“It was the intention of John Maynard Keynes to return to the age before Noah Webster. He wanted to go back to the Middle Ages when lending at interest was prohibited. At that time, people did not save. No capital was accumulated. Without capital, when a new machine was invented (which was rare), it sat in its inventor’s workshop because there was not enough capital in the world to build many copies of the machine and put it to work in factories producing wealth for people. In a word, the legalization of interest caused the factory system, which vastly increased wealth in the (northern)
Keynes provided an economic rationalization for paper money. He stumbled across two Americans, William Trufant Foster and Waddill Catchings. These were crackpots who had written a defense of paper money called, The Road to Plenty, in which they argued that the road to plenty for a society was to print money.
Keynes was clever enough to perceive that Foster and Catchings were being rejected by the general public because they were conservatives. Keynes plagiarized their theory and dressed it up as liberal and progressive. This is why Keynesianism is called “the new economics” and why it is full of mathematical mumbo-jumbo (which appears absurd to any mathematician and has the sole purpose to intimidate people).
Under Keynes’ influence, the U.S. started printing money in 1933 Since that time the U.S. money supply has multiplied by a factor of 80 (from $20 billion to $1.6 trillion) while the population multiplied by 2.3. (Per capita money supply multiplied by 35.).
But the point is that, if a person tried to save money in the U.S.A after 1933. in the manner that was done in the period 1788-1933, he found that, as his money accumulated from the interest, it lost its value from the depreciation of the currency. Using the official government CPI, the saver (in safe instruments) gained no real value between 1933 and 2009. His buying power was just the same. In effect, Keynes was successful. He did not stop the payment of interest. But he did stop the payment of real interest.
What does this mean for you and your economic plans? It is very simple. In general, you cannot retire. If you save your money and invest it safely, as was normal in the 19th and early 20th centuries, you do not accumulate real interest. The currency depreciates just as rapidly as your interest accumulates, and you are back in the Middle Ages when it was forbidden to pay interest and no one retired.
However, Keynes slipped up in two areas: stocks and real estate. If you own stocks, then the stock pays a dividend. This roughly corresponds to the interest on a savings account. It is a return on capital. And the price of the stock goes up as the value of the currency goes down. This makes up for the depreciation of the currency. It is the same with real estate. If you buy apartments or commercial property, in both of which the tenant pays rent, you are receiving a return on capital. And the rise in the price of the real estate offsets the depreciation of the currency. (Speculative real estate, such as raw land, does not apply here.)
There is one serious problem with both of these investments. They are very speculative. The stock market rose by a factor of 18 times from 1982 to 2007. But from 1966 to 1982, it fell by over 70%. These swings are speculative and tricky. But you cannot retire unless you play them because Keynes has taken away the traditional American (and British) method of safe investment……
– One Handed Economist.
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I was wondering why the name Waddill Catchings sounded familiar. Now I remember. He was involved in one of the most famous Ponzi schemes of all times, one at the center of the Great Crash of 1929. Mr. Catchings was part of the launch of the Goldman Sachs Trading Corporation (GSTC). Yes (sigh) Goldman was a part of that mess too…..