Thursday, September 22, 2011

Clear Slums – Don’t Build Pyramids!

My title refers to a proposal that Keynes made in 1931, when the UK was being wracked by the Great Depression. The depression had hit the country by 1930 and caused unemployment to soar to 2.5 million people (20% of the insured workforce).

Now anti-Keynesians misinterpret and selectively quote Keynes’s comments on pyramid building and ditch digging, something which Keynes never seriously proposed, and also distort the meaning of those remarks, as I have shown here.

But here is a proposal from Keynes that you don’t see quoted much:
“I read a few days ago of a proposal to drive a great new road, a broad boulevard, parallel to the Strand, on the south side of the Thames, as a new thoroughfare joining Westminster to the City. That is the right sort of notion. But I should like to see something bigger still. For example, why not pull down the whole of South London from Westminster to Greenwich, and make a good job of it — housing on that convenient area near to their work a much greater population than at present, in far better buildings with all the conveniences of modern life, yet at the same time providing hundreds of acres of squares and avenues, parks and public spaces, having, when it was finished, something magnificent to the eye, yet useful and convenient to human life as a monument to our age. Would that employ men? Why, of course it would! Is it better that men should stand idle and miserable, drawing the dole? Of course, it is not.” (Keynes 1951: 153).
This was the type of real spending program that Keynes, with his humane and progressive liberal spirit, actually advocated: tearing down the dirty, badly heated, rat-infested slums of London* and replacing them with modern housing with “all the conveniences of modern life” for its working population, with “parks and public spaces.”

You won’t see that passage quoted by the haters of Keynes. The next time you hear some straw man nonsense from such people, my advice is to reply to them that Keynes was for clearing slums, not building pyramids!

* For some reading on the horrors of life in those slums, at least in the Victorian period, see Dyos 1967.

BIBLIOGRAPHY

Dyos, H. J. 1967. “The Slums of Victorian London,” Victorian Studies 11.1: 5–40.

Keynes, J. M. 1951. Essays in Persuasion, Rupert Hart Davis, London.

26 comments:

  1. There is a lot to the interesting stories of slum-clearing in the West.

    Slum-clearing in New York gives an interesting perspective on the matter. In the late 19th century and early 20th century, many immigrants from Central Europe used to live there - from Hungary, Poland, Germany, Ukraine, and so on. Many Italians also lived in the worst slums possible

    These people were temporary migrants, who remitted most of their wages to families back home. What little they kept for themselves was used to obtain accomodations in the worst parts of the cities - with one toilet per twenty residents! No privacy! Worse than even certain slums in Bombay or Delhi today! I wouldn't wish it on my worst enemy.

    Still, the demolition of those slums and requests for people to relocate to better parts of the city led to them bearing huge rental prices, even though they stayed in New York purely as a short term strategy. The cost of cramped conditions was replaced with the cost of being able to send much smaller remittances back to Eastern Europe.

    As usual, there are never right actions in the real world, but massive tradeoffs. Huge problems are replaced with other huge adjustments and inconveniences.

    On a famous reformist arguing for slum clearing:

    http://en.wikipedia.org/wiki/Jacob_Riis#Criticism

    "Riis's sincerity for social reform has seldom been questioned, though critics have questioned his right to interfere with the lives and choices of others. His audience comprised middle class reformers and critics show that he had no love for the traditional life styles of the people he portrayed. Stange (1989) argues that Riis "recoiled from workers and working-class culture" and appealed primarily to the anxieties and fears of his middle class audience.[53] Swienty, (2008) says "Riis was quite impatient with most of his fellow immigrants; he was quick to judge and condemn those who failed to assimilate, and he did not refrain from expressing his contempt."[54] Gurock (1981) says Riis was insensitive to the needs and fears of East European Jewish immigrants who flooded into New York at this time.[55]"

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  2. Except Keynes WAS in favor of pyramid building, "if the education of our statesmen on the principles of the classical economics stands in the way of anything better."

    In other words, if politicians are not going to "do anything better", for example taking and then spending taxpayer money on "rebuilding slums", then Keynes WOULD advocate that pyramid building be done, because it would allegedly be better than the government doing nothing (GASP!).

