The rise of both Bernie Sanders and Donald Trump clearly reflects the increasing desperation of large numbers of American voters. They know something is terribly wrong with the economy. They just can’t figure out what it is.
In supporting Sanders they confuse capitalism with the increasingly out-of-control crony capitalism that world governments have foisted on us. In supporting Trump, they seem to hope that the best way to guard the henhouse against the foxes is to put a fox in charge.
The irony of all this is that economist John Maynard Keynes, whose ideas provide cover for the crony capitalists inside and outside government, himself warned about this almost a century ago. This was of course before Keynes became a “Keynesian.” He wrote in The Economic Consequences of the Peace (1919):
“Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security but [also] at confidence in the equity of the existing distribution of wealth.
Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become “profiteers,” who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds…, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.
Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”
This well known passage was even quoted by leading Keynesian economist Greg Mankiw, advisor to George W. Bush and Mitt Romney, in his best-selling economic textbook. But in actual policy advice, Mankiw and other Keynesians ignore it, because they define inflation narrowly in terms of the government controlled consumer price or similar indexes. Thanks to this year’s presidential campaign, the consequences of crony capitalism are getting harder for the Keynesian establishment to ignore.