Keynesians Represent Profits as Resulting From (1) A Difference between the Rate of Interest and the "Marginal Efficiency of Capital," and/or (2) Monopoly and High-Pressure Salesmanship

Keynesians usually represent profits as resulting from either or both of: (1) a difference between the rate of interest and the "marginal efficiency of capital," (2) monopoly and high-pressure salesmanship. In either case, the recipient of profits is given little or no credit for earning them by useful service.

This Keynesian antipathy or indifference to the qualities developed in free markets arises from the belief that free markets are economically undesirable (e.g., the capital markets) and politically impracticable (e.g., the labor market).

Moreover, as difficulties arise in carrying out their proposals for "socializing" saving and investment, economists of this persuasion usually advocate more restriction of markets rather than less. Thus Dr. Lawrence Klein, for example, favors government price control to prevent inflation that might result from Keynesian "loan expenditures," and he rationalizes this repudiation of freedom of exchange by the contention that "greedy profiteering" was the only liberty infringed by the Office of Price Administration in World War II.

--Vervon Orval Watts, Away from Freedom: The Revolt of the College Economists (1952; repr., Auburn, AL: Ludwig von Mises Institute, 2008), 89-90.

The Basic Fallacy of Keynesian Theory Is Treating Goods and Credit as Two Quite Separate Things

This brings us to what is perhaps the basic fallacy of Keynesian thought. The Keynesian economist treats of goods and credit as though they were two quite separate things. He teaches that the output of goods creates a need for credit and currency. He warns that goods may go unsold, forcing down prices and causing unemployment, unless government: (1) adds to the supply of currency as the output of goods increases, and (2) sees to it that those who get the new money spend it promptly.

The classical view, on the other hand, is that goods themselves are the source of all sound credit and sound currency. Let us see what this means.

--Vervon Orval Watts, Away from Freedom: The Revolt of the College Economists (1952; repr., Auburn, AL: Ludwig von Mises Institute, 2008), 56.

The Mixed Economy of the Keynesians Is Highly Unstable Moving from Crisis to Crisis and from Emergency to Emergency

Professor Ludwig von Mises, in his scholarly but readable little books, Bureaucracy and Planned Chaos, shows perhaps better than any other modern author why government interference with the free market leads to crisis, totalitarianism, and war. Every interventionist measure results in conditions which are even less satisfactory than those which preceded it, as shortages follow price control and black markets follow rationing. Yet, those who favor such intervention usually blame the evil results of their measures on the selfishness, stupidity, or perverseness of individuals. Then they urge more coercion to deal with the new problems. Thus, for example, Samuelson fears that producers may "react perversely" to government spending and subsidies, so that prices and wage rates may rise before full employment has been achieved. In that case, he intimates, the government may have to apply price and wage controls to stop inflation.

The "mixed economy" advocated by the Keynesian economists, therefore, is highly unstable. It moves from crisis to crisis, from one emergency to another, while the currency depreciates, producers are demoralized, demagogy increases, government becomes more despotic, and international friction mounts. This spiral towards totalitarianism and war persists as long as faith in coercion and government planning prevails over a preference for voluntarism and free enterprise.

--Vervon Orval Watts, Away from Freedom: The Revolt of the College Economists (1952; repr., Auburn, AL: Ludwig von Mises Institute, 2008), 72-73.

The "New Economics" (Keynesian Revolution) Has Several Points in Common with Marxian and Russian Socialism

From the foregoing, one may see that Keynesism [sic] has several points in common with Marxian Socialism. Among these are:

1. the theory that the rate of return on investments tends to decline and unemployment tends to increase in a free-enterprise, capitalistic economy;
2. emphasis on the depressing influence of savings in a "mature" capitalistic economy;
3. theories of an irresistible tendency to monopoly, increasing concentration of wealth, and the doom of free markets in free enterprise, or laissez faire;
4. disparagement of individual enterprise and responsibility in favor of government control over savings and provision for old age, unemployment, and other emergencies in an elaborate "social security" program;
5. proposals for "progressive" income and inheritance taxes;
6. proposals for government management of the currency and banking, for government ownership of certain industries; and for liquidation ("euthanasia") of the rentier (bond-holding and fixed-income) classes; 
7. a collectivistic view of property rights as privileges from the State, to be given or taken away at the will of the State;
8. a tendency to identify government with "all of us," or with "society," in the democratic socialist state and in the democratic Keynesian "mixed" economy;
9. a tendency to deal with persons and economic activity in terms of "classes," "averages," "aggregates," and technological or economic "forces";
10. a mechanistic view of human behavior as predictable and controllable by government, through study and manipulation of interest rates, money, government lending and spending, taxation, and technological developments. 

Yet, despite the similarities between Marxian socialism and Keynesism [sic] and despite growing hostility to Russian Marxists, the Keynesian national-income approach makes rapid headway in American colleges and universities. Why?

--Vervon Orval Watts, Away from Freedom: The Revolt of the College Economists (1952; repr., Auburn, AL: Ludwig von Mises Institute, 2008), 28-30.