    Just because Keynes was open to ANY AND ALL government spending, which led him to write that he would support NOT ONLY pyramid building, but ALSO "rebuilding slums", that does not entitle you to say that the "real" Keynes was ONLY about "rebuilding slums."

    You're cherry picking quotes from a muddle headed and contradictory bureaucrat, and pretending that he was consistent during his lifetime. He wasn't. You're just talking about post-1930s. Pre-1930s, Keynes held different positions.

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  3. "In other words, if politicians are not going to "do anything better", for example taking and then spending taxpayer money on "rebuilding slums", then Keynes WOULD advocate that pyramid building be done, because it would allegedly be better than the government doing nothing"

    (1) He didn't seriously advocate any such thing. And this passage proves exactly what he seriously advocated in his public pronouncements.

    There was always something of actual use in the real world that could be urged before any such "ditch digging" activities, and the passage in question comes in the General Theory in his theoretical analysis with typical rhetoric designed to shock his contempories into action, showing how aggregate demand drives output and employment.

    (2) for example taking and then spending taxpayer money on "rebuilding slums"

    Ah, no, you clod. He urged deficit spending for that.

    Keep up the good work.

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  4. "In other words, if politicians are not going to "do anything better", for example taking and then spending taxpayer money on "rebuilding slums", then Keynes WOULD advocate that pyramid building be done, because it would allegedly be better than the government doing nothing"

    (1) He didn't seriously advocate any such thing.

    Oh, yeah, because it must be that right? He couldn't have been serious. So you're now mind reading Keynes? LOL

    And this passage proves exactly what he seriously advocated in his public pronouncements.

    Keynes was a contradictory bureaucrat. You're pretending that he was consistent throughout his career.

    There was always something of actual use in the real world that could be urged before any such "ditch digging" activities, and the passage in question comes in the General Theory in his theoretical analysis with typical rhetoric designed to shock his contempories into action, showing how aggregate demand drives output and employment.

    Hahahaha, what utter garbage. The fact that Keynes believed in the myth that aggregate demand drives output and employment is why he was lead to the absurd conclusion that pyramid building, earthquakes and wars can help the economy.

    Aggregate demand does not drive output or employment. Only (profitable) savings and investment drives output and employment.

    Aggregate spending cannot possibly drive output or employment because it is theoretically possible for aggregate demand to consist solely of consumption spending. But if aggregate demand consists solely of consumption spending, then not a single person will be hired for a productive job, and not a single capital good will have a monetary demand and hence a money price. With no demand for wages and no demand for capital goods, there will be zero paid labor and zero virtually zero production of tools and machinery. Output and employment would be virtually absent.

    If the money supply were inflated by some Keynesian money counterfeiter, hoping to "boost aggregate demand", then all that will do here is result in short term wealth transfer, and long term it will raise the demands for and hence prices of consumer goods, because again, aggregate demand is just going to consumption spending.

    But you moronic Keynesians are saying that more aggregate demand will boost output and employment because aggregate demand is primary.

    (2) for example taking and then spending taxpayer money on "rebuilding slums"

    Ah, no, you clod. He urged deficit spending for that.

    Deficits must be financed you moron. Deficits must be financed by taxation, borrowing, or inflation, and all of these must be financed as well, all from the non-government sector, the very people claimed to be helped by the government spending.

    You Keynesians are like little children who think money grows on trees because their parents magically come up with money to buy goodies, totally oblvious to the fact that money only has value because of producers, and money must be earned if it is to have value. Deficit spending is financed with money that is not earned, but taken from the people.
    Keep up the bad work.

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  5. Deficits must be financed by taxation, borrowing, or inflation, ...

    Ah, I see. So you're just conceding that your statement "taking and then spending taxpayer money on 'rebuilding slums'" is an error.

    and all of these must be financed as well, all from the non-government sector, the very people claimed to be helped by the government spending

    You mean real resources will be consumed in government spending programs. Correct. In the depression, there was unused capacity at plants and idle resources and idle labour. The primary effect of such programs was to raise output and employment, as unemployed people got income. Profits increase. The economy returns to robust growth.

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  6. Deficits must be financed by taxation, borrowing, or inflation, ...

