06. Keynes and the 'New Economics' of Fascism (video)

0:00Okay, the topic of this afternoon's lecture is Keynes and the New Economics of Fascism. And I had given two core articles to read, one on Keynes, the development of Keynes' thought, and one on the, I forget actually the name of it, but it had to do with how monetary inflation is one of the key ingredients in bringing about economic fascism in a nation. And the connection between the two articles, they don't seem to be connected. One is really a history of the intellectual development of John Maynard Keynes himself and how by the time of the general theory he had begun to advocate thorough going controls over the economy.

0:48Not the types of controls that his followers emphasized, controls such as just on the macrosphere, but really thorough going controls that controlled investment. He talked about the socialization of investment. His followers tended to ignore that chapter, which was really the last chapter in the general theory. But Keynes was dead serious in that chapter in advocating these controls as a way of abolishing the scarcity of capital. He really fought that within a generation or two, there would no longer be scarcity in his sense, meaning everybody would be provided for their basic needs. There wouldn't be enough output for frivolous needs, but according to him, food, clothing and so on, the necessities would be provided and you needed to push the rate of interest down to zero to get that to happen.

1:43After which you'd move into a millennial period, a paradise on earth, according to Keynes, and he's very serious about this, in which people would stop being so concerned with the future and with production, which he saw as a moral failing. And they would be more concerned with the present, beautiful mental states. And these mental states were things like contemplating fine art, going to the ballet, interacting with your loved ones, and so on. So there would be no distinction between means and ends. There would be no economization. He hated monetary calculation. He thought it was only necessary in a period of scarcity and that this period, the state could bring about a shortening of this period and in the 1920s he believed capitalism, though it had a lot of unlovely aspects to it, was necessary to bring this about, but by the early 1930s he began to change his mind, he began to think that the state could hasten the era of the paradise on earth and he then,

2:53and, as I said, advocated these thoroughgoing controls of the economy. That's really the first article I gave you to read. Now, his followers, the Neo-Keynesians, Paul Samuelson, James Tobin, Walter Heller, those followers who had worked in World War II in the warfare state, as basically socialist planners, most of them did, they in the 1960s came to power with the Kennedy administration. And that's where I really want to start my story. They jettisoned Kane's sociopolitical view, but they still held on to aspects of his economics, which, as I'll show you, really is a form of economic fascism.

3:44And we had a development towards economic fascism in this country that had culminated in 1971 with Richard Nixon's imposition of wage and price controls, or the wage-price freeze. So I want to focus on that part of the topic. And I want to ask the question, what is economic fascism? I mean, fascism is a strong word. And if you were on college campuses in the 1960s and 1970s, it was thrown around very lightly. Anything that you didn't like about another person's ideological vision, you would designate that as fascist. So it is a strong term. It's got to be carefully defined to be scientifically useful. The best definition of fascism, I think, was given by John Flynn, the great American journalist and essayist of the old right, one of Murray Rothbard's favorites.

4:39He wrote a classic work which I recommend to everyone. It was called As We Go Marching. It was published in 1944 and what Flynn did was to enumerate the essential ingredients of fascism. And he did that by looking back at fascist Italy and seeing what the essence of the economic system of fascist Italy was. And he said there are four characteristics or ingredients of economic fascism. The first is spending borrowing government, which borrowed and spent huge sums on welfare programs, which he called planned consumption. Secondly, militarism becomes an economic institution, a way of stimulating production in the economy.

5:28Imperialism becomes the handmaiden of militarism, which is basically, in Italy's case, taking over Albania and Ethiopia. I think they were beaten back by the Ethiopians. But in any case, you have this global military adventurism. So you have an expansion of the warfare state, and you have the welfare state. The welfare state, you have the planned consumption that is financed by spending and borrowing by government. And finally, a planned economy involving systematic government interference with prices, wages, rents and interest rates. Now, Flynn referred to these four ingredients as the prologue to fascism. He believed that there were two more ingredients that you needed to have full political fascism.

6:16The first was the totalitarian state and the second was a dictatorship, or the leadership principle. Principle, the Fuhrer in National Socialist Germany and Il Duce, the leader, in Fascist Italy. But you can have economic fascism as a prologue to this. You can still have mass democracy. You can stop short of having full political fascism, although you have progressed to the point of economic fascism. Now, so far so good, but Flynn did make a mistake in further claiming that economic fascism, which was the first four ingredients I mentioned, could not last very long, okay, unless it was ruthlessly imposed by totalitarian states, so he felt the following, that at some point people were going to rise up because of the high taxes necessary to finance the militarism, the global adventurism, the planned consumption, or today we would call it the and Social Welfare Programs, that there would be a glorious tax rebellion and either it would succeed and they would throw out these fascist programs and the government had implemented them or a totalitarian dictator would rise up and crush them.

7:35So he didn't see anything in between. He thought that in the short run you were going to either get full fascism or you were going to get a movement back toward the free market. Now what he failed to realize, and he wasn't an economist, he left out as one of the ingredients of economic fascism, monetary inflation. Because with monetary inflation, if you have a central bank that continually can increase the money supply, and Money Supply, you can hide the costs of economic fascism, as the American state did, for example, during the Vietnam War, they hid the costs from us, and they also hid the costs of World War II, by paying for most of these costs in World War II, certainly, with monetary inflation.

8:30So if a democratic government could finance its deficit spending on domestic welfare, so-called butter, and on imperialist military adventures, guns, through money creation, it could effectively hide the true cost from its citizens for many years. So you wouldn't necessarily have to progress all the way to political fascism, or to full fascism, or have people rise up and attack people. You can have the secret inflation tax, which, as we saw with Mises' step-by-step analysis, redistributes income to those who print the money and receive the new money first. Now that was one problem. He left out monetary inflation.

9:16A second problem with this definition is that it does not provide the causal mechanism by which huge government deficits and spending programs transform a free market economy or a relatively free market economy into a planned economy. Because deficit spending and massive budgets do not directly result in the abolition of markets and prices. So once again, monetary inflation explains or provides the explanation. Once people become aware of the consequences of monetary inflation, particularly the rapid increase in prices, at that point the government begins to become very unpopular and its programs begin to become very unpopular.

10:02So it may react, and it does react, by trying to suppress these symptoms of inflation, defining inflation now in the Austrian census increased the money supply by imposing wage and price first voluntary wage and price guidelines as the Kennedy administration did in the 60s and then later by imposing mandatory wage and price controls as the Republican administration did in the early 1970s okay but once you have these these mandatory wage and price controls which control which which are imposed in all markets you have effectively the The abolition of the free market economy and, if you don't reverse this or get rid of them quickly, you have central planning.

