Crony Capitalism Revisited (Is Keynesianism What We Think It Is?)

0:00A few years ago I had an MBA macroeconomics course and I was looking to turn it into a seminar because it was a small group of students and one of the hot books at the time was the book by Animal Spirits by Shuler and Akerlof which purported to give us sort of a Keynesian explanation of financial crises based on psychological imperfections in the human mind and so on. But I also wanted an antidote to this, and I found two books that were extremely clearly written. A third book that I did also use was Meltdown by Tom Woods. You can give me the dollar later, Tom, for that. But I'm delighted to have the author of the two books that I used in that course.

0:49MBA students loved it because they were so clearly written compared to the Schiller-Akerlof bestseller. So, to give the Henry Hazlett Memorial Lecture, we have Hunter Lewis. Hunter Lewis graduated from the Groton School in Harvard University. After working at the Boston Company, which was then one of the largest investment managers, Lewis co-founded and served as the co-chief executive and then chief executive of Cambridge Associates, an investment advisor to American and colleges representing over three quarters of U.S. higher education endowment assets. Lewis has been active in the environmental and natural health fields. He has written for the New York Times, the Times of London, the Washington Post and the Atlantic Monthly as well as numerous websites including Forbes.com.

1:43His books on economics include one of the ones that I use and which I highly recommend which he has graciously donated copies to the attendees here, Where Keynes Went Wrong and Why Governments Keep Creating Inflation Bubbles and Busts and I highly recommend this. He has also authored Are the Rich Necessary, Great Arguments and How They Reflect Our Personal Value and The Real World War. He has also written books on moral philosophy, bringing, I'm sure, the same clarity to these questions as he has done to economics and they include a question of values, six ways we make the personal choices that shape our lives another book called The Beguiling Serpent and then the alternative values is the subtitle I'm sorry that's another book, alternative values for and against wealth power, fame, praise, glory and physical pleasure I'm for all of those things I hope he comes down on the right side also And without further ado, it really is my pleasure to introduce Hunter Lewis.

2:56Thank you, Joe, for your very generous introduction. It's an honor to deliver any lecture named for Henry Hazlitt. He's been a beacon light for me, as for many of you, and also to speak to this group. Some years ago, as I was leaving a radio program, I heard a technician say to the host, I didn't understand a single word he said. I don't think I'll have that problem here today with this group. The major topic today is crony capitalism revisited. Why revisit it? Because David Stockman, whom I've met and admire, gave the Hazlitt Lecture last year and called it Money and the Triumph of Chronic Capitalism.

3:43That talk focused on the crash of 08 and the subsequent bailout. It might seem odd to have two Hazlitt lectures in a row devoted to Chronic Capitalism. So far as I know, Henry Hazlitt did not use the phrase. Nor, so far as I know, did Mises or Hayek or Rothbard. Although, so far as I know, Haslund did not use the term, he was, and through his writing remains, the foremost expert on John Maynard Keynes. And at a deeper level, crony capitalism is Keynesianism, and Keynesianism is crony capitalism. Or, to be more precise, Marxism is to communism, as Keynesianism is to crony capitalism.

4:31One is the sacred text, the other the actual system. The relationship between Keynesianism and crony capitalism is an interesting one, and I'll return to Keynes shortly. But first, a word about the phrase crony capitalism. Where does this phrase come from? New York Times columnist William Sapphire wrote in 1998 that he had traced its first appearance to a Time magazine article in 1981. The article was written by many hands and it is not clear who coined the phrase, if indeed that is the origin. Arthur Kroc, New York Times Washington bureau chief, seems to have coined the phrase government by Crony back in 1946 and it may have been used earlier. Samuel Pepys, the 17th century diarist used the word crony but it wasn't so pejorative in those days. I think crony capitalism is a very useful phrase. My wife has a friend who loves books. When visiting my office he saw a bookshelf and his eyes lit up. Then approaching eagerly he saw they How do we explain Austrian economics to a person like that?

5:57Most people want the elevator speech version anyway. What are you for? And in particular, in today's tabloid media style, what are you against? There are pitfalls anywhere and everywhere. Am I for capitalism? I have to take care with my answer as David Gordon suggested yesterday. It's not just that Marx coined the term, a college professor friend of mine tells me that socialism is the economic system favoring workers, capitalism is the system favoring business owners. I responded no, capitalism is the system favoring consumers, who by the way are also often workers. So as we all know, many people don't have a clue what capitalism is.

