Turns out Keynes was a Commie

Awareness of the centuries old concept of The Cantillion Effect has been experiencing a revival of late, particularly since the extraordinary acceleration of monetary injections that occurred under COVID. Named for the French-Irish economist who died in 1734 (he was murdered), the Cantillon Effect is when you create a bunch of new money and inject it into an economy. What happens is the people at the front of the line who receive the new money first become wealthier, while the people at the end of the line who receive it last are further impoverished.

This is not peculiar to the post-Covid era. For more than a decade I’ve been describing how rampant money creation and credit expansion skews formerly free markets into a kind of economic vampirism, without actually knowing there was a term like this to describe it.

From my vantage-point as a tech CEO running a company that has never taken on VC funding, it unfolded as having to compete with multiple deep-pocketed 800lb gorillas and billion dollar unicorns who were losing money on every transaction and driving a race to the bottom across the entire industry. Companies like ours have to be profitable or perish. Serially funded unicorns just have to keep their burn rate below their fund-raising tempo.

Marc Andreesen, the noteworthy VC icon touched on it with his famous “Software is eating the world” euphemism, but it failed to capture the financialization aspect of it. It’s more like “serial up-rounds are eating the world”.

The dynamic intensified dramatically under COVID. Not only were the monetary injections accelerating, but governments globally shut down small and independent businesses for nearly two years, and then central banks went out and bought the bonds of the quasi-monopolies who were left.

Via Statista – the Fed purchased bonds of companies controlled by every person on this list.

But even if the people at the front of the line have a privileged position, why does this necessarily translate into them either using that position to launch, fund and flip money-losing unicorns, or hollowing out via financial engineering what would have otherwise been long term viable businesses?

It’s the currency debasement, stupid

When the cost of capital is cheap, like near-zero cheap, companies never have to be profitable. In fact if the capital pool is growing faster than the operating earnings are, you’re actually incentivized to eschew profits in favour of taking on funding – provided you have a short-term time horizon.

Here’s the thing about printing money: because it devalues the currency, it compresses time horizons.

If you think of currency as “shares” in the economy they denominate, then it should be easy to grasp that by increasing the number of currency units, you aren’t magically growing the economy. You’re just increasing the numerator (the currency units) while keeping the denominator (the actual goods and services available) the same.

If the numerator grows, that means it takes more currency to buy the same goods and services, so it is experienced as variations of “number go up”:

• For people who are already wealthy: assets increase in “value” because they are being measured in more units
• For everybody else: food, shelter and essentials get more expensive, same reason.

In fact government metrics that define some arbitrary “poverty line” as being based on some level of income almost completely misses the point. The line between poverty and wealth should more accurately be measured in terms of net assets. The wealthy have assets – that compound. The poor have bills – that get more expensive.

Whenever the monetary authorities increase the currency supply or expand credit, it is always proffered as a necessity of saving the system. The fact that the reason the system needed saving in the the first place was a direct consequence of previous expansions is ignored or shouted down.

There are only three real moves in the central banker toolbox: print money, expand credit, suppress interest rates.

The intellectual basis of this approach is often rationalized as a prescription dictated by  “Keynesianism” or “Keynesian economics”, after John Maynard Keynes, the intellectual father of mainstream “economics” as it is known today.

Keynes was a bit of a mixed bag. Though often cited for his “gold as a barbarous  relic” quote, he ended up heavily allocated in South African gold miners years after he wrote that. Mid-way through his career he swore off macro investing, coming to the opinion that no amount of macro knowledge would give you an edge at the company level: he had become a sort of proto-value investor.

He was also a pederast, having kept detailed records of  numerous young, mostly male partners, their names and ages, which are preserved still in the archives at King’s College, Cambridge …he was a Malthusian believing it was “the salvation of the British economy” and eugenicist – having served on the board of the British Eugenics Society.

…and, as it turns out, Keynes was a raving pinko. Full blown Commie.