10:48So, contrary to Flynn, whose definition I hail, I think it's a great definition, he just leaves out monetary inflation as one of the characteristics or one of the ingredients, economic fascism will not necessarily give rise immediately to dictatorship or be destroyed by political forces, such as a tax strike. It will evolve slowly as monetary inflation and the consequences, the rising prices bring about more and more thorough going interventions into the market economy. So to illustrate this thesis, what I want to do is survey the march toward economic fascism in the US from John F. Kennedy's New Economics to Richard M. Nixon's New Economic Policy. Let me just talk a little bit about the new economics. The new economics was the name given to the Keynesian economic policies that were implemented during the Kennedy administration.

11:46And as Murray Rothbard once pointed out, Keynesian economics is really the economics of power. It sets up the economist as some sort of a social and economic engineer, someone that can fix the problems that face government. and Face Government. And this was the dream of economists from the progressive era, late 1800s, early 1900s, all the way through World War II. And during World War II, they showed their value to the state as technicians in running the great American military state. But what they wanted was this power to continue into wartime. They wanted these positions and they wanted the lucrative salaries and the prestige that came with these positions in government to continue on to be a permanent thing.

12:39So Walter Heller, who was Kennedy's head of the Council of Economic Advisors, the chairman, wrote the following, Economics has come of age in the 1960s. Two presidents have recognized and drawn on modern economics as a source of national strength and presidential power. These are profound changes. What they have wrought is not the creation of a new economics, but the completion of the Keynesian Revolution. So he saw this coming to power of economists as the true completion of the Keynesian Revolution. It was really a seizure of power by economists, putting them on a par with lawyers. And they have put the political economists at the president's elbow, and that was the key.

13:29Now, let me talk a little bit about the blueprint. The blueprint comes from these neo-Keynesian economists, New Keynesian Economists, not to be confused with New Keynesians, who arose in the 1980s. As I said, they weren't interested in Keynes' sociopolitical vision of getting rid of all scarcity, but they were very interested in the conceptual tools that Keynes developed. So one thing that they focused on was the so-called output gap, and they kept claiming during the campaign. Kennedy kept claiming, at the behest of his economic advisors, that there was an output gap, a terrible output gap during the Eisenhower administration. And what that meant was simply this. There was a difference between actual GNP, back then it was GNP, not GDP, which was total output, what was being produced, and what could be produced if we had full employment in the economy.

14:28Economy. And they arbitrarily define this rate of full employment for the American economy as 4%. It was 5.5% in the late 1950s, early 1960s, so they claimed that there was an enormous output gap. If we could put back to work 1.5% of the workforce, those people that were cyclically unemployed, unemployed as a result of a low level of aggregate demand, then we would close The New Economist claimed that the state of the actual budget was irrelevant. It doesn't matter if you have a huge deficit, because if you have an output gap and you're able to implement Keynesian methods to close this output gap, then as income increase, tax revenues would increase.

15:15Because if you have an output gap and you're able to implement Keynesian methods to close this output gap, then as income increased, tax revenues would increase. So at full employment, the deficit would disappear or maybe even turn into a surplus. So they were always talking about the full employment deficit or the full employment budget. So there was a deficit, but there really wasn't a deficit. If you had unemployment, even though there may have been a huge excess of government expenditures over tax revenues, don't worry about it. Once we implemented the right policies and there's an increase in output, tax revenues will increase as people's incomes increase and the deficit will be closed. So it was a mirage to the deficit.

16:03Then we had the Phillips Curve trade-off. Keynes told us that if there was insufficient spending in the economy, you would have a and Possibly Falling Prices. However, if there was excess spending in the economy, if spending went past the point where you put everyone back to work, prices would begin to rise. Well, how would they explain a situation which did exist in the 1950s, in which we did not have full employment as they would define full employment, but we did have rising prices. So we did have a bit of inflation in the 1950s.

16:48in the 1950s. This was a living reputation of Keynesian economics, and they had to come up with a fallback position, and this was the so-called Phillips curve trade-off. By the way, just to give you the statistics, in 1958, unemployment was 6.8%, quite high, and inflation, prices were going up at almost 2%. In 1959, it was still 5.5% as it was in 1960, and inflation was still around 2% and 1.5%. Well, how could that be? And not only how could that be, according to Keynesian economics, but how do you get rid of it? If you try to lower unemployment by deficit spending, according to the Keynesians, you would increase inflation while you get rid of unemployment.

17:36On the other hand, if you try to decrease inflation and back then, it's a great era back then, 2% increase in prices was considered a fairly high rate of inflation. If you tried to fight inflation and ran surpluses and tried to siphon spending out of the economy, then you would lower the aggregate demand and you would increase unemployment. So anyway, the New Economist devised this absurd concept of cost-push inflation to explain this phenomenon. What they claimed was that, well, the inflation part of the situation was to be explained not by excess spending, especially not by the increase in the money supply, which they almost never talked about back then, But by greedy unions and greedy businesses that wanted to raise their wages and prices.

18:34And therefore they were pushing up costs, and at the same time as they pushed up costs, they were causing greater unemployment. So, they said that the government had a menu, and that menu was this. You can have less unemployment, but you have to be willing to accept more inflation. That's a Phillips curve trade-off. On the other hand, if you wanted to have less inflation, well then you'd have to make the unpalatable choice of having more unemployment. The Keynesians were always in favor of reducing unemployment to some minimum level and whatever rate of inflation we got, well, we had to live with. Well, not actually had to live with because that was their third point.

19:19They said, you know what, the market economy would be amenable to wage price guideposts, they called it. So the government will suggest the rate at which prices should rise. It will suggest that to big business. It will suggest to the unions the rate of increase in their wages. And the guideposts that the new economists had implemented during the Kennedy administration was set according to what the productivity of labor was, okay, so if labor was becoming, and they gave the figure 3.2%, 3.2% more productive each year, that meant that wages could rise by 3.2% and no more than 3.2%, okay, on the other hand, prices had to fall in those industries which had productivity growth because their costs were falling, So they would suggest to certain industries where you had falling costs that they lower their prices, that was a guideline for them, and in other industries where you weren't getting productivity increases, their prices would be permitted to rise, or would be suggested that they be allowed to rise.

20:32So overall then prices would remain stable and real wages would increase by the amount of productivity. So the workers would get wage increases every year, and their real wages and money wages would go up by the amount of the increase of productivity. Now, how are these guide posts to be enforced? Well, by what the economists euphemistically called moral suasion. That is, calls from the antitrust division of the Justice Department. and, as the steel industry found out, visits in the middle of the night by the FBI, ordered by none other than Robert Kennedy. Okay, now let's talk a little bit about militarism. It's another ingredient. Okay, so we have a rationale now for deficits, for deficit spending.

21:23Spending. Well, James Tobin, who also served as a member of the Council of Economic Advisers to Kennedy and was a prominent Keynesian at Yale. In 1956 in the Yale Review, he wrote an article, a very interesting article called Defense, Dollars and Doctrines. And he was one of the first to allege that there was a missile gap between the U.S. and the Soviet Union, which Kennedy harped on in the 1960 elections, and which was one of the reasons why Nixon lost the elections. In fact, Nixon, or Eisenhower and Nixon, called Kennedy's advisors and Kennedy himself and said, look, we have, you know, this is confidential data, this is classified data, but there isn't any missile gap.