6:43How about the term free markets? That's clear enough, isn't it? Well, no. Many people think that free markets refer to a place where you can do anything you want. They think it's the Wild West or maybe a brothel. In reality, of course, free markets operate according to some very specific and binding rules. Ignore them at your peril. Yes, you can be selfish, willful, take advantage of others and put yourself first, but that's a good way not to add to your capital, but to go broke, if not sooner than later. Markets are a place where you put your customers and employees first, or you suffer the consequences. As Mises said, being your own boss really just means that you have many bosses, all your customers.

7:31Markets are in fact a form of self-regulation, and because voluntary it works. This is the only form of regulation that does work, but it's dangerous to use the word regulation. That's become synonymous with government regulation, which does not work, which is oxymoronic. Better to say markets are a form of discipline, especially self-discipline. When speaking to people like my wife's friend, I usually speak of free prices rather than free markets. I sometimes imagine millions of people marching in Washington waving placards that say free prices now. Many people, perhaps most, understand that controlled prices are not such a good thing.

8:17Of course, there are plenty of economists who condemn price controls, love what the Fed does, and don't recognize any inconsistency. These economists are similar to the Occupy Wall Streeters who referred to the New York are fed building as the citadel of capitalism. That would be a good joke if it weren't so tragic. In these great debates, terminology matters. Look how FDR, how far he got by turning the word liberalism, which meant less government on its head, or by sending the word freedom into surgery, where the antecedent two was lopped off. The customary and logical two suddenly became freedom from, as in freedom from hunger.

9:04After this clever switch, an expansion of government became necessary in order to increase our freedom. It's too bad we didn't have Jefferson around at that point to call him down. An old friend of FDR's who went to my boarding school said that he was a champion liar from boyhood. But debates have not gotten any more honest since his time and it behooves us to set a standard both of honesty and clarity in our choice of terms. Mises spoke of capitalism, socialism and interventionism. These are crucial distinctions. Socialism and interventionism are both predatory and parasitical and thus in the long run self-destructive. But interventionism can persist for a very, very long time, living off of but not quite consuming its host, whatever survives of a free price system.

9:59The trouble with interventionism as a phrase, however, is that like capitalism, it requires an explanation and not a sound bite explanation. Crony capitalism has the advantage that people immediately understand that something is wrong and that people operating as crony capitalists may not be what they claim to be and indeed are somewhat unsavory. Now, some people on the Mises website do not like this phrase. People commenting on the Mises website, by the way, are a spirited lot, as I think you know. One, pen-named autocrat, cautions us against any use whatever of the term capitalism. Why?

10:46Because he says state capitalism is redundant, the state will always control capitalism, and So by extension, crony capitalism is also redundant. Autocrat adds that if we must use the word capitalism, we should modify it with the adjective utopian, as in utopian capitalism. Ouch, I don't think there's anything remotely utopian about capitalism, properly construed. I hope Autocrat is not here today. However, another blogger on freerepublic.com says there is There's no such thing as crony capitalism, it's a term created by the left in order to slander capitalism wholesale. Someone agrees it would be better if people on our side refrain from using the left's terminology.

11:37But is this the left's terminology? Noam Chomsky, long-time thought leader of the left, seems uncomfortable with such terms as crony capitalism or greeny capitalism. Why? Because in his view, such terms may confuse people into thinking that capitalism itself is not bad. Another blogger points out, we have something in our language called a qualifier. The word crony totally changes the meaning of capitalism the way non or anti or foe would. Someone else agrees, the two words together cannot possibly be taken as a slam against Another commentator, again on Mises, raises what I think is a very valid point.

12:26He or she argues that using the term crony capitalism is a serious strategic mistake because the phrase can be taken to describe an out-of-control, unregulated market. This is true, just as there are many people today who think the answer to a surfeit of of Spending and Debt is to pour on even more spending and debt. There are people who think that the answer to government economic cronyism is to give the government more power of the economy. So this commentator is right that if we attack crony capitalism, we'll attract some people who have little or no understanding about what causes crony capitalism or what we can do about it. But it's not really hard to explain.

