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Modern Prophets: Schumpeter or Keynes? - Page 8
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And then he proceeded to argue that capitalism would be destroyed by the very democracy it had helped to create and made possible. For in a democracy, to be popular, government would increasingly shift income from producer to no producer, would increasingly move income from where it would be saved and become capital for tomorrow to where it would be consumed. Government in a democracy would thus be under increasing inflationary pressure. Eventually, he prophesied, inflation would destroy both democracy and capitalism.
The Keynesian in the 1940s ushered in their "promised land," in which the economist-king would guarantee the perfect equilibrium of an eternally stable economy through control of money, credit, spending, and taxes. Schumpeter, however, increasingly concerned himself with the question of how the public sector could be controlled and limited so as to maintain political freedom and an economy capable of performance, growth, and change. When death overtook him at his desk, he was revising the presidential address he had given to the American Economic Association only a few days earlier. The last sentence he wrote was "The stagnations are wrong in their diagnosis of the reason the capitalist process should stagnate; they may still turn out to be right in their prognosis that it will stagnate - with sufficient help from the public sector."
Keynes's best-known saying is surely "In the long run we are all dead." This is one of the most fatuous remarks ever made. Of course, in the long run we are all dead. But Keynes in a wiser moment remarked that the deeds of today's politicians are usually based on the theorems of long-dead economists. And it is a total fallacy that, as Keynes implies, optimising the short term creates the right long-term future. Keynes is in large measure responsible for the extreme short-term focus of modern politics, of modern economics, and of modern business - the short-term focus that is now, with considerable justice, considered a major weakness of American policymakers, both in government and in business.