22:10Kennedy knew this and continued to use that as a campaign ploy. And later on, it was shown that the missile gap was phony, okay? Anyway, Tobin argues against Eisenhower's cuts in the defense budget. Eisenhower actually cut the defense budget, which was great, and the release of resources to the private sector. Tobin didn't want this to occur, okay? He wrote, in what uses, other than unemployment, were these release resources to be absorbed? For what more pressing purposes were these resources released? For research and development of new consumer luxuries? for new plants in which to produce more consumer goods, old and new, all to be marketed by the most advanced techniques of mass persuasion to a people who already enjoy the highest and most frivolous standard of living in history.

22:56Here's a Richie L. Professor saying that it's not important to increase the amount of consumer goods. For Tobin, any further reduction in defense budgets, quote, gravely threaten security. The unfulfilled needs of defense are great and they are urgent. And he's writing this in a policy journal, so he's writing to the public. Now, what were these programs that he was in favor of? He's very detailed about all this. He served in the Navy. He also served during World War II as a federal government planner. He wanted a massive building program for shelters from nuclear attack.

23:41He also advocated a massive geographical deconcentration of U.S. industry and the underground installation of vital industries so that, for example, the entire auto industry wouldn't be wiped out if a nuclear bomb hit Detroit. He tells us not to worry about the consequences of massive military spending for a number Well, the huge increase in the national debt that this brings about, he says, we owe it to ourselves. Quote, since the debt is, so to speak, within the family, its size can and should be the servant of public policy, not its master. So in some way he's concretizing the debt as this ruler of US policy, standing over and above policy. That's ridiculous.

24:37The state of the national debt has consequences on individual human beings. It itself is not some sort of personified entity. Secondly, he said the effect of large government budgets and high tax rates on American productivity would not be negative. Well, he answers that. He says, don't worry because most of our vast production, and I'm quoting him, is just thrown away. Again, on frivolous consumer goods. That's basically what he said. And thirdly, what about the inflationary consequences of large government expenditures? And here, as a Keynesian, of course, he's never talking about the money supply. He's just talking about large government expenditures or deficits. But if deficits are financed by increasing taxes, there is no inflation, every consequence.

25:23It's only when deficits, and most of the time they are, are monetized, that is, that they're financed by creating new money, and the Fed indirectly buys the new debt that the government is issuing to finance these deficits, only at that point that you have inflation. Well, he says, these can be avoided by resolute taxation, so we have to increase taxes on consumers so they don't spend this extra money on consumer goods and drive prices up. And he says, and even if it does occur, there are many worse evils, and he goes on and says, war, illiteracy, juvenile delinquency, racial disharmony, inadequate medical care. Tolman in 1958 advocated a permanent and massive expenditure program that would institutionalize the regime of militarism on American society.

26:27And then later on he wrote an article in 1960, during the campaign for the presidential election, in which he called for growth through taxation. He claimed that if you, and this was a Keynesian, based on a Keynesian theory, if you increase taxation, you force people to consume less. and then the government could use that money to spend on investment projects and it would also bring down interest rates and if you put down interest rates the firms would invest more. It doesn't talk about the supply side, the negative supply side affects it all of taxation. So he wanted higher taxation and he wanted consumers to spend less and on the other hand he wanted more investment And you get that by lowering interest rates.

27:20Well, let's talk about the first crises that President Kennedy faced after the Berlin crisis. The presidential wage and price guidelines or guideposts were informally adopted by the Kennedy administration. And they called for increases of wages of about 3.2% per year, which again, a very specific figure, which reflected the average rate of growth of labor productivity. But obviously productivity is changing at different speeds and at different rates at different times. So this is a typical Keynesian macro aggregate figure that becomes somehow set in stone.

28:11So now, from now on, wages will rise at 3.2% per year. It also calls for a fall in prices for industries whose productivity increased above the average because their costs were falling, and a rise in prices for industries whose productivity was increasing less than the average productivity. So overall, the average would be that prices were stable over time and wages were rising by about 3%. And yet, though they didn't talk about it, M2, the money supply figure M2, which includes savings, deposits, as well as checking accounts and so on, was rising by 8% per year. They were pumping, they were increasing the money supply at that rate. And yet they thought that you could have zero increase in prices.

28:56So these were used as an instrument. These guys posted to give government the unprecedented peacetime power over wages and prices. Now, in September 1961, Kennedy, at the urging of Heller, Walter Heller and the CEA, sent letters to 12 major steel firms, asking them to hold the line on prices. The CEA, the Council of Economic Advisers, had estimated that the steel industry would earn between seven and nine percent net profit for the rest of the year without price increases. And they thought this was sufficient. Why should they have more than seven to nine percent? Well, it's interesting. One of the left-wing economists that was a staff member, her name was Barbara Bergman, she might still be teaching at University of Maryland.

29:42in Maryland. Anyway, she revealed how they figured this out. They read Popular Mechanics Magazine. That didn't mean nothing about the steel industry. That's what they got their information from, on costs and so on. In early 1962, the steel industry concluded a The Kennedy administration considered the contract, which it had actually helped to negotiate, as, quote, non-inflationary and consistent with its wage and price guidelines. Two weeks after the negotiations concluded, on April 10, 1962, US Steel announced a price increase of $6 per ton, and other companies immediately followed suit.

30:35The response of the Embarrassed Kennedy Administration was swift and vicious, because it really had hung its hat to the public on, look, we helped negotiate this non-inflationary agreement between unions and corporations, so we are fighting inflation. Anyway, as I said, they had a very swift and extremely vicious response. He declared to his advisors, there's a great book just called President Kennedy, in which he has a lot of the transcripts of Kennedy's comments. He said, quote, my father told me that all businessmen were sons of bitches, but I never believed it until now, unquote. Kennedy, when that was leaked to the press, Kennedy claimed he said steel men, not businessmen, we're sons of bitches, because he didn't want to alienate the whole business community, and then he went on to say, after all, my father was a businessman, well I guess if you count liquor bootleggers as businessmen, which his father was, he was a businessman, black market businessman, there's nothing wrong with that, the next day he gave a demagogic talk to the nation, bashing the steel industry,

31:54In this serious hour in our nation's history, when we are confronted with grave crises in Berlin and Southeast Asia, and when we are devoting our energies to economic recovery and stability, when we are asking reservists to leave their homes and families for months on end and servicemen to risk their lives, and four were killed in the last two days in Vietnam, and asking union members to hold down their wage requests at a time when restraint and sacrifice are being asked of every citizen. The American people will find it hard, as I do, to accept the situation in which a tiny handful of steel executives, whose pursuit of private power and profit exceeds their sense of public responsibility, can show such Such utter contempt for the interests of 185 million Americans, a few gigantic corporations have decided to increase prices in utter disregard of their public responsibilities.

