“Keynesians really believe that spending money is what creates wealth, and that governments can create wealth out of thin air simply by cranking up the spending.”It’s no wonder Austrian economics will never be taken seriously by voters or governments.
Money is (1) means of payment, (2) unit of account, (3) medium of exchange and (4) store of value, and, when it is spent by (1) government in a Keynesian stimulus or (2) by private businesses or individuals, this spending creates the demand that causes the private sector to create wealth (i.e., commodities we consume), either by increasing production through using unutilized capacity or by new capital goods investment. When government employs people directly, these workers will still buy whatever commodities they desire to satisfy their wants, and, if they don’t want commodity a, b, or c, the producers of those commodities will go bankrupt. Malinvestments will clear even in a Keynesian system.
Just as in private transactions, money is a means by which these things are facilitated. Keynesian stimulus is about getting the private sector to create wealth by increasing capacity utilization and using idle resources (including labour), just as private investment, bank credit, and payment of wages to workers by a business can create the private spending that does the same thing.
Post Keynesians are also well aware that the capital stock is heterogeneous and not perfectly malleable. In fact, the Post Keynesians had a massive debate with the neoclassicals in the 1950s and 1960s called the Cambridge capital controversy, and were arguing precisely that capital goods are not homogenous. They won that debate, but the neoclassicals typically acted like nothing had happened.
William L. Anderson (in his comments section) in response to my earlier comment asks:
“By the way, why didn’t this [sc. Keynesian stimulus] work in Argentina or Zimbabwe?”I am not quite sure what period he is talking about in Argentina, but, as for Zimbabwe, that was hit by massive output contraction after 2000, because of Mugabe’s disastrous land reforms (and natural disasters contracted output too), and, if Anderson knew anything about Keynesian economics, he would know in those circumstances, a demand contraction, not some huge, ridiculously large stimulus, is necessary, as is carefully explained by Bill Mitchell to the unenlightened:
Anderson’s rather feeble question demonstrates that in fact he has no proper understanding of Keynesian economics. No big surprises there: it’s a common failing of Austrian ideologues, and Robert P. Murphy is in the same boat too.