13:13If more and more government intervention in the economy is further corrupting government and business and all the other special interests such as unions and lawyers, even more government intervention cannot possibly be the answer. Some people no doubt will never get it. To provide a moment of light entertainment, I shall read you a few sentences from an article Describing Crony Capitalism in the International Encyclopedia of the Social Sciences, Volume 2, 2008, quote, some sociologists and political scientists have maintained that forms of crony capitalism may be indispensable for capitalist development, particularly when those forms of cronyism help prevent untrammeled corruption.

14:06So you see, cronyism prevents corruption. The article continues, as modern China shows, personal political networks tying central government leaders to regional industrialists may be invaluable in combating entrepreneurial corruption. Right, so big industrialists working with the government combat entrepreneurial corruption. The article continues, Chinese increased movement away from state-owned enterprise has greatly increased opportunities for corruption at the higher ranks of society. Again, sure, if government ownership prevents corruption, then why did the Russians give it up?

14:53The article then really tops itself. Much of the success of the Chinese economy may be due to an uncorrupted political elite. Well, as this audience knows, China is a massively corrupt place, top to bottom. It's our partner in blowing up worldwide economic bubbles, and it's only a matter of time before its present financial system, always insolvent to one degree or another, finally collapses. After reading this last passage from the so-called International Encyclopedia of the Social Sciences, we can all agree that crony capitalism is not a perfect phrase to describe what we are against, but I think it's still better than the alternatives.

15:40Fascism carries far too much non-economic baggage, although I like one blogger's reference to fascism light. Mercantilism is an obscure term for most people and suggests that corporations are somehow the root of the problem or inherently evil. Mercantilism is another alternative. It too is obscure for most people, although it has the advantage that Keynes himself flew this particular flag overhead. That he did so is just one more example of his numerous self-contradictions, and not Not just because he mocked mercantilism in the early years of his career before deciding to embrace it at the end of the general theory.

16:27Note also that in the beginning of the general theory, Keynes says that his ideas will no doubt be rejected because they're so novel and revolutionary. So at the end of the same book, he seems to have forgotten this because now he says he's He's reviving the same centuries old ideas that he had dismissed before as the most absurd fallacies. At least he acknowledges that he's changing his position, although he does not explain how his ideas can be new, revolutionary and also centuries old. This is of a piece with describing himself as a member of the, quote, the brave army of rebels and heretics down through the ages." Even as he recommends policies that appeal to the basest and most self-serving instincts of politicians, and even as he enjoys all the privileges of being at the top of the existing financial and political elite, it may be true, as the art historian Kenneth Clark said, that Keynes, quote, never dimmed his headlights. But it cannot be said that he knew how to drive

17:34on the same side of the road. If we stay with crony capitalism as the least bad way to describe what's wrong with economy, that brings us back to Keynes, since he became the principal apologist for the system. As all of you know, much of Keynes' writing is intentionally obscure, although the threads can be unraveled and rebutted, as Henry Hazlitt so brilliantly proved in The Failure of the New Economics. What I'd like to do in the balance of my time is to ask, what is the very essence of Keynesianism? Can we describe it in the briefest and simplest terms so that anyone can understand what's wrong with it and thus strip away the intellectual fog that surrounds and protects crony capitalism?

18:24At first glance, it might seem that the essence of Keynesianism is simply the endless self-contradiction to which I've already alluded. He was never in one place, intellectually or otherwise, for long. For a further example, he railed at the love of money. He called it, quote, the worm gnawing at the insides of modern civilization. But he also desperately wanted to be rich. He railed against investment speculation, but avidly speculated himself. At one point, he was completely wiped out, and he had to turn to his father, a teacher, for rescue. Two more times he could have been wiped out, once in 1929, again in 1937, neither of which he anticipated.

19:10Cain's relationship with gold is a good example of his continual self-contradiction. In 1922, he wrote in the Manchester Guardian, if the gold standard could be reintroduced, we all believe that the reform would promote trade and Production, like nothing else. A little later, of course, he described gold as the quote, barber's relic. Yet even when he called gold the barber's relic, he privately continued to recommend it as an investment diversifier. When we turn to Keynes' economics, perhaps the most fantastic self-contradiction was that an alleged savings glut, too much supposedly idle cash, could be cured by flooding the economy with more cash newly printed by the government.

20:01Perhaps even more bizarrely, Keynes said that we should call this new cash quote, savings unquote, because it represents saving just as genuine quote, as traditional savings unquote. That is, the money rolling off the government printing presses is in no way different from the money that we earn and choose not to spend. All this new, quote, savings, unquote, enters the economy principally through the mechanism of low interest rates. At this point, Keynes further confounds his forerunners and elders by arguing that it is not high interest rates, as always thought, but rather low interest rates that increase savings, even though we started by positing too much savings in the first place.