33:00Responsibilities not to embarrass a Keynesian inflationist regime. Kennedy concluded by harking back to his fascist inauguration appeal to American citizens to sacrifice their liberty and property to the American state. And he says, quote, some time ago I asked each American to consider what he would do for his country, and I asked the steel companies, in the last 24 hours we had their answer, unquote. Okay, now, it didn't just end at public bashing of the steel companies. In the following, they followed up within the next few days with various actions. First of all, they called and pressured a number of smaller steel companies that had not yet raised prices to refrain from doing so.

33:50Attorney General Robert Kennedy subpoenaed U.S. Steel and other companies to produce records for grand jury. The FBI began to look into rumors that the Bethlehem Steel President had previously issued a statement against a price increase and then suspiciously changed his mind and they showed up at a number of people's doors, a number of executives, in the middle of the night and well, they claimed they got up early. It was like four o'clock in the morning. Okay, there was a big scandal there and we were just, you know, we were up early and we, you know, but it's scary when you get these knocks in the middle of the night. Senator Estes Kefauver agreed to conduct the antitrust investigation of the steel industry. The FTC suddenly decided to open and coincidentally decided to open an investigation of the industry's compliance with the 1951 Consent Decree prohibiting price collusion.

34:41The Defense Secretary announced that the Defense Department had ordered defense contractors to transfer steel purchases to companies that had not raised prices. And within three days, US Steel, Bethlehem Steel, the two biggest companies at the time, rescinded their announced price increases. Now, Kennedy initially, I have to tell you, was very suspicious of the new economics. He had an orthodox view that he did have to balance the budget except during wartime. But after this had occurred, he became inebriated with the new economics. So he formally embraced the new economics in a commencement address at Yale University in June 1962. And going beyond the question of economic stabilization, Kennedy laid out his blueprint for corporate state or fascist state partnership between government, business and labor.

35:37And he used the following words. He said, it is true, and of high importance, that the prosperity of this country depends on assurance that all major elements within it will live up to their responsibilities. All of a sudden we all have responsibilities. If business were to neglect its responsibilities to the public, if labor were blind to all public responsibility, above all if government were to abandon its obvious duty of watchful concern for economic health, If any of these things should happen, then confidence might well be weakened and the danger of stagnation would increase. The solid ground of mutual confidence is the necessary partnership of government with all of the sectors of our society in the steady quest for economic progress.

36:30So now government was going to be a partner with business and labor. I mean, that is the recipe for economic fascism. Now, Kennedy tied the domestic economic fascism in with militarism and global imperialism, arguing that, quote, the safety of all the world depends, as never before, upon the sensible and clear-headed management of the domestic affairs of the U.S. Suddenly the U.S. was going to be, in some sense, the world guardian or the world policeman. He questioned the very basis of the free market economy in the same talk asking, quote, what should be the price and wage policies of our basic industries? Is there a public interest in such price and wage decisions? And if so, how is it to be defined and organized and expressed?

37:16In other words, now he's talking about central planning. He concluded that such problems cannot be solved by incantations from the forgotten past. What do you think that means? Incantations from the forgotten past. Classical economics. Austrian economics. That is that wages and prices are determined on the market naturally by the forces of supply and demand. So people that don't like economics usually refer to the response that, well, prices are determined by supply and demand as an incantation. And that's what he was doing. And I'm sure that came from Galbraith, who was one of his speech writers. The Johnson administration takes over. The Vietnam War begins to heat up in 1964. President Johnson and Defense Secretary McNamara deliberately understate and lie about, knowingly, the budgetary costs and they refuse to ask for a tax increase.

38:12So they're determined to pay for the war with monetary inflation. Johnson wanted to avoid the stigma of imposing a war tax because everyone was saying, ah, we're going to have to have a war tax now. War Taxes are high and they throttle businesses and so on, so he didn't want to be stigmatized as being the person to impose a peacetime war tax, because remember Vietnam wasn't really a war. Of course, remember, it was started as a result of the so-called Gulf of Tonkin incident in which US ships were allegedly attacked by North Vietnamese ships.

38:57As we found out later, that was all made up. That was just completely false. So, after he was re-elected, Johnson and McNamara widened the war and deepened American involvement in it while continuing to lie about its cause. Johnson now wanted to avoid a tax increase because he was fearful it would interfere with his domestic rate society program. So he instituted welfare state programs, massively expanded them. And he describes this dilemma in the following almost megalomaniacal terms. This is an unbelievable quote. He says, I knew from the start that I was bound to be crucified either way I moved. If I left the woman I loved, the great society, in order to get involved with that bitch of a war on the other side of the world, then I would lose everything at home, all my programs, all my hopes to feed the hungry and shelter the homeless, all my dreams to provide education and medical care to the browns and the blacks and the lame and the poor.

40:08But if I left that war and let the communists take over South Vietnam, then I would be seen as a coward and my nation would be seen as an appeaser and we would both find it impossible to accomplish anything for anybody anywhere on the globe. Well, where does the Constitution say that you have to accomplish things for people all over the globe? So here we have it, the foul-mouthed, corn-pwned, corrupt machine politician as a frustrated global messiah, who would feed the poor and heal the lame by counterfeiting money. That's what he wanted to do. He didn't want to raise taxes. So as deficits and spending exploded and the public developed inflationary expectations, Prices began to rise rapidly. Johnson, like Kennedy, resorted to jaw-boning, that is, threatening industries that were raising prices.

41:08He threatened the aluminum and copper industries to restrain price increases, but it was hopeless, and the voluntary wage price guide post completely broke down during his administration, which was great. Unfortunately, Richard Nixon then comes in and takes power. After Nixon took office, a recession occurred in 1969-1970, the first real stagflation, the beginning of the fall of Keynesian economics, which was a great event. The Fed began to aggressively increase the money supply in 1970, 1970, because they wanted to get out of the recession, but prices continued to rise, obviously. They rose sharply in 1970-71.

41:55But unemployment continued to rise also, it went from 4.9% to 5.9%, which was unprecedented in a recovery. So we're recovering in 71-72 from the recession, and usually prices are fairly stable during recovery and then begin to heat up later on, but that's not what happened, okay? So, inflation is heating up. So, stagflation had arrived with a vengeance. So, the allegedly conservative and close friend of Nixon, Arthur Burns, takes over at the Fed in 1970 and he begins clamoring, both first to Nixon and then clamoring publicly, for mandatory wage and price controls. Mandatory wage and price controls. So, he goes far beyond Kennedy and Johnson. This was the same Arthur Burns who had argued against voluntary wage price in the mid-1960s. In fact, he had debated Paul Samuelson and argued against having these things.

