Aaron Swartz And Keynes

I was reading the Guardian and came across this comment on an article about Aaron Swartz.

Brilliant guy: I read his review of Keynes’s General Theory after I’d spent two weeks grappling with it. He summed it up beautifully, and I had decades on him.

In other words he mastered the essentials of macroeconomics by going to the founding text and teaching himself … out of interest.

I won’t forget that.

So I decided to have a look at the Swartz review of Keynes. Well I was gobsmacked. Because of the hatred of the “rich” everybody has gotten Keynes wrong for how long? Almost a century. Everyone has blamed recessions/depressions on money. Especially economists since their focus is the study of money. Men in top hats and monocles have been ruining the rest of us according to the common interpretation of Keynes. And politicians like Keynes because they like the idea of the state controlling things. Especially money. It doesn’t work.

So I replied to the comment:

Well, Aaron and Keynes missed a big one: unproductive investments on the books. In the past the purpose of recessions/depressions was to clear those off the books. The sooner they can be cleared (by investors taking losses – generally) the sooner recovery happens. The lesson of the great depression (read Friedman and also Hayek’s Nobel lecture) was that the people holding the bad paper were protected. This slowed clearing the books. That extended the depression. Keynes and Swartz also leave out what the “rich” do with their unspent money. They try to find profitable investment. Build capital. Swartz and Keynes assume the mattress theory of money. The money goes into a mattress (bank) and does nothing useful. So what governments can do to counter that is give people money to spend.

So maybe Swartz was not so smart after all.

So how can government actually reduce the lengths of and severity of recessions? Keep a constant stream of new knowledge coming. A recession is an indicator that the money flows need to change direction. You know who gets it? Y-Combinator.

Recessions are not a money problem. They are an idea problem. The big failure is that people latched on to Keynes ideas about money and paid scant attention to his points about ideas.

And Keynes’ talk about Gold mining as a disutility? Au contraire. It is a very useful metal. If used for something other than a store of value. All my circuit boards are gold plated.

I could go on.

I agree that Swartz’ death is a tragedy. But on Keynes – he got misled as has everyone else since Keynes. And Keynes himself never (to my knowledge ) corrected the error of focus. The problem is not money. It is productive ideas. And the people capable of implementing them.

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I might add that Marx also had the same problem. He assumed that people had run out of productive ideas and all that remained was to figure out an equitable way to share the pie. Because the pie was not going to get much larger. The only thing Keynes got differently was that new ideas had some utility and government by controlling the mass flows of money could make those new ideas happen. It doesn’t work that way.