The Socialist scaffolding of Keynesian Economics

Vladimir Lenin is often attributed as saying “the best way to destroy the capitalist system is to debauch the currency.” However the quote is possibly apocryphal, because the earliest reference to it is a citation by Keynes in his Economic Consequences of Peace. 

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. … As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless;…

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.

Keynes is describing The Cantillon Effect, and yet, as we’ll see, Keynes may not have been viewing this as a bad thing. While Keynes clearly understood that government spending and money creation drove wealth inequality, it seems as though he viewed this as a beneficial dynamic, because it would inexorably lead toward the ultimate wealth inequality: Communism.

Contrary to the popular platitudes that socialism and communism are about achieving equality for all, going so far to prescribe absurdities like “equality of outcome”. The reality, documented by the likes of Dr. Kristian Niemietz in his “Socialism: The Failed Idea That Never Dies”, is that the only equality brought about by collectivism is where everybody beneath the thin scab of elites and their apparatchiks are equally mired in poverty and servitude.

In Edward W Fuller’s “Was Keynes a socialist” paper, published 2019 in The Cambridge Journal of Economics, Fuller looked at whether John Maynard Keynes, the chief architect behind the entire edifice of conventional economics (and arguably it’s intellectual descendants like Modern Monetary Theory) was a socialist.

He compared the defenses of Keynes as “a liberal who wanted to save Capitalism” against various writings, correspondence and accounts of Keynes himself and from those who knew him, including his own father.

John Neville Keynes,  journaled on Sept 6, 1911 ‘Maynard avows himself a Socialist and is in favour of the confiscation of wealth’. Turns out this was not a passing fad, it was a lifelong devotion. Young Keynes first came out as a socialist in February 1911, declaring that:

“the progressive reorganization of Society along the lines of Collectivist Socialism is both inevitable and desirable”

Over the course of his career Keynes authored numerous odes to socialism, fraternized with notorious socialists like George Bernard Shaw (head of the Fabian Society) and Owen Mosley, who founded the socialist New Party in 1931, which later morphed into The British Union of Fascists.

Keynes supported the Bolshevik Revolution, even though it had seized power in a coup d’etat against what was then the only democratically elected government in Russia’s history (“the only course open to me is to be a buoyantly bolshevik”.) Keynes became a regular attendee at the 1917 Club, a Soho meeting place in vogue amongst socialists of the day, named to honour the year of the revolution.

It was at the 1917 Club where members of The Fabian Society met. The Fabians wanted to usher in global communism, but instead of doing that through, sudden, violent revolutions (a la Marx) they would take their time.

They thought in generational increments and proposed the slow, steady infiltration of higher education, government bureaucracies, cultural chokepoints (theatre, pop-culture, the media and the press), and posited that over time they could pull society toward collectivism without anyone realizing it.

Their emblem was a wolf in sheep’s clothing.

As per Keynes: “Socialism can be introduced gradually….the economic transition of a society [into Socialism] is a thing to be accomplished slowly”.

Fuller’s paper concludes that Keynes was a non-Marxist socialist, meaning he eschewed the obsession with the idea of class struggle and focused his thinking around increased State control over the economy.

If Keynes was a commie, why does it matter?

In a previous incarnation of this blog, I wrote about Keynes’s predictions of a theoretical future where humanity would be freed from all care of day-to-day concerns through expert management of the economic cycle by credentialed technocrats.

He called this future state “Bliss” and described it in his essay The Economic Possibilities of Our Grandchildren (coincidentally cited via marxists.org)

The pace at which we can reach our destination of economic bliss will be governed by four things – our power to control population, our determination to avoid wars and civil dissensions, our willingness to entrust to science the direction of those matters which are properly the concern of science, and the rate of accumulation as fixed by the margin between our production and our consumption; of which the last will easily look after itself, given the first three.