42:52But I guess when you have a seat so high in power, you can see things more clearly. So Burns promised Nixon, he made a deal with Nixon, he said, look, if you institute wage and price controls, and Nixon had some free market instincts, he actually did, and he didn't want to, I will gun the money supply so that we get out of the recession and keep prices stable because we'll freeze them and you'll get re-elected in 1972. Because the American public, there's something called the political business cycle. The American electorate has about a one year memory. They think back about how the economy was doing about a year back from the upcoming election. And if it's good, you tend to gain votes from that fact.

43:38So with the presidential election a little more than a year away, Nixon needed lower inflation, as I said, and lower unemployment. So he agreed. The money supply exploded by 13.5% per year in 1971 and by 13% in 1972. So with the presidential election a little more than a year away, Nixon needed lower inflation, as I said, and lower unemployment. So he agreed. The money supply exploded by 13.5% per year in 1971 and by 13% in 1972. So massive inflation. Under the aegis of a Republican president and supposedly at least right of center and quasi-free market economist Burns.

44:23So Burns effectively bought the election for Nixon with cheap money, counterfeit money. On August 15th, 1971, the real day of infamy in the U.S., in U.S. history, for as I'm concerned, Richard M. Nixon brought full economic fascism to the United States during peacetime. And no one really made a peep. On that day he imposed a 90-day wage price freeze, which turned into a three and a half year program of freezing prices, wage and price controls. First, big business was all for it because it promised to effectively hold down wage increases. That's what they cared about. The Keynesian New Economists loved it because they saw it as a vindication of their failed wage price guide post.

45:08They basically said, told you so. I told you we need an incomes policy holding down prices and wages. Most free market economists were silent. Milton Friedman did mildly criticize it because he believed it would be ineffective and inefficient. And 16 Chicago School economists wrote an open letter against it. So, for the most part, the economics profession was in favor of it. Big labor was against it at first because it meant holding down wages, but they agreed if profits and dividends were also frozen. The only person that spoke out and called it what it truly was, was Murray Rothbard. He called it inefficient and unjust, and he fearlessly used the F word, and I don't mean the four letter F word, I mean the fascist word, which you're not allowed to say in polite society.

45:59This is democracy, how could you use the word fascism with respect to any of our great leaders, and so on. In fact, Rothbard had predicted that Nixon would, seven months in advance, that there would be a move to fascism under Nixon. Let me quote what he says. Make sure I have the right quote here. He says, this is in January 1971, eight months before the imposition of the wage price freeze. Rothbard had foretold the coming of wage and price controls, which he characterized as the natural culmination of fascistic tendencies in the U.S. economy that had been developing since the beginning of the 1960s and that had gathered significant momentum during the Nixon administration.

46:48He also foresaw the surprising complicity of conservative free market economists in bringing about these controls. Herbert Stein, a so-called free-market economist, Paul McCracken, these were all Nixon advisors, and saw themselves as free-market economists, yet they went along with it. So let me read Rothbard's very perceptive and prescient analysis. He says, well, we have had two years of Nixonism, and what we are undergoing is a super great society. In fact, which was the name for the welfare programs and warfare programs of Johnson. In fact, what we are seeing is the greatest single thrust towards socialism since the days of Franklin Roosevelt.

47:37It is not Marxian socialism, to be sure, but neither was FDR's. It is a big business socialism or state corporatism, but that is called comfort and deed. There are only two major differences in content between Nixon and Kennedy Johnson. First, that the march into socialism is faster because the teeth of conservative Republican opposition have been drawn. In other words, here was a Republican president, they were going to be good Republicans, they weren't going to criticize him. Whereas they were willing to criticize and he moved towards socialism on the part of Democrats. 2. That the erstwhile free market conservatives, basking in the seats of power, have betrayed whatever principles they may have had for the service of the state. Thus we have Paul McCracken and Arthur F. Burns, dedicated opponents of wage price guideline dictation and wage price controls when out of power, now moving rapidly in the very direction they had previously deplored. But now the administration has swung around the liberal thesis of monetary fiscal

48:37and financial expansion to cure the recession, while yelling and griping at labor and employers not to raise wages and prices. A guidelines or incomes policy that is only one step away from wage and price controls. So where's the Keynesians? When they were in power as new economists, promoted guidelines or incomes policy, now we had jumped right into mandatory wage and price controls. and Rothbard continues, not only is it impossible for direct controls to work, their imposition adds the final link in the forging of a totalitarian economy of an American fascism, so he uses the f-word eight months before this occurs, he sees it coming. What is it but totalitarian to outlaw any sort of voluntary exchange, any voluntary sale of a product or hiring of a worker?

49:27But once again, Richard Nixon is responsive to his credo of big business liberalism. For direct control satisfy the ideological creed of liberals while at the same time they are urged by big business in order to try to hold down the pressure of wages on selling prices which always appear in the late stages of a boom. So it's important that Rothbard notes early in the passage the continuity between the economic policies of Kennedy and Johnson on the one hand and Nixon on the other. Now, after the controls were imposed, Rothbard, writing in his newsletter, The Libertarian Forum, came out and forthrightly condemned them. They weren't really condemned anywhere else. Everyone was so tired of inflation, including economists, that they almost welcomed them.

50:13And he said, it is now clear that wage and price controls of some sort will succeed the 90-day freeze. In short, that we now have entered the political economy of permanent direct controls. There is only one word for this new economic policy, a word that is at first glance harsh and exaggerated, but in fact is precisely appropriate. That word is fascism. A system of permanent price and wage controls administered by a central government bureaucracy, probably headed by some form of tripartite board, including big business, big labor and big government. This is precisely what fascism is, precisely the economic system of Mussolini's Italy and Hitler's Germany.

50:58This is the economy of the corporate state, administered by dictation from the top, controlled and monopolized by big business and big labor interests, with the individual and the consumer the person who suffers. In short, the mass of the American public will suffer from the system of corporate statism, from the death of the free-price system, from the invasion of individual rights, from the hampering of growth efficiency and productivity that the system will entail. So Rothbard foresaw the coming. He was a great political economist. He had deep insight into the trends that were developing. And this is, by the way, the type of prediction that economists can do. Mises called it thymology, meaning that you understand the ideology and the goals, or you try to understand the ideology and the goals that other human beings adhere to and are pursuing.

51:57And in doing that you then reconstruct what means they will use to achieve those goals. And that's the way that you forecast, and that's the way that entrepreneurs forecast. Now, it's not infallible, but good economists are able to make those sorts of forecasts, but they are based on human actions. They're not some sort of mechanical extrapolating of the past, like economic Christians do, into the future. And I think that Austrians in particular have been very good at this. Just to give you an example, Austrian economists in the 1950s, Mises, Hazlitt, a colleague of von Mises when he was in Switzerland, his name was Michael Halperin who was an international economist, a French economist, advisor to Charles de Gaulle, a French president during the 1960s, They all predicted, when all mainstream economists were saying that the Bretton Woods system, which we talked about this morning, was solid and that it had some problems but it wouldn't fall apart.

