 A few years ago, I had an MBA macroeconomics course, and I was looking to turn it into a seminar, because it was a small group of students, and one of the hot books at the time was the book by Animal Spirits by Shuler and Ackerlof, which purported to give a sort of a Keynesian explanation of financial crises based on psychological imperfections in the human mind and so on. But I also wanted something, an antidote to this, and I found two books that were extremely clearly written. A third book that I did also use was Meltdown by Tom Woods. Give me the dollar later, Tom, for that. But I'm delighted to have the author of the two books that I used in that course. The MBA students loved it because they were so clearly written compared to the Shuler Ackerlof bestseller. So to give the Henry Hazard Memorial lecture, we have Hunter Lewis. Hunter Lewis graduated from the Groton School in Harvard University. After working at the Boston Company, which was then one of the largest investment managers, Lewis co-founded and served as the co-chief executive and then chief executive of Cambridge Associates, an investment advisor to American universities and colleges representing over three quarters of US higher education endowment assets. Lewis has been active in the environmental and natural health fields. He has written for the New York Times, The Times of London, The Washington Post, and The Atlantic Monthly, as well as numerous websites, including Forbes.com. His books on economics include one of the ones that I use and on which I highly recommend in which he has graciously donated copies to the attendees here, where Keynes went wrong and why governments keep creating inflation bubbles and busts. And I highly recommend this. He has also authored Are the Rich Necessary, Great Arguments and How They Reflect Our Personal Value, and The Real World War. He has also written books on moral philosophy, bringing I'm sure the same clarity to these questions as he has done to economics. And they include a question of values, six ways we make the personal choices that shape our lives. Another book called The Beguiling Serpent, and then the Alternative Values, is the subtitle. I'm sorry, that's another book. Alternative Values, Forn Against Wealth, Power, Fame, Praise, Glory, and Physical Pleasure. I'm for all of those things. I hope he comes down on the right side also. Without further ado, it really is my pleasure to introduce Hunter Lewis. Thank you, Joe, for your very generous introduction. It's an honor to deliver any lecture named for Henry Hezlett. He's been a beacon light for me, as for many of you, and also to speak to this group. Some years ago, as I was leaving a radio program, I heard a technician say to the host, I didn't understand the single word he said. I don't think I'll have that problem here today with this group. The major topic today is crony capitalism revisited. Why revisit it? Because David Stockman, whom I've met and admire, gave the Hezlett lecture last year in colded money and the triumph of crony capitalism. That talk focused on the crash of 08 and the subsequent bailout. It might seem odd to have two Hezlett lectures in a row devoted to crony capitalism. So far as I know, Henry Hezlett did not use the phrase. Nor, so far as I know, did Mises or Hayek or Rothbard. Although, so far as I know, Hezlett did not use the term. He was, and through his writing remains, the foremost expert on John Maynard Keynes. And at a deeper level, crony capitalism is Keynesianism and Keynesianism is crony capitalism. Or to be more precise, Marxism is the communism as Keynesianism is the crony capitalism. One is the sacred text, the other the actual system. The relationship between Keynesianism and crony capitalism is an interesting one and I'll return to Keynes shortly. But first a word about the phrase crony capitalism. Where does this phrase come from? New York Times columnist William Sapphire wrote in 1998 that he had traced its first appearance to a Time Magazine article in 1981. The article was written by many hands and is not clear who coined the phrase. If indeed that is the origin. Arthur Crock, New York Times Washington bureau chief seems to have coined the phrase government by crony back in 1946 and it may have been used earlier. Samuel Peeps, the 17th century diarist used the word crony but it wasn't so pejorative in those days. I think crony capitalism is a very useful phrase. My wife has a friend who loves books. When visiting my office, he saw a bookshelf and his eyes lit up. Then approaching eagerly, he saw they were about economics and recoiled in horror. How do we explain Austrian economics to a person like that? Most people want the elevator speech version anyway. What are you for? And in particular in today's tabloid media style, what are you against? There are pitfalls anywhere and everywhere. Am I for capitalism? I have to take care with my answer as David Gordon suggested yesterday. It's not just that Mark's coined the term. A college professor friend of mine tells me that socialism is the economic system favoring workers. Capitalism is the system favoring business owners. I respond no, capitalism is the system favoring consumers who by the way are also often workers. So as we all know, many people don't have a clue what capitalism is. How about the term free markets? That's clear enough, isn't it? Well, no. Many people think that free markets refer to a place where you can do anything you want. They think it's the Wild West or maybe a brothel. In reality, of course, free markets operate according to some very specific and binding rules. Ignore them at your peril. Yes, you can be selfish, willful, take advantage of others and put yourself first, but that's a good way not to add to your capital