Idlers and good-for-nothings

I’m in the midst of a book on the coming of Keynesian economics into the world and the disappearance of classical theory. I have just now finished a section discussing the first Keynesian textbook ever written, Lorie Tarshis’s The Elements of Economics, which I thought I might share a bit of which with you.

Tarshis’s text made Samuelson and other economic writers more cautious in how they discussed Keynesian theory. A passage such as the following would never again enter a Keynesian text, as accurate a reflection of the theory though it may actually have been.

“To put it bluntly, employment and income, in money terms, can be expended to respond equally whether the government sponsors useful public works like highway construction, or completely useless ones like digging ditches and filling them up again. In either case, because the income of the newly employed would be higher than before, they would increase their spending, so that the output of consumers’ good would be expanded and the upward swing begun. Naturally we should prefer projects which directly add to our real wealth. Flood-control projects, highways, parks, school buildings, research projects, housing, and so on are better than leaf-raking and useless excavations. But the latter are better than nothing, for even though the projects are useless, carrying them out leads to an increased output of consumers’ goods. And even though the men responsible for the increased demand were idlers and good-for-nothings, their dollars, in our economy, are as powerful as any others in increasing consumption, income, and employment.” (Tarshis 1947: 518)

Possibly the most revealing passage in the entirety of Keynesian literature.

It was overrun the following year by the first edition of Samuelson’s Economics, in part because Samuelson’s was a much better book, but also because he was a bit more candid about what Keynesian theory meant in practice.

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29 Responses to Idlers and good-for-nothings

  1. Biota

    So with all the social security payments now being made to whoever (as productive as digging and filling), the economy should be humming along. Pay them more.

  2. Grumbles

    Every Macro economic policy should be able to be explained in a closed society of just 10 people. It is at this level that the waste, stupidity and unfairness is most obvious.

  3. Howard Hill

    LOL! I tried paying my kid more to mow my lawns; thinking if I paid him enough he could in turn pay me more board to the point we would both be rolling in riches. That was twenty years ago and we’re both still poor. Where did I go wrong?

  4. Percy Popinjay

    But the latter are better than nothing, for even though the projects are useless, carrying them out leads to an increased output of consumers’ goods. And even though the men responsible for the increased demand were idlers and good-for-nothings, their dollars, in our economy, are as powerful as any others in increasing consumption, income, and employment.

    “I am Keynezeemandias, Fraud of Frauds – look on my works, ye mighty and despair”.

    With apologies to the Vogons.

  5. Dr Fred Lenin

    Steve ,those are not nice names to call your fellow economists,do try to be more polite .

  6. But the latter are better than nothing, for even though the projects are useless, carrying them out leads to an increased output of consumers’ goods. And even though the men responsible for the increased demand were idlers and good-for-nothings, their dollars, in our economy, are as powerful as any others in increasing consumption, income, and employment.

    From where the fug did these dollars for the idlers come from?
    They were ripped out of the economy (as taxes) by the government, then returned via these idlers (with a hefty proportion wasted by the process).
    Just as digging holes and filling them up again creates noting useful, taxing the productive (digging a hole in the economy) and returning it via “idlers” (filling up the hole) does nothing productive for the economy.

  7. Colonel Crispin Berka

    Nitpick time.

    in money terms, can be expended to respond..

    Is that misspelling in the original? If so stick a [sic] on it.

    because he was a bit more candid about what Keynesian theory meant

    Surely you mean less candid? ie. Samuelson was not as blunt and candid as Tarshis?
    Otherwise you would have said Samuelson had the most candid quote about Keynesianism, not Tarshis.

  8. Roger W

    Why bother digging holes and filling them in?
    Why not just send us some money?
    Maybe start with $1000? Kevin Rudd thought that was a good idea and we all know how well it worked. Even if you were dead.
    But if $1000 works so well, wouldn’t $10,000 be better?
    $1,000,000 each better still? Then the economy would be really pulsing along.
    You know it makes sense.

  9. Chris M

    I don’t know much about economics but this sounds rather like a Nigerian version?

  10. mundi

    Wow I never realised they were so candid about this. I always assumed it was just fruad, but could they actually be that dumb?

  11. Leo G

    … even though the men responsible for the increased demand were idlers and good-for-nothings, …

    As ditch digging and refilling is not idling, Tarshish must be referring to those government men who sponsor useless public works.