53:09They were all saying that the Bretton Woods system is going to collapse. Because the way economic forces work, if you give one government the ability to continually print paper money, which all other governments will accept and hold, Without demanding the gold that they had the right to demand, that government, in Jacques Rouef's words, would run a deficit without tiers. Meaning, you're never called to pay off on the deficit. You're never called to redeem the dollars in gold. So, in fact, it did collapse. Milton Friedman, Fritz Machlup and other mainstream economists said, If the dollar was ever cut from gold, the price of gold would fall to $10. It's the dollar that's supporting the price of gold.

53:56Well, in fact, that was the exact opposite. Once the link was cut, at the end of the 1970s, the price of gold rose to $800. That was the dollar that depreciated. On the other hand, the Austrians of course said, of course the dollar is depreciated. If you cut the link, the dollar is going to find its true level, The value of the dollar is going to fall in relation to gold, which it did. So be very careful when you say, well, Austrians believe that you can't predict. If prediction means literally foretelling of the future, well that's true. But if it means making reasonable forecasts based on permanent universal economic laws, it's not true. Austrians are the best forecasters and have shown themselves to be such.

54:45And I think Murray Rothbard is a good example of this. Ludwig von Mises is a good example of this. I once heard Fritz Machlup, who was in the fourth generation of Austrian economists, say that Ludwig von Mises had saved his life because when Mises left Austria in 1934, he told him that the Nazis are going to take over Austria. And he told all Jewish economists, or even liberal economists, that they should leave Austria. And most of the Austrians did leave Austria. Again, he saw political and economic trends unfolding that others did not see. Another story that Fritz Machluck tells is that he used to walk with Mises from his private seminar back to his home.

55:38Mises was home and they used to pass by one of the most, I think the biggest bank in Austria at the time and I believe it was the Credit Anstalt and Mises every once in a while would point to it and say there is coming a big smash and this institution will be one of the first to fall and in fact it was the first big institution in Europe to collapse and at some point Mises was offered a job there in the late 1920s and he refused to take it because he believed that it was going Fascism is usually used very loosely, but usually there's some connotation of like a police state situation, like with Gestapo and stuff. I was wondering if Flynn touched on that.

56:38In the 60s and early 70s, two what I called economic fascism. That's the first four ingredients. The last two is a totalitarian state with one leader at the top. That gives you the full fascism, complete fascism. Flynn believed that that was going to happen in the United States because taxes would have to rise so high to finance militarism and to finance what he called plan consumption, what we call the welfare state, that people were going to revolt and at that point the ruling classes would unite behind the leader and they would either be kicked out and we go back to free market economy or they would crush the tax revolt. What he didn't see was that monetary inflation could hide the costs of the welfare warfare state for a long period of time.

57:35And I think, secondly, what he didn't see, what many economists didn't see, even some Austrian economists, was how dynamic the free market economy is. and that is that even with all these government controls, they find ways of getting around it and they find ways of improving technology and increasing capital accumulation so that it lessens the burden on the tax payer. Yes? Everything that John Flynn said about fascism can also be said about communism with a little bit of difference that nominally the businesses are still the owners The only difference is this, as Mises pointed out, under National Socialism, as opposed to International Socialism, which is Marxian Communism, so National Socialism of the German variety, Hitler kept in place the nominal owners.

58:34They though were subject in determining how to produce to the orders of the Nazi state. State. So that's a difference, it's not just a nominal difference, it also keeps sort of the class structure intact. But even at the end, people in the Nazi regime were just ripping off production and so on, taking over industries, so it degenerated. But the one thing that the Nazis, I do believe Nazism or National Socialism was a reaction to International Socialism because the Nazis promised to maintain, to allow people to maintain their culture, their church, their property, and so on.

59:19and so on. And they wanted people to feel part of an institution, whereas the left-wing socialism always wants to get rid of all institutions that are meaningful to human beings. And human beings are very afraid of that, and that's why in Italy Mussolini rose up, because in Italy you had disorder caused by the communists in the streets, I mean it was violence. So initially the fascist movement, the black shirts, were just defending private property. It evolved to obviously more totalitarian, more authoritarian and then totalitarian system later on. But before Mussolini was in power, I mean many property owners supported him. I would add to that the withholding of taxes, because they don't feel the pain of having to reach into the pocket.

1:00:33Man, I would add one more thing that could add to that list of things. That would be the value added tax, because I think it causes more problems to the business man than it does to the person buying it.

1:01:03In the original intention, since I only got to a part of it, since there was a tension between the two elements of ideology, one being the monialism, which is the Hegelian monarchy, and the...

1:01:33The political economy based on Burke, that used to emphasize the third line out of the long line, and wanted to emphasize the long line. That's a good point. What he got from Burke was basically that there has to be some sort of a guidebook and some way of approaching the desired state. I don't think he took as much from Burke as he did from G.E. Moore, the philosopher who believed that the moral good consists in these states of the present moment, meaning mental states in which you immerse yourself and in which there's no distinction between means and ends because they're timeless states.

1:02:30For example, standing and staring at the Mona Lisa or watching a ballet. In a sense, these are mental states that are the highest states that a human being can reach. And Keynes is very specific about this. So what I'm getting at here is that that is very radically present-oriented. What he wanted capitalism for, since capitalism was future-oriented, since we didn't have enough resources to allow everyone to live in that way, like he and his Bloomsbury group lived, He thought that, well, we can tolerate capitalism for a few more generations. He fought in the 1920s and very early 30s.

1:03:15Capitalism delivers the goods. It has to be directed to some extent. But it will deliver the goods. It will allow us to get to the millennium. Basically, he thought the English upper class had already foreseen the millennium. of the Millennium. He has some very specific, and I wonder if I have it here, that I think he says something like, people will work five hours a day, three days a week in this post-scarcity state. By the way, he was against things like telephones and automobiles because that increased human wants for consumer goods and that reduced investment in producing clothing and food and Basic Wants. He believed that human wants could, what he called absolute human wants versus relative human wants, absolute human wants could be completely satisfied within one or two generations. So when you had innovations that entrepreneurs came up with with new technological gadgets, he didn't want investment going into those things because then that would be more things that the rich would want and that they wouldn't save the requisite amount of money

1:04:26and invested in producing, you know, the basics that would be consumed by the rest of us. So, he got sick of that and by the mid-30s he wanted to quicken our movement into the millennium. And he wrote his most fascistic article, and I'll quote from it because we have some time, called National Self-Sufficiency, which is what Hitler was doing at the time, trying He wanted to make Germany completely self-sufficient so he could put it on a wartime footing. Let me just give you some interesting things that he says in that article. This is where he begins to change. This is where he begins to say that, You know what? Capitalism can't necessarily get us to the millennium.