but to go broke, if not sooner than later. Markets are a place where you put your customers and employees first or you suffer the consequences. As Mises said, being your own boss really just means that you have many bosses, all your customers. Markets are in fact a form of self-regulation because voluntary it works. This is the only form of regulation that does work but it's dangerous to use the word regulation. That's become synonymous with government regulation which does not work, which is oxymoronic. Better to say markets are a form of discipline, especially self-discipline. When speaking to people like my wife's friend, I usually speak of free prices rather than free markets. I sometimes imagine millions of people marching in Washington waving placards that say free prices now. Many people, perhaps most, understand that control prices are not such a good thing. Of course there are plenty of economists who condemn price controls, love what the Fed does and don't recognize any inconsistency. These economists are similar to the Occupy Wall Streeters who refer to the New York Fed building as the Citadel of Capitalism. That would be a good joke if it weren't so tragic. In these great debates, terminology matters. Look how FDR, how far he got by turning the word liberalism which meant less government on its head. Or by sending the word freedom into surgery where the antecedent two was locked off. The customary and logical two suddenly became freedom from, as in freedom from hunger. After this clever switch, an expansion of government became necessary in order to increase our freedom. It's too bad we didn't have Jefferson around at that point to call him down. An old friend of FDRs who went to my boarding school said that he was a champion liar from boyhood. But debates have not gotten any more honest since his time and it behooves us to set a standard both of honesty and clarity in our choice of terms. Mises spoke of capitalism, socialism and interventionism. These are crucial distinctions. Socialism and interventionism are both predatory and parasitical and thus in the long run self-destructive. But interventionism can persist for a very, very long time living off of but not quite consuming its host whatever survives of a free price system. The trouble with interventionism as a phrase however, is that like capitalism it requires an explanation and not a sound bite explanation. Chronic capitalism has the advantage that people immediately understand that something is wrong and that people operating as chronic capitalists may not be what they claim to be and indeed are someone unsavory. Now some people on the Mises website do not like this phrase. People commenting on the Mises website by the way are a spirited lot as I think you know. One, pen named Autocrat, cautions us against any use whatever of the term capitalism. Why? Because he says state capitalism is redundant. The state will always control capitalism and so by extension chronic capitalism is also redundant. Autocrat adds that if we must use the word capitalism we should modify it with the adjective utopian as in utopian capitalism. Ouch, I don't think there's anything remotely utopian about capitalism properly construed. I hope Autocrat is not here today. However, another blogger on FreeRepublic.com says there is no such thing as chronic capitalism. It's a term created by the left in order to slander capitalism wholesale. Someone agrees it would be better if people on our side refrain from using the left's terminology. But is this the left's terminology? Noam Chomsky, longtime thought leader of the left seems uncomfortable with such terms as chronic capitalism or green capitalism. Why? Because in his view such terms may confuse people into thinking that capitalism itself is not bad. Another blogger points out we have something in our language called a qualifier. The word crony totally changes the meaning of capitalism the way non or anti or faux would. Someone else agrees the two words together cannot possibly be taken as a slam against capitalism. Another commentator again on Mises raises what I think is a very valid point. He or she argues that using the term crony capitalism is a serious strategic mistake because the phrase can be taken to describe an out of control unregulated market. This is true. Just as there are many people today who think the answer to a surfeit of spending and debt is to pour on even more spending and debt there are people who think that the answer to government economic cronyism is to give the government more power of the economy. So this commentator is right that if we attack crony capitalism we'll attract some people who have little or no understanding about what causes crony capitalism or what we can do about it. But it's not really hard to explain if more and more government intervention in the economy is further corrupt in government and business and all the other special interests such as unions and lawyers. Even more government intervention cannot possibly be the answer. Some people no doubt will never get it. To provide a moment of light entertainment I shall read you a few sentences from an article describing crony capitalism in the international encyclopedia of the social sciences volume two 2008. Quote, some sociologists and political scientists have maintained that forms of crony capitalism may be indispensable for capitalist development. Particularly when those forms of cronyism help prevent untrammeled corruption. So you see cronyism prevents corruption. The article continues as modern China shows personal political networks tying central government leaders to regional industrialists may be invaluable in combating entrepreneurial corruption. Right, so big industrialists working with the government