20:48Kane's followers echo this even today. Greenspan, Bernanke and Krugman have all written about his savings glut, which is supposed to be at the root of our troubles, and have proposed more money and lower interest rates as a remedy, although they no longer call the new money genuine savings. They prefer quantitative easing and similar obscure euphemisms. Keynesian Gregory Mankiw, one of the two chief economic advisors named by Mitt Romney, has even proposed ramping up CPI inflation to create deeply negative interest rates. He hasn't said how negative, but his colleague Ken Rogoff says probably minus six percent. In other words, today's negative giveaway interest rates are still too low. We are to increase official inflation The General Theory does argue that interest rates could and should be brought to a zero Level Permanently, that's page 220, 21, and 336 in the general theory.

22:18This idea of permanent zero interest rates appears first in Proudhon, although Keynes does not acknowledge or perhaps does not know that. And it does seem absurd on its face, lending money at no interest is equivalent to giving it away, which is of course what Mr. Bernanke is doing, and it's hard to understand how and how anything can have value that's given away. Nevertheless, Keynes said that it would be reasonable to get to zero interest rates and also zero dividend rates within a generation. By that standard, we've clearly failed him because we should have reached that utopia by 1966.

23:03But note that even Keynes did not suggest negative interest rates. The idea of engineered negative interest rates reminds me of a Yiddish phrase, which I've been told may be translated roughly as smart, smart, stupid. It takes very smart people to think it up, but that doesn't mean it isn't stupid. And it's worrying that it isn't coming just from President Bush or President Obama. One can't be surprised in anything coming from those quarters. President Bush, as David Stockman mentioned last year, said that, I quote, I have abandoned free market principles to save the free market system, unquote. His successor, President Obama, said in his first budget message that he was taking us from, quote, an era of borrow and spend to, quote, an era of save and invest.

24:02Wasn't that good to hear. Now we have Mitt Romney not only relying on a retread Bush advisor, but even a proponent of deeply negative interest rates. A very nice man, I might add, but not somebody that we need in Washington again. These Romney advisors also, of course, believe in the fairy tale of borrow and spend stimulus. It's usually forgotten that Keynes assured us that each Each dollar of stimulus would produce as much as $12 of growth, and not less than $4. Even the most ardent Keynesians have of course been unable to demonstrate as much as $1.

24:47How did Keynes know that you could get at least $4 of growth? He didn't. He told the governor of the Bank of England, Norman Montague, that his ideas were, quote, a mathematical certainty. But that, of course, was just a crude bluff. What is empirically verifiable is that all debt, private and public, has been generating less and less growth for decades. In the 10 years following 1959, the official figures say that you got 73 cents of growth for each dollar borrowed. By the time of the crash of 08, that was down to 19 cents, and And I think it was really negative by then, and it's certainly deeply negative by now.

25:35Rather than follow Keynes and his disciples down this and so many other rabbit holes, let's ask ourselves, is there a common theme to this nonsense? And there is a common theme. The common theme is that market prices don't matter. In a system replete with paradoxes, this is the ultimate paradox. In order to fix the price and profit system, we must subvert it. No free price or profit relationship must be left alone. The price-profit system must be poked, pushed, pulled apart, only to be left in complete shambles. The assault on interest rates and currency rates are particularly destructive, but all of this madcap tinkering with prices is destructive.

26:29Is this then the essence of Keynesianism, its blind destruction of the price mechanism on which any economy depends as Mises demonstrated? Yes, but there may be an even deeper essence. When we think of Keynes' headline ideas, they have a kind of formulaic quality. You take a long-established observation, for example, that overspending and debt are the road to bankruptcy and ruin, and turn it on its head. No, says Keynes, spending and debt are the road to wealth. For the Victorians, spending within your means and avoiding debt were not just financial Principles. They were moral principles. Keynes, who was rebelling consciously against these same Victorians, described their, quote, copybook morality, unquote, as, quote, medieval and barbarous. He told his own inner circle, quote, that I remain and always will remain an amoralist, unquote. You will recall Mr. McCauber's famous admonition in Charles Dickens' 19th century History novel David Copperfield, annual income 20 pounds, annual expenditure 19.19.6, result happiness, annual income 20 pounds, annual expenditure 20 pounds, ought and six, result

27:54misery. Kane certainly subverted that idea. In particular, he insinuated the very odd, but now very prevalent idea that old-fashioned Wisdom and morality is out of date, even a bit retarded, and odd or still, even in conflict with science. This is all nonsense, but it permeates our culture. And the very people who preach honesty and sustainability outside of economics, for example, in our treatment of the environment, entirely fail to understand that Keynes is preaching dishonesty and unsustainability in economics. So in conclusion, when we strip down Keynesianism to its very essence, the relationship to crony capitalism becomes even clearer.

