to explain how the government obtained income before spending money into the economy. Taxes do have a function. They can and should provide price stability and they enable the government to redistribute money in the economy by taxing “A” and spending/giving to “B.” In January 1946, in a periodical named “American Affairs”, Beardsley Ruml, Chairman of the Federal Reserve Bank of New York at that time, published an article entitled ” TAXES FOR REVENUE ARE OBSOLETE” in which he explains why taxes do not pay for government operations. His teaching has been forgotten too in this era of rule by accountants. Ruml also argued for zero tax on corporate profits. It is a good argument and those who propose higher corporate taxes should read and ponder his points.