Following is a simple but powerful chart that explains a key difference between the Austrian School of economics and the Keynesian School of economics. (I cringe when using the label "Keynesian School of economics", since it is actually a political ideology with no basis in economics, except in terms of destruction.)
What we are looking at is the way that each system views Private Property and Time.
Note: To be more brief and direct, I will ascribe positions to the Austrian School based on my own interpretation. To get a full spectrum of Austrian views, refer to the vast library of materials on the subject.
First let's briefly look at Private Property.
Austrian View
The Austrian School holds that Private Property is inseparable from Liberty.
Therefore, a just economic system will not include any scheme that forces a person to work in order to retain his private property.
Keynesian View
In the Keynesian system, property tax essentially makes a person a tenant on government property. If the present owner does not produce enough to pay the tax, the government takes the property away and assigns it to a serf, I mean citizen, who will produce enough to pay the tax.
The Keynesian system is designed to allocate property based on production. The state is to be the beneficiary of the productivity of the property manager.
(We sometimes think of the Keynesian property manager as an "owner", but a true Keynesian never does. A Keynesian knows a serf when he sees one.)
Next let's briefly look at Time.
Austrian View
The Austrian School recognizes that people are more prosperous based on quantity, quality and efficiency of production. The more people produce, the more prosperous the society becomes.
It really is a simple idea. Produce more, have more.
In simple terms, to be more productive, we use machines.
Machines enter the production system through innovation, engineering, testing, manufacturing and deployment.
In order to bring a more efficient machine into the production process, one will need to use capital. The capital will come from real savings of real property which has been produced and collected in the past.
In simple terms, if my new machine makes everyone ten percent more efficient, then our purchasing power will increase by ten percent. We will all benefit from the extra production.
If the producer's project fails, then the producer will lose his collateral.
The investor will gain or lose based on the value of the collateral.
However, since everything we spent was a result of actual production in the past, every vendor was fully paid and society is essentially unaffected. (There are effects, but the effects are positive and not important for this discussion.)
Keynesian View
On the other hand, the Keynesian approach is based on consumption. The idea is that if we increase spending, the economy will prosper. A sophisticated argument can be made, but I will keep the explanation very simple by noting two things.
First, the Keynesians explicitly state that the purpose of their system (which we have used for over 100 years) is to destroy capitalism and therefore to destroy liberty.
In other words, the consumption model is bad, to put it lightly.
Secondly, because the way the "economy is stimulated" is by borrowing against future productivity in the form of costless money, this approach is like an individual attempting to borrow his way out of debt. That doesn't work.
The Keynesian model is anti-liberty, anti-capitalism, anti-prosperity and leads to destruction. Keynesianism is about instant gratification and promises the bill will be paid with future (read "kids and grandkids") production.
The Austrian model is in agreement with Biblical principle and leads to liberty, justice, prosperity, and personal accountability. The Austrian School is about good stewardship of work that has been completed in the past.
2 comments:
The saddest part of this truth is that up until I met you, I had never heard of the Austrian school of economics - and I considered myself to be a fairly knowledgeable person in the arena of money and banking. So sad that I went through years of college and never once heard of these truths!
It is a real shame - a disgrace actually. I spent more than a decade searching to understand what was broken.
I knew something was at the root, but I couldn't put my finger on it. At every opportunity, I asked all the educated and experienced people I could find. Either no one knew, or those who did were too cowardly to speak up.
It is an epic tragedy that we have lost this knowledge that our founders knew so well.
Honest money limits the scope and sustainability of oppression. It forces tyrants into the open because oppression then must be overt and by force.
We have to return to sound money if there is to be any hope of liberty for our children.
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