28:47Crony capitalism represents both a corruption of capitalism and a corruption of morals. Keynesianism also represents both a corruption of economics and a corruption of morals. Many capitalism and Keynesianism are just two sides of the same debased coin. Thanks for having me. Do we have time? So I hope we have time for a question or a comment or even better a contrary observation. Back in the Middle Ages, they had good understanding of some of the biblical values in the Old Testament related to no usury and everything like that.

29:36There were two groups of people who couldn't be buried in cemeteries with ordinary good people. Those were the moneylenders, the usurers, and the middlemen. Now, if we had that same rule and effect, it would have to be a cemetery from San Francisco to New York City, about 100 miles wide. And that's part of the reason I think we're in the difficulty we're in. But there should be something, it shouldn't be allowed for the, I mean, people can borrow money at interest if they need it to do something, but the loaning of money at interest to member banks or the Federal Reserve in a collective nature like that, puts everybody in debt, that should be absolutely prohibited, right? Well, we actually got into this yesterday with David Gordon's talk when he was talking about Judaism and capitalism, lending and so on. But, I mean, to me, in 2008, with all the immoral behavior that was going on, the behavior that struck me the most immoral was when the Federal Reserve decided to make Goldman Sachs a bank and to give them access to the Federal Reserve borrowing window.

30:34So Goldman Sachs, the chief speculator in Wall Street, could then borrow newly printed money from the Federal Reserve at no interest at all and speculate with it, which is exactly what they did. And so then later, of course, Goldman Sachs said, oh well, you know, we paid back all our TARP money, but to this very day, they're still borrowing money from the Fed window and speculating with it. So, you know, to me, that is just such a shocking dereliction of any kind of moral duty on the part of the Fed. The group, I think it's called the Bloomberg group that Keynes was a part of, they always seem to get a slight kick out of always being the contrarians in the room, the ones who said that, oh, I'm sorry, the ones who said that society isn't really as great as we think and we have a new revolutionary idea.

31:27Could that be a part of what led Keynes to say the exact opposite of what actually should be done? I mean, that it was just some sort of ideological pursuit of contrarianism. Yes, and it also had the element of wanting to be sort of the smartest student in the room. He was kind of the student in the classroom. He always had his hand up to tell the teacher that he got it wrong. and he was always searching for something that he could say that would shock conventional wisdom and at the same time that he could somehow impress them as being completely true. So this was one of his great pursuits in life. And again he had this conflict in that he wanted to be the heretic, he wanted to be the bad boy, he wanted to be the moralist, he wanted to be outside the pale and on the other hand he wanted to be a member of the establishment he wanted all the privileges

32:26he wanted to be a lionized he wanted to be a media figure so you know both themes were going on at the same time. Hi my name is Walter Block thanks for your wonderful lecture. I join you as a fan of Henry Hazlitt and an opponent of Keynes of course. My comment is the bad guys not only do they steal our money but they try to steal a lot of words for example we used to be the liberals we're no longer they're trying to steal libertarianism from us they have no limits as to what they're going to steal some Austrian economists want to jettison the Austrian name call it market process or God knows what they keep changing that maybe it's coordination economists or economics so I wanted to congratulate you for standing up for capitalism or whatever What are the words we can use? Because if we can only fight the battle of ideas with words and if they keep taking words away from us, we're not going to win.

33:25Well, first of all, I'm a fan of yours. Second of all, that was really my principal theme that I was opening with because I think we need to concentrate on words more. We need to really consciously think about the words we're using and we need to try to unite in terms of what words we're using and we need to propagate them and we need to fight and not let other people steal them from us. And that's very important if we're going to win the battle of public opinion. Yes sir, you touched briefly on the esteemed Dr. Bernanke's quantitative easing policies. A recent Federal Reserve arbitrated audit of the Reserve system revealed that there were 16 trillion dollars in what you could term shadow bailouts.