1:05:16We're going to have a lot of state intervention to do so. And he talks a little bit about Mussolini here and so on. And you don't see any of his followers quoting this article. He says, I am in favor of retaining as much private judgment and initiative and enterprise But I have become convinced that the retention of the structure of private enterprise is incompatible with that degree of material well-being to which our technical advancement entitles us.

1:06:10Unless the rate of interest falls to a much lower figure than is likely to come about by natural forces operating on old lines. In other words, now he sees the rate of interest as being too high. By the way, he says there are three sins under capitalism. Precaution, usury and avarice. Precaution leads the people to save for their old age. But if you're worried about the future, you're not enjoying these good mental states. Usury. Usury is the taking of interest which prevents or reduces the amount of investment The higher the interest rate, the less that's invested today.

1:06:57And that investment today is crucial to increase the amount of output and to get us to the millennium. And avarice. Avarice is the piling up of money for its own sake and not for the ends that it brings. Now, he changes the terminology in the general theory. Precaution becomes saving. So he's taking religious terms and he's using them as a basis, concepts, and using them as a base of his economics. So, precaution becomes usury, I'm sorry, precaution becomes saving, usury becomes interest, and average becomes liquidity preference. And what's the biggest problem? Liquidity preference, that people are holding money and not spending it, and that's keeping the interest rate up.

1:07:47So he believes that all these sins are tolerable for a while, but I'll talk about what he says about that later on. Now he's getting antsy in 1933, he sees that we're in a great depression, that we're moving backward, away from the millennium, away from the land of plenty and of good mental states. So he goes on to say that somehow we, the state, have to push down the interest rate. He says, indeed, the transformation of society, which I preferably envisage, may require a reduction in the rate of interest towards the vanishing point within the next 30 years. He wants to drive it down to zero. His followers after the war claim, no, no, no, he didn't really mean that. But that's what he wants to do. He hates interest.

1:08:32He doesn't have any notion of time preference whatsoever. In fact, he hates time preference. He hates the fact that people are willing, in some sense, to postpone, the fact that people can overcome their time preference and postpone consumption into the future. He says, now he's talking about the 19th century. He says, the 19th century carried to extravagant lengths the criterion of what one can call, for short, the financial results. He hates monetary calculation because it informs you of what the cost of your present action is. He doesn't want people to worry about that. He says that the financial results, as a test of the advisability of any course of action, sponsored by private or by collective action, the whole conduct of life was made into a sort of parody of an accountant's nightmare.

1:09:20Instead of using their vastly increased material and technical resources to build a wonder city, The men of the 19th century built slums. They built them on purpose. And the reason why they built them? They thought it right and advisable to build slums because slums on the test of private enterprise paid. Whereas the Wonder City would, they thought, have been an act of foolish extravagance, which would, in the imbecile idiom of the financial fashion, have mortgaged the future. In other words, what he's saying is, use all the resources at present. Build the things that you want now. Don't skimp now and build lower-cost housing. Had no idea about capital accumulation. In fact, thought capital accumulation was sinful, because you were continually postponing into the future enjoyments rather than having these present good mental states now.

1:10:13He says, for the minds of this generation are still so be clouded by bogus calculations, meaning profit and loss, that they distrust conclusions which should be obvious, out of a reliance on a system of financial accounting, which casts doubt on whether such an operation will pay. So here's what he says, he says, we have to remain poor because it does not pay to be rich. We have to live in hovels, not because we cannot build palaces, but because we cannot afford them. So he's saying, we have these resources, we're just not using them right. Let's use them now. Let's build palaces in Wonder City, whatever the hell a Wonder City is. And he goes on, alright, now, here's his big breakthrough. For us, it's a breakthrough to fascism. He says, but once we allow ourselves to be disobedient to the test of an accountant's profit, We have begun to change our civilization and we need to do so very warily, cautiously and self-consciously.

1:11:12So now he's talking about wanting to experiment. And he says it is the state rather than the individual which needs to change its criterion. Now, if the functions and purposes of the state are to be thus enlarged, the decision as to what, broadly speaking, shall be produced within the nation and what shall be exchanged with abroad must stand high among the objects of policy. That is, he wants to completely control economic international trade. He wants to control especially the flow of capital because when British capital flows out to higher interest areas elsewhere in the world, what happens to the interest rate in Britain? It goes up, okay? And that reduces investment in Great Britain.

1:11:57Now he's going on about the various dictators that have come to power in the 1930s. He says, having sought to understand and to do full justice to the ideas which underlie the urge felt by so many countries today towards greater national self-sufficiency, We have to consider, with care, whether in practice we are not too easily discarding much of value which the 19th century achieved. So he's holding back a little bit. In those countries where the advocates of national self-sufficiency have attained power, it appears to my judgment, and by the way, Keynes always believed that he consulted intuition. He believed that somehow he had the truth internally.

1:12:43So he says, to repeat, it appears to be my judgment that without exception many foolish things are being done. Mussolini perhaps is acquiring wisdom teeth. In other words, Mussolini is growing up. He may very well do good things. He's made some mistakes. But Russia today exhibits the worst example which the world perhaps has ever seen of administrative incompetence and of the sacrifice of almost everything that makes life worth living to wooden heads. Now, he's saying it's inefficient. He makes another remark about, he doesn't like what Stalin has been doing, but he liked what Lenin did, and I'll talk about that. He says, Germany is at the mercy of unchained irresponsibles. Okay, so Hitler and their unchained irresponsibles.

1:13:30But then he adds, though it is too soon to judge her. Hitler might have the right idea too. As long as people are moving away from capitalism, capitalism has failed, by 1933 he's convinced of that. It's failed spiritually, it's always been bad spiritually, but technically and materially it's failed. So now he's pulling back on his criticism, he says, but I bring my criticisms to bear, meaning Mussolini and Hitler, as one whose heart is friendly and sympathetic to the desperate experiments of the contemporary world, who wishes them well and would like them to succeed, who has his own experiments in view, and who in the last resort prefers anything on earth to what the financial reports are wont to call the best opinion in Wall Street.

1:14:20So he wants any other kind of system beside financial capitalism. And he ends up, he says, you have the new economic modes towards which we are blundering, but he thinks it's fine to blunder and experiment and make mistakes, or in the essence, as long as you're getting away from capitalism, or in the essence of their nature, experiments. We have no clear idea laid up in our minds beforehand of exactly what we want. Who is we and whose minds is he talking about? Well, him and his little Bloomsbury group that want to reach this so-called millennium. But there's a very interesting remark he makes about Leninism.

1:15:06In 1925, it's written in an article called A Short View of Russia. In that article, he favorably contrasts what he calls the religious spirit at the core of Russian communism to the spiritual poverty that attends the pursuit of money making under modern capitalism. Here's what he says, the emotional and ethical essence of Leninism centers about the individuals and the community's attitude toward the love of money.

