Money, Bank Credit, and Economic Cycles - The Ludwig von Mises ...

A Critique of Monetarist and Keynesian Theories 595which we touched on in chapter 3, has exerted a very negativeinfluence on the insurance sector as a whole and has made itpossible for some life insurance companies to market depositsin violation of traditional legal principles and thus to act, indifferent degrees, as banks, i.e., to loan money actually placedwith them on demand deposit. Hence various life insurancecompanies have begun to take part in the banking process ofcredit expansion, which damages the productive structurereturn to the traditional principles which from the beginning have guaranteedthe smooth operation and solvency of the industry. On theseissues, see the following references: Nicholas Davenport, “Keynes in theCity,” published in Essays on John Maynard Keynes, Milo Keynes, ed.(Cambridge: Cambridge University Press, 1975), pp. 224–25; Skidelsky,John Maynard Keynes: The Economist as Saviour, 1920–1937, esp. pp. 25–26and 524; and D.E. Moggridge, Maynard Keynes: An Economist’s Biography(London: Routledge, 1992), esp. pp. 410 and 411. Keynes had a direct corruptingeffect as a highly influential leader in the British insuranceindustry of his time. However he also had a much more damaging indirecteffect on the insurance sector in general in the sense that his economictheory helped to push up inflation and to discredit and destroythe saving habits of ordinary people, in keeping with his “euthanasia ofthe rentier” philosophy, which exerted a very harmful influence on thedevelopment of the life insurance and pension market worldwide. Inthis respect, the fact that Keynes was chairman of a life insurance companyfor many years constitutes one of the most remarkable ironies inthe history of life insurance. See Ludwig von Mises, “Pensions, the PurchasingPower of the Dollar and the New Economics,” included in Planningfor Freedom and Twelve Other Addresses (South Holland, Ill.: LibertarianPress, 1974), pp. 86–93. See also the speeches Keynes delivered atthe seventeen general meetings (1922–1938) while chairman of theNational Mutual Life Assurance Society. The speeches make fascinatingreading and superbly illustrate the highly disruptive effects which, bythe irony of fate, followed from giving a speculative “wolf” and enemyof saving, like Keynes, power over some peaceful “sheep” (his life insurancecompany). See volume 12 of The Collected Writings of John MaynardKeynes (London: Macmillan, 1983), pp. 114–254. Hermann HeinrichGossen was another famous economist involved in the insurance sector.Apart from his role as advisor in a financially-doomed crop-and-livestockinsurance company, Gossen designed a blueprint for a Germansavings bank devoted to the life insurance business. The project nevercame to fruition, however. See the article F.A. Hayek wrote on Gossenand which appears in Hayek’s The Trend of Economic Thinking, vol. 3, p.356.