Keynes Launched a Frontal Assault on the Price System When He Declared That Interest Rates Are Too High

Keynes: Interest rates are too high:

The rate of interest is not self-adjusting at a level best suited to the social advantage but constantly tends to rise too high. . . .

Comment: This is a frontal assault on the entire price system.

Keynes does not define any of his terms. He does not say what the “social advantage” is. He does not tell us how we will know when interest rates have fallen far enough. Nevertheless, he has told us something important—that the price system cannot be trusted.

It is important to keep in mind that interest rates are a price, the price of borrowed money. They are not only a price; they are one of the most important prices in an economy. All prices are interconnected, but this price in particular affects all other prices.

Businesses depend on prices to give them the information with which to run the economy. If the price system for interest rates is broken, no part of the price system is unaffected. If the price system is hobbled, it is a very serious matter because attempts to replace market prices with government-imposed prices have not generally been successful. As Oysten Dahle, a Norwegian oil executive, said about the Soviet Union, “[It] collapsed because it did not allow [market] prices to tell the economic truth.”

--Hunter Lewis, Where Keynes Went Wrong: And Why World Governments Keep Creating Inflation, Bubbles, and Busts, rev. ed. (Mount Jackson, VA: Axios Press, 2011), 89-90.