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Economic quackery

By Justin Jefferson - posted Friday, 17 April 2009

Government can not "heal the economy"

We already know that total government control of the economy does not work. More than a hundred million lives were sacrificed in the 20th century to the communist and socialist experiments, which produced only totalitarian fascism, widespread poverty, human rights abuses and environmental degradation.

But what many people do not understand is that total government control of the economy not only doesn’t work - it can’t work. This is because, in order to distinguish a more from a less economical way of using resources, we need some common denominator. Under a system of the private ownership of the means of production - capitalism - that common denominator is money, and the means of economic calculation are prices.

But when government owns all the capital, there is no market for capital goods, therefore no prices, and therefore no means of economic calculation. In the absence of markets, governments are flying blind. As they have no means of economic calculation, they can only use political favouritism, or rules and regulations as their guiding star - or watch the growing queues. The economic chaos that results is not some kind of strange coincidence as socialists seem to believe: socialism is not “a good idea in theory”. They have nothing else to offer but the systematic violation of property rights. It doesn’t work in practice because it is wrong in theory.


Many people also do not understand that, when we switch to government having partial control of the economy, exactly the same problem affects everything it does. The whole purpose of any government intervention is to force prices to some other level than they would otherwise be. But in the absence of prices, government has no means of economic calculation and can only cause more or less economic and social chaos.

Underlying the belief that government needs to “do something” to heal the economy is a belief that government has a reserve of economic super-competence over and above the need for economic calculation. This belief is not reality-based and is in fact nothing better than a modern superstition. The closer we approach the final state of total government control of the economy, the greater the economic chaos becomes, because economic calculation based on market prices becomes more and more impossible, and government has nothing to put in its place. The economic and moral chaos of the recession is because of, not despite, government’s “economic management”.

Why stimulus packages don’t work

Since the Australian government’s $10.4 billion economic stimulus package in late 2008, the economy has shrunk by 0.5 per cent. Similarly in the USA, as at March 2009, the government has spent $11.7 trillion on “stimulus” packages, while unemployment continues to soar.

So obviously these stimulus policies aren’t working.

The reason they don’t work is because, when the government injects money into the economy, it gets the money by taking it from the economy. This makes no more sense than drawing blood from a man’s leg and injecting it into his arm to “stimulate” his health. It’s not science, it’s quackery.

The government-funded economists who directed all those presumptively clever central banks, treasury departments, and economic academies have just presided over the biggest destruction of wealth in the history of the world. What credibility do they have? If they were right (a) we wouldn’t have had the problem in the first place, and (b) their cures would have worked.


Their leading light, John Maynard Keynes said: “Pyramid building, earthquakes, even wars may serve to increase wealth … [if politicians can't think of anything better to spend the money on]."

Thus according to Keynesian theory we can increase society’s wealth by burning down our houses, because this will create “jobs” to re-build them. We as a society can generate wealth out of thin air just by printing paper. We can all get richer by taking money from productive people and pay it to make a loss digging holes and fill them in again.

Don’t laugh. Beneath all the mathematical models and jargon, these simplistic, childish notions dominate economic policy discussion at the highest levels.

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About the Author

Justin Jefferson is an Australian who wishes to show that social co-operation is best and fairest when based in respect for individual freedom.

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