34:15Let's see, you know, they were all issued to the likes of like JP Morgan Chase, Goldman Sachs, Tiddy Group, you know, the crony commercial banks that work under the central banks, keeping in mind that the audit was both partial and arbitrated by the Federal Reserve, do you find it likely that the World Reserve Petrodollar is in fact already hyperinflated, but the liquidity necessary for it to become apparent in the market just hasn't been released into the money supply yet? Is that feasible? Let's take several points at a time here. First of all, Mr. Bernanke, of course, got very outraged over those figures being put about, because he said, we didn't have 16 out at the same time.

35:06We had a certain amount out Tuesday and a certain amount out Wednesday, and you're accumulating it. but it was certainly trillions anyway and he was certainly enriching a lot of people who didn't deserve to be enriched and he was impoverishing people who didn't deserve to be impoverished at the same time so that's certainly true now in terms of this question of liquidity showing up you know in different forms of inflation of course it has principally gone into asset classes as has has been pointed out, it has principally not gone into commodities, but I tend to agree with John Williams, I'm sure you're familiar with the shadow stats website, that the commodity inflation is grossly under-reported, and I've looked into this and I think he's right, that if you applied the earlier methodologies, particularly the pre-Clinton methodology, for some reason under President Clinton, they changed the methodology in inflation and unemployment particularly. Don't know why that happened under him. But if you go back to the earlier method,

36:15commodity inflation is higher than is currently reported. And that's not just in oil, I mean that's that's in everything. And then of course also when you get into the the different you know where the inflation is and where the inflation isn't, in order even to get to the reported level of inflation you have to have tremendous inflation going on in some sectors with so many others deflating. I'm not sure I covered all of your points, but... Mr. Lewis, I think I remember reading Haslett saying that he thought that the general theory was sort of a bad joke that Keynes is a joke. Do you put any credence in that? Because Haslett wrote that, and I was kind of surprised. Well, no, I don't think it was a bad joke, and I don't think Haslett meant it was a joke. I think that Haslett meant that Keynes thought he was kind of putting one over, you know, and that I think Keynes wrote that book, The Way a Lawyer Writes a Brief for a Client. You know, he just sort

37:13of grabbed everything he could think of and threw it in and made it as obscure as possible so you couldn't quite follow it. And the objective was simply to support certain policies, which of course he had already arrived at previously. So it was kind of a brief in that way. And I do think that had Keynes lived, then he would have written different briefs, which which would have been entirely different and what is today Keynesianism would not exist as a result. I think he was already getting worried and upset by the way Keynesianism was being interpreted when he died. I just have a question. I know that the word Keynesian, there's a lot of so-called Keynesian School of Economics. There's the post-Keynesians, the neo-Keynesians, the new Keynesians. Do you really think that in the end they're all saying the same thing or do you think Do you think that there are different strands of so-called John Maynard Keynes' thought?

38:07Well, I think there are unquestionably different strands and there are important differences and important distinctions and so on. I often point out that even Mundell or Friedman and people like that are not, you know, they're sort of half Keynesian themselves. So, but in general, despite all these differences and similarities, and I would invalidate the similarities more than the differences, in the end, it all kind of falls together as a support system for what I was calling crony capitalism. And there is a consensus, and the consensus is very destructive, particularly destructive of billions of people's lives who are living on a dollar and two dollars a day around the world.

38:58You know, those people are really suffering because of these ideas being propagated, and there's more in common than there are differences. And I think it's proper to describe it all as broadly Keynesian, and even to describe, you know, many of these conservatives, so-called conservatives, as half Keynesian or three-quarters Keynesian, or in the case of Romney, you know, or in the case of George W. Bush, 100% Keynesian. Yes, sir, I was wondering if you could briefly elaborate on one point you made. You mentioned 1929 and 1937, which were both recession years, and Keynes missed that, unlike some of the Austrians who did see the 29 event. Could you just briefly comment on that passing reference you made?