Economic bliss sounds a lot like fully automated luxury communism. But you can’t get there if the rabble is still making economic decisions for itself. Free markets must be destroyed, and only credentialed elites can be permitted economic autonomy. (That’s why nobody’s life, liberty or property is safe whenever the World Economic Forum is in session).

Keynes laid out a path to get there. Through endless money printing, the Cantillon Effect would lead to the destruction of the middle class. By wrapping it within a cloak of crypto-socialism, he gave it a veneer of intellectual acceptability:

“The work of monetary cranks like John Maynard Keynes taught in the modern universities the notion that government spending only has benefits, never costs. The government, after all, can always print money and so faces no real constraints on its spending, which it can use to achieve whatever goal the electorate sets for it”
— Saifedean Ammous, The Bitcoin Standard.

In Saifedean’s follow up, The Fiat Standard, Keynes and Marxism are mentioned as having large areas of overlap, goals and practically identical results:

“The number and influence of third-world leaders who were educated in British and American universities from the 1930s onward is staggering…anyone familiar with the economic history of developing countries, or with the rhetoric of any development agency or ministry in a developing country, will see this influence in the distinct stench of Marxist and Keynesian notions of central planning.The entire framing of the notion of economic development is driven ultimately by a highly socialist view of how an economy works.”

“By the 1970s, the development failures piled high, and a lot of soul-searching within the misery industry would lead to more government control and more centralized economic planning. As the “dependency school” approach became more popular, government central planning became far more pervasive. The combination of global easy money, following the U.S. government’s decision to suspend gold redeemability, and governments and international bureaucracies staffed with Keynesians and Marxists proved disastrous.”

Fuller’s paper goes a long way in providing an explanation on why collectivism and Keynesianism seem to resemble each other: it’s the same thing. It is all statist, centralized technocracy under the guise of

a) high-minded collectivism for the useful idiots of the working class, and

b) high-powered intellectual macro-economic policy for the useful idiots in the universities and think tanks.

This could be why we’re demonizing capitalism, energy, self-reliance, family, spirituality and anything else that falls to the right of Stalin. This is why Big Tech unicorns are by their own admission “commie as f*ck”, and why many of the celebrity class these days are self-proclaimed “woke” socialists. Especially the super-rich ones.

The good news

There was a time, especially under lockdowns, when I looked at the direction things were going, and I thought the Fabians had achieved complete victory. World socialism was practically here, having arrived under banners with names like The Great Reset, The Fourth Industrial Revolution and Stakeholder Capitalism.

Even worse, large swaths of the public seemed to be clamouring for it.

COVID stimulus showed how the lubricant for a globalized socialism was the monetary printing press. In his day, Friedrich Hayek (the anti-Keynes) realized this as well and was similarly pessimistic.

“I don’t believe we shall ever have a good money again before we take the thing out of the hands of government, that is, we can’t take it violently out of the hands of government, all we can do is by some sly roundabout way introduce something they can’t stop.”
— Hayek, quoted in The Bitcoin Standard, p72

Enter, Satoshi.

The epiphany I had, and I’m not alone, is that we are not entering an age of centralized, technocratic authoritarianism, we are in the process of departing from it. We’re in the end game now. The crescendo of an age which has been unfolding for over a century – the era of the welfare state.

With the arrival of the Internet, and then Bitcoin, we’re undergoing a phase shift into the decentralized era of network states and micro-sovereigns.

The near universal mismanagement of COVID, from the possibility of a lab leak in the first place to being absolutely wrong about everything after that, pulled forward about 20 years of this tension and crammed it into 18 months. Too much, too soon. We were on track to gradually transition to a decentralized society via an interim phase of technocratic authoritarianism that could have lasted for decades, before giving away to the inevitable decentralized society. But now, we’re looking instead at a disorderly phase shift into deglobalization and decentralization. It’s already happening.