  12. Chris M

    Just clicked – this is a prophecy about the NBN?

  13. Leo G

    Just clicked – this is a prophecy about the NBN?

    … and demand for mobile network technology.

  14. GregMan

    This has Broken Window Fallacy written all over it, which all by itself should invalidate the entirety of Keyne’s economics.

  15. Bad Samaritan

    Roger w (9.25pm)…one more time….

    Suppose I’m producing undetectable counterfeit banknotes in my basement. I’ve got a list of real serial numbers from somewhere and now have these genuine numbers on my perfect forgeries. I then tell my best mate I’ve had a secret inheritance and want to share it with him by giving him $10,000 per month for life. However, I also tell him to keep it secret as I don’t want to be overrun with spongers….which would also mean his $10,000 per month would be in jeopardy. What I don’t tell him is that I’ve made a similar deal with 99 of my other best mates. My town has about ten thousand residents (= about 3000 households)

    So, an extra million a month is now circulating in my small town. It has no productive (nor unproductive) work behind it at all. How will this pan out at the cafes, and restaurants and car dealers and furniture stores etc. Of course some will money will leave town on trips and travels, and on-line spending, but a great deal will be spent hereabouts. Will there be detrimental effects? If so, give me some specifics about how it’d actually happen…not some airy-fairy stuff like “it would cause maldistribution of resources” but something like “the car dealers would sell more cars and therefore demand bigger prices” if that’s what you think. Or “there’d be a stampede on caviar at Woolies, and a tremendous bidding war for champagne at Dan Murphy’s”. Would anyone see the increase in “demand” as bad?

    Bear in mind that i may have also told my 100 bestests to be “discrete” if they don’t want their fantastic good fortune to be discovered and then stopped by the hordes of scroungers wanting the money from them. OK, can someone tell me why this “Keynesian-style” cash-splash effort would be a failure at creating long-term “stimulus”. Thanks.

    BTW: I’ve posed this scenario several times and thus far no-one has come good with an explanation of why it would not stimulate a long-term boom. The cash-splash is long-term remember.

  16. 2dogs

    because the income of the newly employed would be higher than before, they would increase their spending, so that the output of consumers’ good would be expanded

    The inherent false assumption of Keynesianism. There is nothing to suggest that because of this spending:

    – those employed by it are newly employed, rather than taken from other productive endeavours (and the consequent loss to those endeavours may be larger than the benefit from this spending)

    – that the money borrowed for this spending would not otherwise have generated more economic benefit had it been used elsewhere.

  17. TPL001

    Keynesian economics, as it affirms a relationship between aggregates, as does mainstream Neoclassical and Neokeynesian macroeconomics, is a rejection of methodological individualism and an advocation of methodological holism or aggregation. That is, the methodology of economics begins either with the action of God, individual man or aggregate man.

    Unfortunately, in their desire to appear to be as sound as the physical sciences, particularly in the use of empiricism and mathematics, they have stumbled badly in their epistemology and adopted the use of methodological tools which make no sense to the individual.

    Roger W is correct. Why bother with the pretence? Just create money and spend your way into prosperity!

  18. Bad Samaritan

    2dogs
    #3137772, posted on August 22, 2019 at 5:56 am

    Stick with the newly employed since Keynes’ ‘solution’ was first tried-out (with Keynes sometimes in attendance) in the US to get the unemployed back on the job. Today, most make-work govt endeavours are aimed at the same target.

    Second; govt borrowings can be a smoke and mirrors trick, as is shown very transparently with US Quantitative Easing……explained as….

    “The Fed Reserve buys securities from its member banks to add liquidity to capital markets. This has the same effect as increasing the money supply. In return, the central bank issues credit to the banks’ reserves to buy the securities.”

    Note that the “securities” bought by the Fed are not backed by anything. The “member banks” have created their own incomeout ‘out of thin air” by issuing securities to the Fed, for which they now have digital credit entries in their ledgers…which they then lend out on to “stimulate” the economy. Smoke and mirrors.

    Now consider the guy creating money in his basement out of thin air and giving it to his mates to spend. No borrowings and no productivity of any kind to “back it” so how would this pan out?

    BTW: The “member banks” which owe the Fed because the Fed gave them “money” for their securities could default, or else the Fed could forgive them the loans if it felt like it, could it not? This is surely already understood by all involved in QE. Smoke and mirrors.

