I – Classical Economic Theory
It is my goal to reconstruct some basic truths regarding the process of economic development and the role played in it by employment, money, and interest. These truths neither originated with the Austrian school of economics nor are an integral part of only this tradition of economic thinking.
In fact, most of them were part and parcel of what is now called classical economics, and it was the recognition of their validity that uniquely distinguished the economist from the crank. Yet the Austrian school, in particular Ludwig von Mises and later Murray N. Rothbard, has given the clearest and most complete presentation of these truths (Mises [1949] 1966; Rothbard [1962] 1970). Moreover, that school has presented them their most rigorous defense by showing them to be ultimately deducible from basic, incontestable propositions (such as that man acts and knows what it means to act) so as to establish them as truths whose denial would not only be factually incorrect but, much more decisively, would amount to logical contradictions and absurdities.[1]
I will first systematically reconstruct this Austrian theory of economic development. Then I will turn to the “new” theory of J.M. Keynes, which belongs, as he himself proudly acknowledged, to the tradition of “underworld” economics (like mercantilism) and of economic cranks like S. Gesell (Keynes 1936). I will show that Keynes’s new economics, like that “underworld” tradition, is nothing but a tissue of logical falsehoods reached by means of obscure jargon, shifting definitions, and logical inconsistencies intended to establish a statist, anti-free-market economic system.
I.1 Employment
“Unemployment in the unhampered market is always voluntary” (Mises [1949] 1966: 599). Man works because he prefers the anticipated result of doing so to the disutility of labor and the psychic income to be derived from leisure. He “stops working at that point, at which he begins to value leisure, the absence of labor’s disutility, more highly than the increment in satisfaction expected from working more” (ibid.: 611). Obviously, then, Robinson Crusoe, the self-sufficient producer, can only be unemployed voluntarily, that is, because he prefers to remain idle and consume present goods instead of expending additional labor in the production of future ones.
The result is similar when Friday appears and a private-property economy is established, based on mutual recognition of each person’s right of exclusive ownership over those resources which he had recognized as scarce and had appropriated (homesteaded) by mixing his labor with them before anyone else had done so as well as ownership of all goods produced with their help. In this situation, not only exchange ratios — prices — for the purchase or rental of material goods become possible, but also prices (wages) for the rental of labor services.
Employment will ensue whenever the offered wage is valued by the laborer more highly than the satisfactions of leisure or than the returns of self-employment. In the latter case, the laborer faces three choices. He may
- work self-sufficiently on his own resources, or homestead previously submarginal resources, and consume his own products;
- become a capitalist entrepreneur, engaging in barter with other self-employed entrepreneurs; or
- become a capitalist entrepreneur in the market, selling a product for money.
Employment will increase and wages rise so long as entrepreneurs perceive existing wages as lower than the marginal value product (discounted by time preference,[2] which a corresponding increment in the employment of labor can be expected to bring about. On the other hand, unemployment will result and increase so long as a person values the marginal value product attained through self-employment or the satisfactions of leisure more highly than a wage that reflects his labor services’ marginal productivity. In this construction there is no logical room for such a thing as “involuntary unemployment.” Continue reading . . .