combat entrepreneurial corruption. The article continues, China's increased movement away from state-owned enterprise has greatly increased opportunities for corruption at the higher ranks of society. Again, sure, if government ownership prevents corruption then why did the Russians give it up? The article then really tops itself. Much of the success of the Chinese economy may be due to an uncorrupted political elite. Well, as this audience knows China is a massively corrupt place top to bottom. It's our partner in blowing up worldwide economic bubbles and it's only a matter of time before its present financial system, always in solvent to one degree or another, finally collapses. After reading this last passage from the so-called international encyclopedia of the social sciences, we can all agree that crony capitalism is not a perfect phrase to describe what we are against. But I think it's still better than the alternatives. Fascism carries far too much non-economic baggage, although I like one blogger's reference to fascism light. Corporatism is an obscure term for most people and suggests that corporations are somehow the root of the problem or inherently evil. Mercantilism is another alternative. It too is obscure for most people although it has the advantage that Keynes himself flew this particular flag overhead. That he did so is just one more example of his numerous self-contradictions and not just because he mocked mercantilism in the early years of his career before deciding to embrace it at the end of the general theory. Note also that in the beginning of the general theory, Keynes says that his ideas will no doubt be rejected because they're so novel and revolutionary. So at the end of the same book, he seems to have forgotten this because now he says he's reviving the same centuries old ideas that he had dismissed before as the most absurd fallacies. At least he acknowledges that he's changing his position although he does not explain how his ideas can be new, revolutionary and also centuries old. This is of a piece with describing himself as a member of the quote, the brave army of rebels and heretics down through the ages, unquote. Even as he recommends policies that appeal to the basis and most self-serving instincts of politicians and even as he enjoys all the privileges of being at the top of the existing financial and political elite. It may be true as the art historian Kenneth Clark said that Keynes, quote, never dimmed his headlights. But it cannot be said that he knew how to drive on the same side of the road. If we stay with crony capitalism as the least bad way to describe what's wrong with the economy, that brings us back to Keynes since he became the principal apologist for the system. As all of you know, much of Keynes' writing is intentionally obscure, although the threads can be unraveled and rebutted as Henry Haslett so brilliantly proved in the failure of the new economics. What I'd like to do in the balance of my time is to ask what is the very essence of Keynesianism? Can we describe it in the briefest and simplest terms so that anyone can understand what's wrong with it and thus strip away the intellectual fog that surrounds and protects crony capitalism? At first glance, it might seem that the essence of Keynesianism is simply the endless self-contradiction to which I've already alluded. He was never in one place intellectually or otherwise for long. For further example, he railed at the love of money. He called it, quote, the worm gnawing at the insides of modern civilization. But he also desperately wanted to be rich. He railed against investment speculation, but avidly speculated himself. At one point, he was completely wiped out and he had to turn to his father, a teacher, for a rescue. Two more times, he could have been wiped out, once in 1929, again in 1937, neither of which he anticipated. Keynes' relationship with gold is a good example of his continual self-contradiction. In 1922, he wrote in the Manchester Guardian, if the gold standard could be reintroduced, we all believe that the reform would promote trade and production like nothing else. A little later, of course, he described gold as the quote, Barber's Relic. Yet evenly called gold the Barber's Relic, he privately continued to recommend it as an investment diversifier. When we turn to Keynes' economics, perhaps the most fantastic self-contradiction was that an alleged savings glut, too much supposedly idle cash, could be cured by flooding the economy with more cash, newly printed by the government. Perhaps even more bizarrely, Keynes said that we should call this new cash, quote, savings, unquote, because it represents saving just as genuine, quote, as traditional savings, unquote. That is, the money rolling off the government printing presses is in no way different from the money that we earn and choose not to spend. All this new, quote, savings, unquote, enters the economy principally through the mechanism of low interest rates. At this point, Keynes further confounds as forerunners and elders by arguing that it is not high interest rates, as always thought, but rather low interest rates that increase savings, even though we started by positing too much savings in the first place. Keynes' followers echo this even today. Greenspan, Bernanke, and Krugman have all written about a savings glut, which is supposed to be at the root of our troubles and have proposed more money and lower interest rates as a remedy, although they no longer call the new money genuine savings. They prefer quantitative easing and similar obscure euphemisms. Keynesian, Gregory Mankiew, one of the two chief economic advisors named by Mitt Romney, has even proposed ramping up CPI inflation to create deeply negative