  19. Bad Samaritan

    TPL001 (7.42am) If I inherit millions…I have got it for doing nothing. I could have been given the same amount by the government. Am I not wealthy in either case?

  20. Roger W

    Dear Bad Samaritan,
    Look, I confess that I am an historian and not an economist, but I always thought that the hyper-inflation of early 1920’s Germany, when a loaf of bread that in Berlin cost around 160 Marks at the end of 1922 cost 200,000,000,000 Marks less than a year later, was the result of printing more and more money. Same more recently for places like Zimbabwe and Venezuela?
    In the words of the immortal bardess, Please Explain?

  21. Bad Samaritan
    #3137746, posted on August 22, 2019 at 3:27 am
    BTW: I’ve posed this scenario several times and thus far no-one has come good with an explanation of why it would not stimulate a long-term boom. The cash-splash is long-term remember.

    Why bother with the printing of undetectable counterfeits? (did a Keynesian perfesser come up with something so ridiculous?)
    Digging a hole in the ground and finding some yellow coloured metal has the exact same effect.
    Start researching historical records to find out EXACTLY WHAT HAPPENS in these scenarios DUE TO HUMAN NATURE.

    Bear in mind that i may have also told my 100 bestests to be “discrete” if they don’t want their fantastic good fortune to be discovered and then stopped by the hordes of scroungers wanting the money from them.

    Again, these “book-learnin” hypothetical scenarios never pan out in real life. The first man to find the yellow metal guards his secret with his life, yet………..yet.

    We live in the real World. No one is going to create perfect counterfeits and distribute to family and friends. Keynesian economics is about GOVERNMENT either printing extra money (inflation), or increasing taxes on current and or future generations.
    Keynesian fans forget what money is. Money is a representation of the value of work one has done. If government (or clever counterfeiter) creates money out of thin air, that dilutes the value of work done by everybody.
    At least finding yellow metal in the ground isn’t creating something out of thin air (gold is sought after), but even then every single gold rush has ended in disaster after an initial boom.
    This is elementary level stuff.

  22. Terry

    @Baa Humbug
    #3137375, posted on August 21, 2019 at 6:04 pm

    “Just as digging holes and filling them up again creates nothing useful, taxing the productive (digging a hole in the economy) and returning it via “idlers” (filling up the hole) does nothing productive for the economy.”

    But that’s just the point. The hole is never quite filled is it.
    They dig down to a metre and take the soil, and then skim a little (or a lot) from the top before returning what is left.

    They have to take their cut along the way. After all big government is “entitled” to it. It’s theirs. And they know best how to spend it anyway. The people would just “waste it” by exercising their free will, and that just cannot be allowed to happen.

    Now you have a 90% filled hole and the process repeats.

    Pretty soon you have nothing to fill that hole but the bodies of once productive citizens.

  23. Terry
    #3138012, posted on August 22, 2019 at 10:57 am
    Pretty soon you have nothing to fill that hole but the bodies of once productive citizens.

    Yes

  24. Winston

    Baa Humbug,

    Yes. Bad Samaritan – Nauru is a real life case study of your theory. You’ll have the per capita richest society on Earth . . . for a while. Then people will stop working and/or start upping the cost of their labour. And after a while, productivity will collapse as local prices make importing everything you need the most sensible proposition. And then those prices will rise, albeit not as fast as local prices do, until the system stablises to soak up the extra money.

    Once you yank the free money from the system, everything collapses.

    To put it another way, McDonalds sells a Big Mac for something like $6.50 because people are willing to pay $6.50 for it. They’d sell it for $650 if you were willing to pay that much for it. It’s the same for everyone else.

  25. Mark M

    Cash is not a crime!

    Scott Morrisons cash ban traps Australians in banks …

    Scott Morrison’s Currency (Restrictions on the Use of Cash) Bill 2019 is a fraudulent assault on the freedoms of Australians.

    Banning cash transactions over $10,000 will not end the tax evasion and money laundering of the “black economy”, but will strip individuals of their right to privacy in financial affairs, and trap them in private banks, unable to escape policies such as “bail-in” and negative interest rates.

    It is outrageous that this cash ban is a recommendation of one of the big four global accounting firms, KPMG, which wrote the 2017 Black Economy Taskforce report and is already lobbying for the limit to be reduced to $2,000.

