“Is Killing” might be more appropriate than “Killed”. But in the larger context of history, how do you refer to something that has lost more than 99% of its value? The US Dollar, as measured against real money, i.e., gold, has indeed lost more than 99% of its purchasing power since 1971.

Only in the context of academic circles with non-Austrian Economists or when measured against other fiat currencies would the dollar be considered “strong”. Even against other good currencies, the US Dollar has lost substantial purchasing power since 1971, e.g., more than 80% against the Swiss Franc and more than 50% against the Japanese Yen.

In any case, it is only a matter of a few more years before the impending demise of the US Dollar becomes obvious to everybody, and the phrase “Not worth a Continental” becomes almost as applicable to the US Dollar.

Let me start with the answer to the title – it is Paul Samuelson, and this should be no surprise to the regular reader of my columns. While I have used names, I am really referring to the Chinese Juggernaut Economy (for Xi Jinping), and Neo-Keynesian Economics (for Paul Samuelson), and the names are really proxies for the institutions/ideas they represent.

Most readers may not be aware that Neo-Keynesian economics gained traction only since the 1960’s, when the idea that “a little deficit spending” may smooth out the business cycle. Till such time, balanced budgets were the norm, and in fact, the US

Government ran a surplus for a few years during the 1950’s when it paid down the National debt. For example, the US National debt witnessed a modest decline during 1952, 1956, and 1957.

For the decade as a whole, between 1950 and 1960, the US National debt witnessed a 11% increase, compared with the nearly 30% increase between 1960 and 1970. Not coincidentally, Paul Samuelson served as an economic advisor to John F. Kennedy (1961-63) when this line of thought germinated in the US administration. The shift from “a little deficit spending is good” to “deficits do not matter” was foreseeable under democratic politics. The Neo-Keynesian economists gave it the necessary intellectual cover, albeit a terribly flawed one.

What is the Neo-Keynesian Ideology?

This is the most pervasive economic ideology that is taught in most Universities (perhaps more than 99%) across the world. Two other Economic Schools of thought – Marxism and the Chicago School / Monetarists – are either discredited entirely (Marxism), or reluctantly embraced Keynesian Economics (“We are all Keynesians now” – Milton Friedman, 1965). The latter, perhaps, resulted from two factors: a lack of grounding in sound economic principles and the fear of becoming irrelevant in a domain dominated by the state.

The one little-heard-of and even less discussed school of thought in the media that has stood its ground against Keynesian economics is the Austrian School of Economics. It is best to define the framework of the Austrian School of Economics before we venture into Neo-Keynesian economics. It is just easier to understand the con when the truth is clear. We will describe both these schools of thought in terms of the four operating tenets of the State: Money, Scope of Government, Role in Economic Growth, and Role in a Recession.

Defining Tenets of the Austrian School of Economics

1. Money: Money is a commodity that is chosen by the Free Markets as the Medium of Exchange. Or, in other words, the Gold Standard.
   1. There is almost no role for a Central Bank as the quantity of money is decided by the markets. The interest rate is also set by the free markets through the supply and demand for money, as with all other goods and services.
   2. Perpetual trade deficits are non-existent as the settlement happens through the actual flow of gold from the deficit countries to the surplus countries. This creates a self-adjusting mechanism in which the outflow of gold reduces the money supply, thereby lowering costs and enhancing competitiveness.