Don Boudreaux recently tried to spin Farmer as being anti-Keynes, which I tried to shut down in the comments and to which Roger Farmer himself later responded "Daniel Kuehn gets my position exactly right." It's not the first time libertarians have thought my interpretation of modern Keynesians was wrong, only for those modern Keynesians to turn around and personally endorse what I've said.
Farmer shares some important thoughts later on in the comment thread:
"The debate is too often couched in terms of free markets versus state control. But markets cannot exist outside of the institutional supports provided by government. These include the courts, the police and the army, institutions that are typically accepted as necessary by even the most ardent supporters of free markets. But should we move beyond these minimalist institutions?
Once one recognizes that the courts are legitimate institutions, it becomes necessary to provide a mechanism to define what contracts are enforceable and what are the boundaries that legitimize property rights. Slavery for example, was a legitimate institution at the inception of the American experiment in democracy. It is now widely considered to be repugnant. The boundaries change. What is obvious to men and women in one era is by no means clear to others.
Democratic countries evolve. Not all new institutions are successful and reasonable men and women can and do disagree about the proper boundaries to state intervention in markets. Central banks, like the Fed in the US, developed over the course of two centuries in response to a series of financial crises, similar to the one we are now experiencing.
Is there an alternative to the active management of the money supply by a committee of experts? Perhaps. But a system in which the value of a nation’s currency is subject to the exigencies of gold discoveries is manifestly not the solution. The gold standard was discarded by previous generations because it failed to generate price stability and the fact that the US adhered to the gold standard in the early years of the Great Depression is one of the major reasons that unemployment in that period was so devastatingly high.
It is tempting to pose the following dichotomy. Is high unemployment a systemic problem of unregulated markets? Or is it caused by over active government intervention? This is an overly simplistic way of organizing a complicated question. Every system of trade exists within a set of legal institutions. Some institutional arrangements lead to higher welfare for most citizens than others. The right question to ask of a democracy is: Which set of minimally invasive institutions will lead to the highest standard of living for the largest possible number of citizens?"
The Oz Effect
2 hours ago