    Ah, I see. So you're just conceding that your statement "taking and then spending taxpayer money on 'rebuilding slums'" is an error.

    No, it is not an error, because the money the government spends, that you call "deficit spending, not taxation" WAS ALREADY COLLECTED BY PRIOR TAXATION.

    and all of these must be financed as well, all from the non-government sector, the very people claimed to be helped by the government spending

    You mean real resources will be consumed in government spending programs.

    No, I don't mean that. I mean that the government has to take money or purchasing power of money away from the non-government sector first, before it can spend money or purchasing power on "rebuilding slums."

    In the depression, there was unused capacity at plants and idle resources and idle labour. The primary effect of such programs was to raise output and employment, as unemployed people got income. Profits increase. The economy returns to robust growth.

    This all relies on long ago refuted Keynesian nonsense. "Income" here is being treated as "money not earned but acquired." More "money not earned but acquired" doesn't help the general economy. It can only transfer wealth away from those who produce and towards those who didn't produce.

    You're ignoring the fact that the initial spending extracted resources out of the economy without putting any production in prior to acquiring that money. Since real wealth was taken out of the economy, and replaced with just dollars, it means that losses are generated for all holders of dollars, because they produced for the productionless parasite's benefit and the parasite's friends, but did not themselves produce anything prior to earn that money for those who produced for the parasites.

    Keynesianism is really nothing but a propaganda program to justify social parasitism.

    Just because people are holding out for higher prices and thus currently holding out on selling their goods or labor, and they live off their savings instead (for many on the government dole, which means those who produce and earn money who pay taxes, which of course exacerbated the unemployment problem that you conveniently ignore) that doesn't mean the losses generated by the initial unproductive consumption don't fall on at least some people in the economy.

    In other words, you still have not read William Hutt's book "Theory of Idle Resources."

    The problem of depressions is not lack of aggregate "spending". The problem was CAUSED by too much inflation and spending in the past, which distorted the real capital structure of the economy through the ABCT. Keynesians ignore why the economy should have a collapse in aggregate demand, take it as a given, then propose a "solution" that is exactly what caused the problem in the first place.

    Keynesians are immoral monsters who hate human prosperity and love government parasitism.

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  7. "You're ignoring the fact that the initial spending extracted resources out of the economy without putting any production in prior to acquiring that money. Since real wealth was taken out of the economy, and replaced with just dollars, it means that losses are generated for all holders of dollars, because they produced for the productionless parasite's benefit and the parasite's friends, but did not themselves produce anything prior to earn that money for those who produced for the parasites."

    For better clarity, should read

    "You're ignoring the fact that the initial spending extracted resources out of the economy without putting any production in prior to acquiring that money. Since real wealth was taken out of the economy, and replaced with just dollars, it means that losses are generated for all holders of dollars, because they produced for the productionless parasite's benefit and the parasite's friends, but the parasites did not themselves produce anything prior to earn that money for those who produced for the parasites."

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  8. Keynesians are immoral monsters who hate human prosperity and love government parasitism.

    "I, on the other hand, LOVE human prosperity..."

    *drives past a cyclically unemployed man starving to death in an ill-maintained park*

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  9. "I mean that the government has to take money or purchasing power of money away from the non-government sector first, before it can spend money or purchasing power on "rebuilding slums."

    There is no necessary reason why it must do that at all, especially in a depression. The central bank can simply buy government bonds creating the money.

    And even when bonds are issued, this is mostly re-directing money from financial asset markets, or just idle money (or even money lent by foreigners) to purchasing of goods and services in government programs. The bond holders are freely buying the government's bonds.

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  10. "You're ignoring the fact that the initial spending extracted resources out of the economy without putting any production in prior to acquiring that money."

    So does a private loan. Anyway this just collapses into a moral argument about fractional reserve banking.

    I and my clients in a Rothbardian system wish to engage freely and voluntarily in the use of fiduciary media and fractional reserve banking. There is nothing coercive about our use of fiduciary media as means of payment. All parties consent freely to their use.

    The only way you can stop us is to use coercive violence and force. The Rothbardian system violates private liberty.

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  11. "The central bank can simply buy government bonds creating the money. "

    Or cut out the middleman and just lend the money directly to the government.