1:15:51He puts that in big letters, love of money, in capital letters. In the Russia of the future is intended that the career of money-making as such will simply not occur to a respectable young man as a possible opening, any more than the career of a gentleman burglar or acquiring skill in forgery and embezzlement. So he's putting it on a par. He's making money in honest business on a par with forgery and embezzlement. Even the most admirable aspects of the love of money in our existing society, such as thrift and saving, and the attainment of financial security and independence for oneself and one's family, while not deemed morally wrong, will be rendered so difficult and impracticable as to be not worthwhile. He then goes on to say, the private trader in Russia is a sort of permitted outlaw without privileges or protection, like the Jew in the Middle Ages, an outlet for those who have overwhelming instincts in this direction, but not a natural or agreeable job for a normal man.

1:16:57And he deems a society, he says a society which treats money making in this manner, he calls it a tremendous innovation. So, this is Keynes. He laid out, by the general theory, he's ready to dump capitalism and replace it with what I said before was a socialization of investment. And basically, what he wants to do is to push the interest rate down to zero. I really highly recommend the last chapter of the general theory. The entertainment value is tremendous.

1:17:42In it, he talks about depriving capital of its scarcity value within one or two generations. He says it can only be done by using central controls, and he uses that term four times within the space of three pages. Now, his followers always deny that he was a socialist, but what else is he talking about here? These measures are designed to enable a state to determine the aggregate amount of resources devoted to augmenting the instruments of production, meaning the aggregate amount of capital investment and the basic rate of reward to those who own them. So he wants the state to determine how much people should consume in the aggregate, how much they should invest in capital goods, the state is going to determine all that, and how much people receive an income.

1:18:31It's a centrally controlled state that he has and he says now, he uses the term socialization of investment. He says the central controls, or the central controls which Keynes advocates do not necessitate He says, well, we can still allow private entrepreneurs to own these instruments and try to make profits with them, but we're going to control how much investment they get, and we're going to control how much income they get. Well, that's national socialism. You leave them, the owners of private property, in name only. So yeah, he wants communal saving, he wants the state to do the saving, he wants to basically get rid of stock and bond markets, get rid of those, have the state have one big bank that allocates investment to the private, allegedly privately owned industries.

1:19:33And he says, only in that way can, by the state actually being the long-term investor, can we defeat the dark forces of time and ignorance. He also points out that the return on capital goods would just cover their labor costs of production, plus an allowance for the risks and costs of the skill and supervision. So, all he would have as a return to these supposedly privately owned business is simply the replacement cost of the capital they use up, plus they would get a return more or less as managers. Well, what about the entrepreneurs? He basically says that there will be nothing left over for capitalist investors who do not do anything, in other words, who simply invest their money.

1:20:27Money. There will be nothing left over to pay them. He says in the state of full investment there would occur, and he uses the term, the euthanasia of the rentier, that is the killing of the, the mercy killing of the bond holder and the equity buyer, okay, because they're not running the business, they're just sitting back and collecting dividends and they're collecting interest returns. Well, they're going to be gone. And the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity value of capital. If you drive the interest rate down to zero, there's no return to the capitalist, and he wants to do that. So now he's just worried a little bit about, well, we're going to have a scheme of direct taxation, which is going to distribute income from the higher to the lower income groups, and raise the propensity to consume of these lower income groups.

1:21:16So we want more consumption, we don't want people piling up savings, so we want people to consume more, The Prevailing Price of Entrepreneurial Ability and Risk-Taking is Foreign Excessive to Supply Price He says the entrepreneurs are certainly so fond of their craft that their labor would be obtained much cheaper than at present. So Bill Gates will take, you know, $30,000, $40,000 a year. We can just tax everything else away.

1:22:05So the interest rate, the rentier and the speculator on financial markets are completely suppressed by socialized investments. They're gone. The economic rent received by entrepreneurs above the minimum amount they would accept, that's gone, that's taxed away. That's used to subsidize state-provided benefits for laborers, basically a welfare state. Finally, Keynes has a scheme for direction of investment and remuneration for people that work in productive activity. bears more than a passing resemblance to Schock, the Nazi commissar, economic commissar, Helmore Schock, his command economy. And that was based on three main controls. State controls costs, which Keynes is going to do by getting rid of these incomes, investment, which Keynes wants to do, and international trade, which Keynes wants to do.

1:23:02In fact, in the 1940s, Keynes said that, he says the Schachtian device, he uses the term Schachtian, of international border, where Germany had made border arrangements with South American countries and other countries, that might be a good policy for Britain in the post-war world, if we don't have a good international system. And of course you've all heard of the introduction that Keynes wrote, and this is suppressed by his followers, to the German edition of the General Theory. And in it, he wrote the following, and it took a revisionist historian, James J. Martin, to translate this into English. It was never translated, even though everything that came from a rote is collected in his works, this isn't there.

1:23:47He wrote that the aggregative theory of production, which is what he called the general theory in the beginning, expounded in the book, quote, can be much easier adapted to the conditions of a totalitarian state and the Theory of Production and Distribution of a given production put forth under conditions of free competition and a large degree of laissez-faire. Keynes also in this preface expresses satisfaction if his theory, quote, can contribute a single morsel to a full meal prepared by German economists. So even in 1936, that's three years after he's written National Self-Sufficiency, and we begin to see Hitler's oppressive policies in play, in Play, he's still thinking that, well maybe this will turn out to be something good, okay.

1:24:32So the bottom line, oh I think I have a minute to read, Hayek then in 1944 writes The Road to Serfdom, and Keynes responds to this in a very interesting way, let's see, I have Okay, yes. Here's what he says. Now, I want to say that Keynes is a follower of National Socialism. Well, I do want to point out that because he was a millennialist theorist, because Because he believed that almost anything could be justified in moving towards this basically a paradise on earth, he trusted to his own intuition and moral judgment in choosing and applying policies which in the hands of less enlightened people or less righteous people, according to him, would result in a social holocaust.

1:25:41So he makes this point when he writes to Hayek after reading his Road to Serfdom. He says, I should say that what we want is not no planning or even less planning. Indeed, I should say that we almost certainly want more. Moderate planning will be safe if those carrying it out are rightly oriented in their own minds and hearts to the moral issue. And, of course, who is that? That's Keynes and his friends. I accuse you, meaning Hayek, of perhaps confusing a little bit the moral and the material issues. Dangerous acts can be done safely in a community which thinks and feels rightly, which would be the way to hell if they were executed by those who think and feel wrongly. So basically what he said was, Hitler and Mussolini think, thought and felt wrongly, whereas me and other British socialists and so on think and feel rightly.

1:26:32So we can be dictators, benevolent dictators. I remember addiction was famous for saying we were all Indians. What was the context for that?

1:27:06to keep the economy on an even keel. So in that sense, using the tools constructed by Keynes, not necessarily making the same trade-offs as Keynesian economists would make, but everyone was a Keynesian in that you couldn't conceive of an economy which could just be left alone to operate on its own without pulling the levers of fiscal policy and monetary policy. So I think he meant it in that way. Okay, thank you.