39:43Sure. Keynes had no idea that 1929 was coming, unlike Mises, who of course did, and so he He was caught, and he was speculating, he was very leveraged, he always borrowed a lot of money in his investments, so he was almost completely wiped out again. It wasn't so bad as the first time he was totally wiped out and had to go to his father, but he was down, I forget what the number is, but let's say at least 60, 70%, something like that. It's also interesting that when 1929 happened, Keynes did not recommend stimulus. and he recommended lowering interest rates and he said, if we lower interest rates that will cure the problem, we don't really need to do anything else. So it's only later that he changed his mind and decided that stimulus of the sort that we know today would be a good idea.

40:37I asked Jim Rogers if Austrian theory had any factor in making investment decisions and he said none. He said theory doesn't matter in making investments decisions. How How does Austrian theory play at all in your role as an investment advisor in making investment decisions and asset classes and specific assets to purchase? It's very interesting because I know Jim and I respect Jim greatly and I'm surprised that he said that because I find Austrian theory to be invaluable in my investing. It's only because of my, of what I've learned from Austrian economics, that I knew that the crash of 07, 08 was coming, for example, and that was very useful information to have.

41:29It certainly led me to buy gold, you know, back when it was $250 an ounce. Gosh, you know, it's been a tremendous help. So I'm surprised that Jim said that and of course one of the advantages is that since so few other people you know have seen the light of course it gives you a great investment advantage as well because in investments it's not the insights you have, it's the insights you have that others don't have which enable you to make money. Look, I wanted to ask you to comment on the 1933 article by Keynes, National Self-Sufficiency, which is sort of, the people who are Keynesians distance themselves from that article, they don't mention it really, in which he said something like he wished Mussolini and Hitler well in their experiments, and he said we have our own experiments in view, and he says anything, any experiment is better than that good old Wall Street rationality, or something to that effect.

42:33Could you comment on that? Yes. Well, first of all, of course, it's no surprise that the only piece of Kansas' collected writing that didn't make it into the official collected multi-volume set was the introduction to the German edition of the General Theory, which nobody really wanted to reproduce, because it was written in complimentary terms about the fascism going on under Hitler. But in general, In general, Keynes's attitude toward protectionism was, again, on and off. He was against it, he was for it, and he was very much for it, and he fought vigorously for it, and he was for all sorts of different forms of it, and then, of course, as we go into Bretton Woods and so on, now he's against it again, and he's back for free trade.

43:26So he just went all around the block on that subject. I think that most Keynesians today just ignore that phase of Keynes, and it's well that they do. What we need to do is ignore all the phases. The Smoot-Hawley tariff in the 30s was not a macro problem, I guess, or more of an international problem. But what would be your empirical assessment as to how much harm that tariff did, and what What is your assessment nowadays with this buy American kind of stuff in the modern day? How serious is that? How badly will that exacerbate the macro problem? Well, let me start with the back end of that. I think that most of the protections in today is just through currencies and that that's the overwhelming factor and it's tremendous.

44:20We have a tremendous amount of protections going on right now with all the controlled Currencies and Manipulated Currencies, and that's really what's behind it, so that it's not that different from what was going on in the 30s. And see, the first part of your question was the Smoot-Harley. That's an interesting question, particularly interesting, because people like Steve Forbes, who are not Austrian have to come up with some explanation for why the crash happened. And of course, Smoot-Hawley was passed after the crash. So they say, oh, well, you know, the market is anticipating. And so they knew that that was gonna be passed. And therefore the 29 crash happened because of the worry about Smoot-Hawley in Congress.

45:08I mean, they have to come up with something because they don't have proper Austrian theory to explain to them, you know, why the crash happened. But of course, so I don't look at it that way. To some degree, people think in words and all these changes that you were talking about, liberal and liberalism having different meanings as 10 years go by, it's the opposite meaning. There was a Soviet KGB man by the name of Yuri Bezmenov, he was interviewed by G. Edward Griffin on ideological subversion as a thing that they were imposing on the United States. the Lavrenti School, Beria School of Psychopolitics, the Tavistock Institute, and he was talking about how it would take essentially a generation to get all that confusion of the words in the minds of people so they wouldn't be able to understand their way out of a bad situation and about generation to get them back to normal thinking if they were given those types of things. So communism is not dead. That's what the perestroika deception is all about. The book by Anatoly Golitsyn, he was the only legitimate KGB detector. This stuff is being done by Tavistock,

46:14and the Black-Lavrenti School of Psychopolitics in Russia, ideological subversion make it that we can't understand what's going on. That's why so many people don't understand what's going on. Well, I think it's just, you know, we have Orwellian language. And it's not just communist, unfortunately, it's here in the United States. Most of the political conversation right today is totally Orwellian. I mean, when President Obama gives his first budget message, as I alluded to, says that, you know, I'm going to replace borrow and spend with save and invest. And then it's not just what he did subsequently. You can look at the actual budget he was presenting in that budget message, which had nothing whatever to do with what he was saying. So you say one thing and you do something totally different, and that's just the Orwellian level that we're at.