    That way you don't have to keep issuing and buying more bonds to pay the interest on bonds you already have.

    Government bonds are an anachronism.

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  12. Anyway, the rest of your arguments are refuted by the case of New Zealand’s Keynesian fiscal stimulus during the late 1930s:

    http://socialdemocracy21stcentury.blogspot.com/2011/09/keynesian-stimulus-in-new-zealand.html

    Money was created by the central bank for spending programs, not just by debt.

    "'Income' here is being treated as 'money not earned but acquired.' More 'money not earned but acquired' doesn't help the general economy. It can only transfer wealth away from those who produce and towards those who didn't produce."

    You complain that stimulus involves giving money away without people earning it.

    False. Money is earned by workers in government public works programs, as it was in New Zealand from 1936-1938: they were engaged in creating public infrastructure.

    That was infrastructure that added value to the private sector by providing better and new roads, railways, public buildings, land improvement, and hydro-electric power. All infrastructure which tremendously benefited the private sector too.

    Also, government financed housing loans created a large stock of homes created by the private sector.

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  13. The only way you can stop us is to use coercive violence and force. The Rothbardian system violates private liberty.

    Indeed. In fact, fractional reserve banking also can't be fraud because everyone knows how it works, and nobody is trying to hide it. I remember learning in middle school that printed currency isn't backed by anything tangible like gold, and that the government controls the money supply.

    As a Rothbardian might say, you have the right to not participate in the money system, or the real property system; so, don't complain about force or fraud if you didn't know how it works or you break your contract, because it's your own fault.

    In a purely free market, there would also be no basis for limiting restrictions on property rights, so if everyone agreed to contractually bind a property in perpetuity (e.g. this property will revert to the owner or the owner's descendants or closest relative if the terms of this contract are violated) then we could easily end up with our current system where there is no possibility of homesteading or purchasing property without restrictions.

    If you are born into such a system, is it an unreasonable restriction on your freedom, or are Rothbardians just as whiny and entitled as they claim everyone else to be?

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  14. "I mean that the government has to take money or purchasing power of money away from the non-government sector first, before it can spend money or purchasing power on "rebuilding slums."

    There is no necessary reason why it must do that at all, especially in a depression. The central bank can simply buy government bonds creating the money.

    If they do that then they will just take away people's purchasing power. The net result is the same. Either the governments take $500 from you outright, or they take $500 in purchasing power through inflation. Your lessened ability to buy goods is not changed.

    "I mean that the government has to take money or purchasing power of money away from the non-government sector first, before it can spend money or purchasing power on "rebuilding slums."

    There is no necessary reason why it must do that at all, especially in a depression. The central bank can simply buy government bonds creating the money.

    If they do that then they will just take away people's purchasing power. The net result is the same. Either the governments take $500 from you outright, or they take $500 in purchasing power through inflation. Your lessened ability to buy goods is not changed.

    And even when bonds are issued, this is mostly re-directing money from financial asset markets, or just idle money (or even money lent by foreigners) to purchasing of goods and services in government programs.

    That doesn't make it justified.

    The bond holders are freely buying the government's bonds.

    You're ignoring the fact that the inflation still takes people's purchasing power away.

    "You're ignoring the fact that the initial spending extracted resources out of the economy without putting any production in prior to acquiring that money."

    So does a private loan.

    Wrong. The person who lent the money, if they are in the private market, they must have performed some service or sold something to someone else in a voluntary exchange in order to acquire that money, or they were given it via charity, which is also value creating if the giver does so voluntarily and thus derives utility from it.

    In a free market, acquiring a private loan is a voluntary transfer of money from one person to another, and the giver of money is not a productionless parasite like the state when they inflate and spend unearned money that was not acquired via producing something of value to others in exchanges, but rather, the acquirer of money gave the giver some value in return, in which case there is no one sided value transfer, but two way, mutually beneficial value transfer.

    Anyway this just collapses into a moral argument about fractional reserve banking.

    Not so fast. You need to first understand that there is a difference between the creation of money out of nothing, or the violent acquisition of money through coercion, which is unproductive, and the acquisition of money through voluntary exchange, which is productive.

