Magna Carta Art.61

Keynes gave governments the intellectual permission slip they had always wanted: Spend during recessions, stimulate demand, prime the pump, and prosperity follows. It doesn't work. Ludwig von Mises explained exactly why before the ink on the General Theory dried. The core Keynesian error is treating consumption as the engine of wealth. Keynes fixated on aggregate demand, the total spending flowing through an economy, as the variable governments must manage. Boost it artificially, and you rescue the economy. Production precedes consumption. You cannot spend your way to wealth any more than you can eat your way to a full refrigerator. Government stimulus spending doesn't create resources. It redirects them. When Washington borrows a billion dollars and injects it into infrastructure or green energy, it pulls that capital away from whatever private actors would have funded. The seen benefit (the bridge, the solar panel factory) obscures the unseen cost: the businesses never launched, the technologies never developed, because the capital was conscripted first. Keynes also treated interest rates as a policy lever rather than a price signal. Central banks suppress rates below what the market would set, and businesses respond by launching long-term projects that the actual pool of savings cannot support. Mises called this the business cycle. Cheap credit manufactures a boom built on false signals. When the central bank eventually tightens, the malinvestments collapse. The 2008 housing crash followed this script precisely: a decade of Federal Reserve rate suppression funded mortgages the underlying economy could never sustain. The Keynesian model endures politically because it flatters the powerful. Every recession becomes a reason to spend more, hire more bureaucrats, and expand government reach. Mises simply followed the incentives and found the fraud.