47:05Roy Pridado with John Locke Foundation. Another part of Keynes's thought that Keynesians don't like to acknowledge is that he was a huge fan of eugenics, was on the first treasure of the British Eugenics Society. I was wondering, do you see any connection to his strong belief in eugenics and his economics, or do you just view them as two totally separate pieces of his worldview? Yeah, I mean, I wouldn't say that he was a strong or major fan of eugenics. I think he just sort of took that for granted, as a lot of people did in that day and age. It's like his anti-Semitism, it wasn't really something he thought about, it was just something of kind of part of the air he breathed, part of the cultural background, that of course there were superior races and of course, you know, you needed to get more of that and less of the other and, you know, that was just part of his time, I would say.

48:02And I don't think it's a major part of his psyche or his work. I would like to go back to the beginning of your talk where you discussed the usage of words. I noticed that some writers operate with this expression, welfare capitalism. What do you think? Could it be used successfully if people are on our side or it's less loaded, less powerful than crony capitalism? Because welfare capitalism, I think by using welfare capitalism, you can target Two evils, the first corporate welfare and excessive public welfare. What's your take on this? Well, unfortunately, you have to define it. You have to say welfare for the rich or better welfare for the undeserving rich. It's not a quick and easy phrase. You've got to explain if you're talking about welfare may sound good to a lot of people. One of the underlying problems One of the problems here again is that so many people think that the rich are the problem, that they're getting richer and richer and richer, and the poor are getting poorer and

49:12poorer and so on, that they don't understand that they're deserving rich and undeserving rich, and that the problem is that the undeserving rich are getting so rich thanks to their relationship to the government, which is emblematic of the crony capitalism going on. These are all subtle distinctions and it's hard to get one slogan that captures it all. I think there's a case to be made that the term capitalism was originally used by classical liberals to mean something like crony capitalism. You look at the way that, for example, Thomas Hodgkin uses it, and then Marx in effect steals it from us and uses the term to mean the free market, as though to imply that the free market by its nature privileges capital at the expense of labor.

49:57So, in effect, if we use capitalism to mean this business is more in favor of, we may in effect be letting ourselves be duped by Marx. Well, you know, I was not aware of any antecedent reference to Marx, so is that right that somebody used the term before Marx? Yeah, there are a number of references, but Hodgkin is one of the ones. And how much earlier was he? Thomas Hodgkin, he was writing in like the 1820s, 1830s.

50:31Marx quotes him, though, completely misunderstands him. Deliberately or accidentally, I don't know which. I didn't get into the question of what we say we're for. I just got into the question of what we could say we are against, because I don't know a quick and easy and descriptive way to say what you're for. But I think we can, I come down on the side of saying that crony capitalism is a good description of what we're against. We have time for one more question. In the general theory, Keynes supports fiscal surpluses in the boom time as to regulate the economy. This obviously hasn't been incorporated into his intellectual descendants. Do you think that this is even more evidence that Keynesianism is just a scapegoat or a way to sneak in bigger government programs without the fiscal responsibility?

51:25And also in Human Action, Mises wrote an excellent chapter debunking even the, the chapter was called the Chimera of Contrapsychical Policies, I think. Do you think, but do you think this is a scapegoat for a bigger government? Well, I think it's largely a myth that, you know, Keynes wanted to have fiscal surpluses in good times. It's more of an inference. He was so concerned with the problem of the moment, you know. He was always focused on the immediate moment and so on. So he was just thinking about the depression. He wasn't really thinking about what would happen later and under other circumstances and things. So you have great difficulty, you know, finding passages that support what you just said. And when you do, you know, you could argue whether he's really saying that or not.

52:11So I think that that's really a misconception, that that's more that the later people come along to tidying him up. And so they say, oh, we're going to have surpluses and, you know, during the good fiscal times and that'll offset the deficits and so on. And of course, it's never happened anyway, and it never can happen. So in a way, who cares? Thank you very much, Hunter, for a great stimulating session.