    I and my clients in a Rothbardian system wish to engage freely and voluntarily in the use of fiduciary media and fractional reserve banking.

    Then you are defrauding others who are paid not in money, but in credit promises.

    Then there is the fact that FRB results in more than one ownership claim to the same property (money), and FRB is clearly fraudulent. The fraud is manifested when there are bank runs and banks fail to maintain their promise to keep depositor's money safe and available at all times.

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  15. There is nothing coercive about our use of fiduciary media as means of payment.

    It is fraudulent, which is based on coercion. In this case, coercion against those seeking to enforce their contracts of the banks keeping depositor money safe and available at all times.

    All parties consent freely to their use.

    No, not all parties. You're ignoring third parties who are defrauded if a bank and bank client collude to pretend that a given sum of money is owned by both the bank and the client at the same time.

    The only way you can stop us is to use coercive violence and force. The Rothbardian system violates private liberty.

    FRB violates private property. It's not an initiation of violence to stop violations of private property.

    Anyway, the rest of your arguments are refuted by the case of New Zealand’s Keynesian fiscal stimulus during the late 1930s:

    Economic theories are not "refuted" by past economic data. Only empirical economic claims are refuted by past data.

    Money was created by the central bank for spending programs, not just by debt.

    Cantillon effect results in transfer of wealth away from those who receive the new money last, to those who receive it first.

    "'Income' here is being treated as 'money not earned but acquired.' More 'money not earned but acquired' doesn't help the general economy. It can only transfer wealth away from those who produce and towards those who didn't produce."

    You complain that stimulus involves giving money away without people earning it.

    False. Money is earned by workers in government public works programs, as it was in New Zealand from 1936-1938: they were engaged in creating public infrastructure.

    The money that was given to them was not earned prior. I didn't say that those who receive government money don't work or perform labor.

    If I stole your money, and then paid someone to build me a school for blind children, then you cannot say that value was created. For I prevented you from spending that money yourself.

    You're focusing only on what happens after the government takes people's money, and ignoring how they got that money and what it means for the people who had to pay for it.

    That was infrastructure that added value to the private sector by providing better and new roads, railways, public buildings, land improvement, and hydro-electric power. All infrastructure which tremendously benefited the private sector too.

    No, you cannot say it added any value, because you did not observe people spending their money voluntarily. You observed some people take other people's money by force, and then those some people spent that money on themselves and their friends. That is a net loss to those who were forced to pay. If it would make gains, then they would have paid the money voluntarily themselves.

    Also, government financed housing loans created a large stock of homes created by the private sector.

    It was not economic, because the government does not know how many houses should be built, because they don't operate in the sphere of economic calculation, of profit and loss.

    In the US they tried the same thing, which is why they blew up a housing bubble which burst in 2007.

    You're ignoring the COSTS of building those homes and what it meant for what could not be produced because of it.

    Just more evidence that you have no clue of the nature of economic calculation.

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  16. "If they do that then they will just take away people's purchasing power. The net result is the same. Either the governments take $500 from you outright, or they take $500 in purchasing power through inflation. "

    That's rubbish. The primary effect of spending - either public or private - in such circumstances is to increase production of output and employment, just as the case of New Zealand shows.

    "The person who lent the money, if they are in the private market, they must have performed some service or sold something to someone else in a voluntary exchange in order to acquire that money,"

    False. FRB allows that. That is the nature of capitalism. Rothbardianism is simply mistaken about the nature of FRB. It isn't theft.

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  17. "Then you are defrauding others who are paid not in money, but in credit promises.

    Then there is the fact that FRB results in more than one ownership claim to the same property (money), and FRB is clearly fraudulent"


    That is rubbish:

    http://socialdemocracy21stcentury.blogspot.com/2010/06/fractional-reserve-banking-evil.html

    Anyway, it is also a amoral judgement all dependent on your rubbish propertarian ethics.

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  18. Economic theories are not "refuted" by past economic data. Only empirical economic claims are refuted by past data.

    That's true - economic theories are "invalidated" by past economic data; only claims are "refuted".

    ReplyDelete
  19. "Economic theories are not "refuted" by past economic data. Only empirical economic claims are refuted by past data."

    Do you even know how theories work?