We’re at a point where reality is intervening with ideology and it was the pandemic that brought us here a few decades before I would have otherwise expected it. The conventional COVID narrative has all but broken down completely. Trust in institutions and experts is plummeting, the corporate media is a joke.

We may have already blundered our way into World War 3, while incumbent politicians around the world are being swept out of office on a wave of public backlash. Then there’s the economic and physical consequences of batshit policies that threaten to overwhelm our supply chains and energy availability everywhere.

Woke capitalism is being exposed as a sham. The public increasingly sees the Party at Davos as saturated with hypocrisy and arrogance.

The numbers don’t lie. #WEF #Davos was always about advancing Neo feudalism.? pic.twitter.com/RkQkS1iySx

— 21st Century Wire ?? (@21stCenturyWire) May 22, 2022

Make no mistake, we’re talking about the end of an epoch and the demise of the legacy power structure. Not only in terms of who the incumbents are, but the very architecture and fabric of how geopolitical and economic power is configured.

The old guard will not go down without a fight, and for the moment, they have the institutions and the media, but that is already changing.

“We’re all Keynesians now” was the intellectual rallying cry of the fiat era. Laser eyes will be the defining meme of the next one.

If I had to offer advice to anybody who was looking for ways to pivot their existing affairs and navigate the coming changes I would bullet point them as follows:

• Do not be reliant on government entitlements: these will soon be delivered via CBDCs and be full-throated social credit systems
• Turn off your TV, cancel all mainstream media subscriptions: read more books, get your news through alternative / indie media channels (start with The Sovereign Individual, both Saifedean Ammous books, and George Gilder’s Life After Google)
• If you’re a business owner: start taking crypto payments and HODL them
• If you’re not a business owner: Start one. Even a kitchen table business that you can grow over time.
• And stack sats. Always be stacking sats.

Buying Bitcoin is calling bullshit on everything

— Interstellar (@InterstellarBit) May 27, 2022

We’re going through a Fourth Turning-style phase shift. It will be turbulent, violent and at times terrifying.  But it will also bring boundless opportunity. Never before have we lived in an age where nearly anybody can go from a standing start to financial independence and self-sovereignty in the shortest amount of time with the lowest barriers to entry.

This dynamic will only intensify over the coming years and in the long run, this is what will propel a quantum leap in the human endeavour.

The world is undergoing a monetary regime change. Get the Crypto Capitalist Manifesto free, when you join the Bombthrower mailing list. Follow me as @bombthrower on Gettr or if you haven’t been kicked off Twitter (yet), @StuntPope

A few months ago I was on the Lite Show (Litecoin) podcast, we got to talking about Facebook’s forthcoming crypto currency, which hadn’t been named yet. I mused then that it would totally suck for the entire crypto-currency space to have come this far with Bitcoin, et al only to have Facebook swoop in and take all the marbles. (In marketing parlance this maneuver is called  “grabbing the microphone”)

Then Facebook announced their digital currency, it’s Libra, and it was met with immediate resistance. But the pushback, didn’t come from where one might expect it, from within the crypto community. There was plenty of commentary about it to be sure, but nobody from within the crypto space was saying that Libra had to be stopped.

No, the immediate pushback came from various tendrils of myriad states and government entities, including:

• Maxine Waters, immediately calling for Facebook to cease all work on Libra
• French Finance Minister Bruno Le Maire warning against Libra becoming a sovereign currency
• and most recently the G7 (at least recent when I last worked on this post), the G7 forming a task force to address the issues Libra raises, and urging the “highest possible level of regulation” on it,

This instant pushback against Libra seems even more intense than any initial government condemnations against Bitcoin itself when it started to gain traction over the initial ramp up. Perhaps there are good reasons for this, such as:

• In the rear-view mirror, it’s possible that governments now view giving Bitcoin some room to run was a mistake, and it opened a Pandora’s box (from their perspective) which would be unable to be contained, and
• Facebook provides an identifiable target – governments can actually pinpoint them and (for now) regulate or threaten to regulate them. They can’t target Satoshi Nakamoto or an open source repository of computer source code.