interest rates. He hasn't said how negative, but his colleague, Ken Rogoff, says probably minus 6%. In other words, today's negative giveaway interest rates are still too low. We are to increase official inflation at around 6%, but keep interest rates repressed near zero. And of course, there will be no difficult whatever in keeping the CPI rate at 6%. This latest proposal of deeply negative interest rates outdoes even Keynes. The general theory does argue that interest rates could and should be brought to a zero level permanently. That's page 221 and 336 in the general theory. This idea of permanent zero interest rates appears first in prudence, although Keynes does not acknowledge or perhaps does not know that. And it does seem absurd on its face. Lending money at no interest is equivalent to giving it away, which is of course what Mr. Bernanke is doing. And it's hard to understand how anything can have value that's given away. Nevertheless, Keynes said that it would be reasonable to get to zero interest rates and also zero dividend rates within a generation. By that standard, we've clearly failed him because we should have reached that utopia by 1966. But note that even Keynes did not suggest negative interest rates. The idea of engineered negative interest rates reminds me of a Yiddish phrase, which I've been told maybe translate it roughly as smart, smart, stupid. It takes very smart people to think it up, but that doesn't mean it isn't stupid. And it's worrying that it isn't coming just from President Bush or President Obama. One can't be surprised in anything coming from those quarters. President Bush, as David Stockman mentioned last year, said that, quote, I have abandoned free market principles to save the free market system, unquote. His successor, President Obama, said in his first budget message that he was taking us from, quote, an era of borrow and spend, to, quote, an era of save and invest. Wasn't that good to hear? Now we have Mitt Romney not only relying on a retread Bush advisor, but even a proponent of deeply negative interest rates. A very nice man, I might add, but not somebody that we need in Washington again. These Romney advisors also, of course, believe in the fairy tale of borrow and spend stimulus. It's usually forgotten that Keynes assured us that each dollar of stimulus would produce as much as $12 of growth and not less than $4. Even the most ardent Keynesians have, of course, been unable to demonstrate as much as $1. How did Keynes know that you could get at least $4 of growth? He didn't. He told the governor of the Bank of England, Norman Monague, that his ideas were, quote, a mathematical certainty. But that, of course, was just a crude bluff. What is empirically verifiable is that all debt, private and public, has been generating less and less growth for decades. In the 10 years following 1959, the official figures say that you got 73 cents of growth for each dollar borrowed. By the time of the crash of 08, that was down to 19 cents. And I think it was really negative by then, and it's certainly deeply negative by now. Rather than follow Keynes and his disciples down this and so many other rabbit holes, let's ask ourselves, is there a common theme to this nonsense? And there is a common theme. The common theme is that market prices don't matter. In a system replete with paradoxes, this is the ultimate paradox. In order to fix the price and profit system, we must subvert it. No free price or profit relationship must be left alone. The price-profit system must be poked, pushed, pulled apart, only to be left in a complete shambles. The assault on interest rates and currency rates are particularly destructive, but all of this madcap tinkering with prices is destructive. Is this then the essence of Keynesianism? It's blind destruction of the price mechanism on which any economy depends as Mises demonstrated. Yes, but there may be an even deeper essence. When we think of Keynes' headline ideas, they have a kind of formulaic quality. You take a long-established observation, for example, that overspending and debt are the road to bankruptcy and ruin and turn it on its head. No, says Keynes, spending and debt are the road to wealth. For the Victorians, spending within your means and avoiding debt were not just financial principles, they were moral principles. Keynes, who was rebelling consciously against these same Victorians, described their quote copy book morality, unquote, as quote medieval and barbarous. He told his own inner circle, quote, that I remain and always will remain in a moralist, unquote. You will recall Mr. Macarver's famous admonition in Charles Dickens' 19th century novel, David Copperfield. Annual income, 20 pounds. Annual expenditure, 1996. Result, happiness. Annual income, 20 pounds. Annual expenditure, 20 pounds. Aught in six. Result, misery. Keynes certainly subverted that idea. In particular, he insinuated the very odd, but now very prevalent idea, that old-fashioned wisdom and morality is out of date, even a bit retarded. And odd or still, even in conflict with science. This is all nonsense, but it permeates our culture. And the very people who preach honesty and sustainability outside of economics, for example, in our treatment of the environment, entirely failed to understand that Keynes is preaching dishonesty and unsustainability in economics. So in conclusion, when we strip down Keynesianism to its very essence, the relationship to crony capitalism becomes even clearer. Crony capitalism represents both a corruption of capitalism and a corruption of morals. Keynesianism also represents both a corruption of economics and a corruption of morals. Crony capitalism and Keynesianism are just two sides of the same debased coin. Thanks for having me.