    In fact, don't give me an answer, I'm sure it is going to be on the same level of the quoted statement and I would rather spare my eyes the agony.

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  20. Anonymous,

    I think that commenator was joking. All his remarks there and in earlier comments were in jest.

    ReplyDelete
  21. No. He is not joking. This is what Austrians actually believe, that they're theories do not need to refer to facts. So they are serious when they make these statements. Theories in real science are meant to interpret facts.

    We shouldn't ignore what the Austrians tell us they believe, as it is proof that they are crazy.

    --successfulbuild

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  22. "If they do that then they will just take away people's purchasing power. The net result is the same. Either the governments take $500 from you outright, or they take $500 in purchasing power through inflation. "

    That's rubbish. The primary effect of spending - either public or private - in such circumstances is to increase production of output and employment, just as the case of New Zealand shows.

    No, the primary effect of government spending is a transfer of wealth away from those who produce, to those who do not produce, or produce less efficiently.

    The primary effect of private spending is a production of wealth, because one needs to generate something of value in order to acquire money.

    New Zealand does not show that government spending fixed the economy. It just shows that the government can steal other people's money and hire people for make work projects.

    "The person who lent the money, if they are in the private market, they must have performed some service or sold something to someone else in a voluntary exchange in order to acquire that money,"

    False. FRB allows that. That is the nature of capitalism. Rothbardianism is simply mistaken about the nature of FRB. It isn't theft.

    I said private market, which means no fraud. Rothbard was not mistaken about FRB. It is fraud and it does lead to illegitimate wealth transfer.

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  23. "Then you are defrauding others who are paid not in money, but in credit promises."

    "Then there is the fact that FRB results in more than one ownership claim to the same property (money), and FRB is clearly fraudulent"

    That is rubbish:

    http://socialdemocracy21stcentury.blogspot.com/2010/06/fractional-reserve-banking-evil.html

    That post is rubbish. You're ignoring the fact that frb leads to more than one property title for the same property.

    You're ignoring the business cycle that is generated on the basis of it.

    You're ignoring the fundamental difference between a loan and a demand deposit.

    Introducing more property titles does not increase the quantity of property (wealth).

    Anyway, it is also a amoral judgement all dependent on your rubbish propertarian ethics.

    To say that FRB is morally justified because "it's voluntary between bank and client" is a moral argument all dependent on your rubbish irrational ethics.

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  24. Anonymous:

    "Economic theories are not "refuted" by past economic data. Only empirical economic claims are refuted by past data."

    That's true - economic theories are "invalidated" by past economic data; only claims are "refuted".

    Theories are claims.

    Economic theories/claims are not invalidated by past data.

    Only historical claims are invalidated by past data.

    "Economic theories are not "refuted" by past economic data. Only empirical economic claims are refuted by past data."

    Do you even know how theories work?

    Yes.

    In fact, don't give me an answer, I'm sure it is going to be on the same level of the quoted statement and I would rather spare my eyes the agony.

    You don't understand the difference between theory and history.

    Two mutually exclusive economic theories can both be consistent with past data, which means past data cannot serve to invalidate/refute/falsify/etc those theories.

    Example:

    History: Regulation has grown alongside the growth in the economy.

    Theory 1: The economy grew BECAUSE of the growth in regulations.

    Theory 2: The economy grew DESPITE the growth in regulations.

    Both theories are consistent with past history, but they contradict each other.

    Thus, past data cannot serve as a foundation for economic theories. I'll give you a guess on what the proper foundation for economic science really is. Hint: It ends with an "ism." LOL

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  25. I'll give you a guess on what the proper foundation for economic science really is. Hint: It ends with an "ism."

    I'm pretty sure praxeology doesn't end in "ism", so you must mean Marxism.

    LOL indeed.

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  26. THis string of comments really saddened me. I was hoping that I could find intelligent discussion on this site, but "Pete," instead prefers the kind of snotty sophism that prevails on cable news these days and his targets have taken the bait.

    Don't you see that there is no point to this? "Pete" is obviously not interested in honest debate because he is not open to persuasion or admitting error or to respecting at all the views of others. So why engage with him? He is just an thug. You only lower yourself to his level when you fire back in kind.

    ReplyDelete