I mused in my dayjob’s #AxisOfEasy newsletter #102  that we seem to be arriving in a scenario depicted in the Mr Robot TV series, where the  crypto-currency Bitcoin and a private, corporate sponsored e-coin dual for supremacy in the aftermath of a hacker induced economic collapse (In the series, Libra’s role is depicted as the fictionalized “Evilcoin” with Bitcoin starring as itself. The economic collapse also turns out to be a Trojan horse operation launched by China).

The only thing missing from today’s reality, as I write this, is the economic collapse part, but with stock markets at all-time highs, and the Fed cutting rates again in this ostensibly great economy, clueful observers the world over sense that something is about to give. Tangentially the stealth bull in precious metals and resurgence of Bitcoin, even in the face of Libra, all point toward the idea that not all of these economic indicators can be right at the same time. That means at some point a disorderly readjustment may occur.

Welcome to a New World Order. We call it “Snow Crash”

Snow Crash was the Neal Stephenson near-future thriller set against a backdrop in which national governments found themselves set back on their heels, competing against privatized sovereignties across a wide spectrum ranging from a multi-national pizza conglomerate to the global Mafia.

Why didn’t Bitcoin tank when Libra was announced? If one is to accept the superficial premise that Facebook will indeed swoop in and capture the digital currency space after Bitcoin softened the ground for them, the announcement should have had a similar effect to when Amazon announced it was buying Whole Foods, and grocers everywhere tanked hard. That didn’t happen, why not?

By contrast, Bitcoin has more or less held steady since the announcement, after giving back some ground after an initial spike higher post-Libra. In any case, there was no instantaneous death crash compared to when Amazon entered the grocery space.

The reason, I think, is because Facebook’s Libra isn’t challenging Bitcoin. Facebook, perhaps without even being aware of it themselves, is doing the same thing Bitcoin and crypto-currencies did when they emerged out of a financial crisis spawned by central bank manipulation and a currency regime so rigged as to destroy all market signalling capabilities: it challenged the prevailing economic order, and that order is the scaffolding of the nation state as we know it.

In other words, these crypto and digital currencies are ushering in a new era of competitive economic sovereignty, and with it, the decline of the hegemony of nation states.

One of the best books I’ve ever read that anticipated this disruptive shift in the nature of sovereignty was “The Sovereign Individual” by James Dale Davidson and the late Lord William Rees-Mogg (father of Brexiteer Jacob Rees-Mogg, who was once reportedly on the short list to replace https://bombthrower.com/wp-content/uploads/2019/03/shutterstock_1030471843-e1551983495127-1.jpg Carney to head the BoE).

According to that book: Nation states arose by capturing escalating returns on violence and force. The transition into the gunpowder era ushered in the rise of nationhood, and increasing returns on violence, right up until the collapse of the Berlin Wall in 1989. The fall of Eastern block, they argue, was not an ultimate victory of the West over Communism, as Francis Fukuyama asserted in The End of History. Instead they posited it more as the death of a fraternal twin, that of nation statehood.

As the returns on violence decreased as can be witnessed by every military disaster the US has undertaken since WWII, the other twin is now sclerotic and withering. So what does have increasing returns now? It isn’t violence anymore. It’s information. The shift from one to the other means that the nature of the monetary system will also shift.

The old order monetary system was built on Bretton Woods – a global reserve currency backed by US military imperialism. That system is going away and everybody knows it.

Money does not issue forth from power, recall my prior citations of Stephen Zarlenga: who controls the money system, controls society. Power emanates from money. Nation states and central banks assumed they would retain control of the money system indefinitely. They assumed that they could continue to manipulate the money supply to further their own interests (Cantillon Effect driven benefits) and there was nothing anybody would ever be able to do about it.

