Keynesian Economics debunked by David Hume

I thought of this when I saw pictures of Thomas Sowell on here and discussion of housing costs. Thomas Sowell pointed out that a late 1800s depression in America was recovered from quicker than the great depression as in free market vs Keynesian economics.

Here is one reason why, so basically if you have capital there are two ways to make money, interest or profits. Therefore, interest rates must be at around the same rate of return as profits(risk factored in). If interest is lower than profits, than there is no incentive to loan out money, this is an equilibrium like supply and demand. Appreciation of assets can also be considered profits since you are selling the asset higher than what you got it for, therefore a profit as opposed to keeping idle cash.

During a recession, profits drop, therefore demand drops and assets depreciate, thus, interest rates drop.

Because in the 1800s depression profits were dropping, idle cash flooded the market at low interest rates allowing for refinancing, businesses to borrow low to stay afloat, new businesses to enter the market and successful businesses to expand. Statistics on farm foreclosure rates and bankruptcies in the two depressions is evidence of this.

With Keynesian economics, prices and interest rates do not drop because it increases demand and inflation by printing money. Therefore, interest rates do not drop as low as they would otherwise and economic participants hold assets because they are appreciating while refinancing and cheap borrowing is not possible since interest rates are not low.

Hume also wrote an essay debunking public debt as harmless because it is a drag on the economy while also drives up demand for debt which raises interest rates.

For more info on this subject look up the Mises foundation articles on David Hume.