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The games anti-Keynesians play

Business Standard
January 11, 2003
text is a cache of http://www.business-standard.com/today/story.asp?story=5735

Nobel Laureate John Nash lashed out at Keynesian economists, comparing them to Bolsheviks, while speaking at the Game Theory conference in Mumbai.

Reading his paper on “Ideal Money and Asymptotically Ideal Money” at the conference, Nash said that both Keynesians and Bolsheviks claimed that they knew what was best for the people.

The public, or the “consumers” of policy, were deemed unable to appreciate the fine art of economic management.

Nash’s diatribe against Keynesians stemmed from his regard for sound money, which, according to him, means zero inflation.

Keynesians, with their dangerous flirting with inflation, symbolise the forces of evil in Nash’s world view, a view almost religious in its fervour for stable money — at one point Nash used the word sin to describe unstable currencies.

“The government that distributes its own currency pardons its own sins,” said Nash, referring to the ability of governments to water down their debts by inflation.

The power of the European central bank at Frankfurt is compared with the power of the Holy Roman Empire.

Current inflation rates of 2 to 3 per cent are not low enough — if you ask the people (consumers of money) what rate of inflation they want, they’ll obviously say zero.

It’s this repression of the will of the people by misguided central bankers and Keynesians that make them comparable to Bolsheviks.

And Bolsheviks, as everyone who has seen A Beautiful Mind will know, are those nasty people whose secret codes Nash was employed by the US government to break.

Nash calls for an ideal money, a new standard of value to replace the gold standard, based on the costs of raw materials used in industry.

“A global money standard could have a value similar to that of standard measures such as those of the metric system,” says Nash.

The trouble is that while “the latter of these is invariant with regard to various places and times on the Earth, the former varies with the effective political regime and with time rather than being as if like the value of the metal in the standard kilogram.”

But even the ideas of Nobel Laureates may not be taken seriously, which is why Nash proposes an alternative “Asymptotically ideal money”, as a more realistic option to the fully rational “ideal money” world currency.

Recall that, in an asymptote, as a point moves along the curve the distance from the point to the line approaches zero.

Ditto for asymptotically ideal money, which will, in time, as people appreciate its benefits, approach the goal of ideal money.

Inflation targeting by central banks is what he means by this intermediate stage, and Nash endorses the New Zealand central bank’s experiments in this regard.

At the end of his lecture, Nash made what he said was a “humorous” point. He said that “A possible standard of value would be simply the cost of making a duplicate of precisely the same composition and weight of the standard kilogram,” referring to the kilogram kept with the International Bureau of Weights and Measures at Sevres, France.

The humour being greeted by a deathly silence, Nash was obliged to explain that this standard kilogram was made of the precious metals platinum and iridium.

Nobody laughed. There were probably too many Keynesians in the audience.


Business Standard Ltd.