    KPMG and its fellow big four firms are complicit in the overwhelming majority of tax evasion and money laundering, which is perpetrated by their clients in multinational banks and corporations, not by individuals using cash.

    via: https://www.change.org/p/scott-morrison-stop-scott-morrison-from-banning-cash-to-trap-australians-in-banks?recruiter=995853491&utm_source=share_petition&utm_medium=twitter&utm_campaign=psf_combo_share_initial&recruited_by_id=37002430-c3d4-11e9-95f4-bf2e218f18f5&share_bandit_exp=initial-17358792-en-AU&share_bandit_var=v1

    Yutube digital finance analytics: The Real Issues Behind The Cash Ban

  26. Bad Samaritan

    Baa Humbug (10.36am); It took you quite a while to make the key statement “Money is a representation of the value of work one has done.” and ” If government (or clever counterfeiter) creates money out of thin air, that dilutes the value of work done by everybody.Which is what I’ve been waiting a long while to read…..which is exactly as Karl Marx formulated it (=the Labour Theory of Value).

    Almost everything is produced by labour (Factor 2 in the means of production)…including the other three means of production, Then the labour is paid for by the “boss” (=Enterprise = Factor 4 in production)…and then a profit margin added by him/her to pay for his/her labour. The boss pays for the machinery and plant (=Capital= Factor 3 in production, also produced by labour) and resources needed (=Land= Factor 1 in production, also produced by farmers’ and miners’ labour).

    OK so now that you think you’re getting there, then the next step is to work out why you are not getting there.. The vast amounts of borrowed money in all western economies “should” see incredible inflation as money with “no value” (ie no work done to earn it; just “given’ by banks and govern ments) chases only goods which have been already produced by labour. There should be a mismatch…but there isn’t. Marx may have been correct in 1867…but not now.

    And then there’s Winston and Roger W getting snarky because they know there’s “free money” everywhere; that Australians owe trillions, but there is hardly any consumer inflation. So they imagine it’s a hundred years ago in Germany…or else that big macs are what counts. But no….

    2018; “(RBA says) the country’s biggest retailers are suffering from a long spell of deflation that is unlikely to subside soon.” Which is why interest rates are now rock-bottom and still falling. All that money sloshing around and no wheelbarrows of cash needed to buy a loaf of bread nor a Big Mac. Whoever woulda thunk it?

    The answer is that imports are flooding in at lower prices than they cost to really produce. Via subsidization and currency manipulation overseas producers are making stuff and selling it “cheap”. Ya see guys, when we are already flat out consuming 24/7, it becomes ever harder to consume more, which means there’s already an over-supply of almost everything. While there are only so many services you can pay for (seven movies/musicals a week followed by seven restaurant meals?} there is the possibility of stuffing your home and garage with more and more gadgets…then throwing them away for no other reason than to get new ones.

    However, since 99% of that stuff comes from overseas…well you know the rest; prices falling, falling, falling! Classical theory is wrong in the modern world! Cheers.

    BTW Baa Humbug…..US Quantitative Easing is the very essence of massive “inflation of the money supply”, and no inflation. Instead of telling us it’s “elementary” why not consider where your mistakes are and not make them again? Oh, and a link….https://www.investopedia.com/terms/f/factors-production.asp

  27. Winston

    Bad Samaritan – sorry, i really don’t have the faintest idea how you’d feel I was being snarky. It was genuinely attempting to answer your question. You’ve missed the point with the Big Mac example.

    Without wanting in any way to add to that perception, I believe there is a very significant difference to the ‘free’ money that you were originally proposing, and the ‘not so free’ money of low interest lending. Your original proposal doesn’t involve running up an debt to someone else. A $100 million of borrowed money with 0% interest still leaves me with a $100 million debt. A $100 million of undetectable forged money, at worst, leaves me with $0 if it were somehow identified as such.

  28. Bad Samaritan
    #3138138, posted on August 22, 2019 at 1:08 pm

    I don’t know what the hell you’re on about.
    You posted a long tripe about counterfeiting money and distributing it to family and friends on the hush and asked what would happen.
    I correctly told you that what you’re proposing is similar to someone finding gold and told you to research what happens in the countless instances that that happened in history.

    No inflation you say? Costello sold off Australia’s gold reserves in 1997 for about $300 per ounce. Today gold is $2000 per ounce. There’s your real inflation.

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