But Revolution has a way of lobbing disruptive, explosive technologies from the periphery where nobody is expecting an asteroid to originate. Did the major music labels expect to be reinvented by Apple? Did the Hollywood studios expect to be elbowed aside by Netflix and Amazon? And did the nation states and central bankers think disruption would encroach and fundamentally transform all aspects of society but stop at the demarcation point of sovereignty and money? Why yes, yes they did.

I have said repeatedly – the incumbent system has overreached itself, and out of that necessity came Bitcoin and crypto-currencies. This was essentially the market re-asserting itself in the face of endless manipulation.

Money has evolved, and is now reinventing itself for the next ascendant wave of increasing returns: information. Next, sovereignty will reconfigure itself to adjust to the new format of money. This is the opening that Bitcoin opened up, and Facebook is the among the first to make a move into it. And that’s why ensconced governments are so up in arms about it. They recognize direct, real competition to their own authority and relevance. The nation state isn’t going away any time soon, but the rise of the platforms isn’t going to be stopped, either.

In the future, your digital single-sign-on credentials that you use to access various online platforms (or the one platform from which you derive your entire sustenance and livelihood) will be as important to you, perhaps eventually more so, than your government issued passport.

Governments want to regulate how the Age of the Platforms will rise, which is similar to how the Papacy once deigned to guide and arbitrate royal succession. But over time this will reverse and it will be the Platforms that increasingly set the terms for nation states. Given the accelerated pace things move at today, this process will not play out over centuries, the way the transition from feudalism to nation states did, but over decades, even years in some places.

Today nobody raises an eyebrow that the Swiss National Bank is Apple’s largest shareholder by printing francs and buying shares. What happens tomorrow, when Facebook issues some Libra, sells them for USD to pay their taxes? Or to settle one of the myriad fines levied, like Papal encyclicals of yesteryear, against these upstarts? My guess is governments will scream foul, “only we can print value ex nihilo!”.

But the reality is that anybody can create their own monetary instruments provided they can find a market to ascribe value to it. Money has always changed with the times and arisen privately, the states then adapt, co-opting whatever emerges as money at the earliest possible opportunity. Looking back on today that may be what Libra is to Bitcoin. The equivalent of a Federal Reserve of Digital Currencies (the Libra Founders Association looks hauntingly like a modern, cyber analog to the member banks of the Fed).

The Real Battle of the Future

One might think that this means the battle of our times will be between the falling (failing) nation states and the rising Platform challengers, but that’s not the way I see it. In many cases nationhood and platform will effectively merge, witness China, where tech giants like Google and IBM’s Open Power Foundation is helping the Chinese government build out their Sesame Credit total surveillance platform.

In other situations, platforms may prevail, if Facebook or some other technology upstart is successful in their machinations they may become more relevant than the State in many jurisdictions. They may effectively become the de facto state in some areas.

In both these cases the defining characteristic will be centralization and consolidation of power and authority.

Against this, will be the ascendency of decentralized, autonomous sovereignties based on crypto-currency models and the original ethos of Bitcoin. Where Western Capitalism vs Communism was the defining question of the now ending age of industrial nation states, the fraternal twins of the future may be that of platforms vs protocols. The former centralized, consolidated, authoritarian as anticipated by Fukuyama and fleshed out today in The New Digital Age, Google’s manifesto penned by Jared Cohen and Eric Schmidt:

We collaborated first as writers of a memo to Secretary of State Hillary Clinton about lessons learned in Iraq, and thereafter as friends. We share a worldview about the potential of technology platforms, and their inherent power, and this informs all of the work we do, both within Google and outside it. We believe that modern technology platforms such as Google, Facebook, Amazon and Apple, are even more powerful than most people realize, and our future world will be profoundly altered by their adoption and successfulness in societies everywherer.

and the latter decentralized and anarcho-capitalist, anticipated by The Sovereign Individual and realized more now in George Gilder’s Life after Google

However it plays out, it will all be very cyberpunk.