Hazlitt and Keynes

0:00I want to talk today about two men, one of them also a great financial supporter of the Mises Institute as well as a great role model, if I can use that cliché, and a great public intellectual for freedom, Henry Hazlitt, and then another man, John Maynard Keynes, who I guess we could call our greatest opponent, not only in his eye, if not personally, although personally if he was still alive, but in his ideas, in his writings, and in his followers. Keynes was born in 1883 and died in 1946. Haslett was born in 1894, 11 years after Keynes and lived much longer, dying in 1993. Their lives and loyalties are a study in contrast, Contrast, and mostly of choices born of internal conviction, in Hazlitt's case, or of course a lack thereof in Keynes' case. Keynes became the most famous economist of the 20th century and the guru crank whose work has inspired thousands of failed economic experiments and of course continues to inspire them today. He is this fengali-like figure who implausibly

1:14should convince the world that saving is bad, that inflation cures unemployment, that investment can and should be socialized, and consumers are fools whose interests should be dismissed, and capital can remain non-scarce by driving interest rates to zero, thereby turning the hard work of many hundreds of years by economists on its head. He means, at every privilege in life, and all the power and influence that an intellectual can have, and he used it irresponsibly in service to the state. Hazlitt was very nearly his foil. He did not come from privilege, did not enjoy a prestigious educational pedigree, did not know any of the right people.

2:02He came from nowhere, and he worked his way up through sheer force of intellectual labor and moral determination. Hazlitt eventually became one of the great public voices for the free market in the 20th century, writing in every popular venue he could, applying his enormous talents as a thinker and writer to defending and explaining free markets, showing how the classical economic wisdom was true and how it was vastly improved by the Austrians. And our sound money is essential for freedom. A market signaling works to achieve economic coordination, and our government policy is always and everywhere the enemy of freedom and prosperity. Hazlitt's great book, Economics of a Lesson Written in the Year that Keynes Died, boils down all of economics to a single principle and applies it across the board to all of the policies of government.

2:56It is crystal clear in its language, designed to be read by anyone in an effort to achieve Mises' dream of bringing economic wisdom to every citizen. Keynes' major work, The General Theory, has been read by very few, mainly because it is so incomprehensible as to be nearly written in code. But then it wasn't designed for everyone. It was written for the elites by a member of the most elite class of intellectuals on the planet. Even more effectively, it was written with an eye to impressing the elites in the one In one way, they can be impressed. A book so convoluted and contradictory that it calls forth not comprehension, but ascent through intimidation. Its success is a remarkable story of the bamboozlement of an entire profession, followed by the misleading of the entire world.

3:49If there are still believers in what Murray Rothbard called the wig theory of history, the idea that history is one long progress upwards towards the truth, If I had to bet on which book will have greater longevity, however, I would go with Hazlitt. The same is true of Hazlitt's great legacy. He died without much fanfare. In fact, his days of fame were far behind him, arguably reaching their height when he was an editorial writer for the New York Times. When he was told that he needed to write in defense of of Keynes' Screwy Plan for Bretton Woods. He balked and walked away. 13 years later, writing as a columnist for Newsweek, Haslett came out with a line-by-line refutation of Keynes' general theory.

4:41It's arguably his great work, the one begging to be written. He alone had seen the need, and it continues to reach us today and serves as something of a manual for the errors of government. Well, Hazlitt and Keynes began their education with an intense interest in literature and philosophy, but eventually settled in economics. Both were in a position to make a choice of theoretical paradigms, given the intellectual and political content of their times. Both were major public intellectuals. Both considered themselves to be liberals in the way that term was used before the New Deal, meaning a general disposition towards human rights, Free Trade and Open Societies. In this spirit, Keynes wrote an opposition to the Treaty of Versailles that imposed savage terms on Germany after the war.

5:30He favored free trade and generally allied himself with that cause. Sadly, that tendency that derived from the old world's love of liberty was incompatible with his life's agenda, which he believed to be his birthright. That agenda was to rule the world through intellectual means by virtue of connections to the powerful. That essential humility that was at the core of the economics profession of the 19th century, the humility to embrace laissez-faire as a principle, was completely missing from his mind. Keynes was born as a member of the ruling elite in Britain. His father and his father's good friend Alfred Marshall were two very powerful figures at at Cambridge University.

6:15They shepherded him to the top colleges and introduced him to the right people and the time came when he was inducted into the super secret, super elite secret society of certain top intellectuals in the English speaking world. That group was called the apostles. And this was the group that would come to shape his ideas and his approach to life. The group had been formed in 1820 and included top members of the British ruling class. They met every Saturday evening and spent most of the rest of their time during the week with other members. Membership was for life. It is impossible to overestimate the extraordinary intellectual arrogance of this group. They would refer to themselves as the only thing that is fully real in a Kantian sense in the world.

7:03The rest of the world and the rest of the human race was an illusion. Keynes was an undergraduate when he wrote to a fellow apostle member as follows, Is it monomania, this colossal moral superiority that we feel? I get the feeling that most of the rest of the world, outside the apostles, never see anything at all. They're too stupid. In the time of Keynes, according to those who have studied this carefully, the apostles was dominated by an ethos that included two general traits. The bond that held the world together and would push it forward was the friendship and love that the apostles had for each other, and that there were no other moral principles that really mattered. And second, an intense disdain for religion and for bourgeois values, institutions, ideas and tastes.

7:56It was in this period that Keynes met G.E. Moore, a very powerful philosopher at Trinity College and an apostle's member. This magnum opus was called Principia Ethica, written in 1903. It was a philosopher's attack on all fixed principles and a defense of what he called immoralism. This was the book that changed Keynes's life completely. He called it exciting, exhilarating, the beginning of a new renaissance, the opening of a new heaven on earth. It was this book that led him to believe that it was possible to completely reject religion, Morality, Conventions, and All Traditions. It might even be considered the kind of prototype of his own later work.

8:42These same values migrated to the famed Bloomsbury Group that Keynes joined after graduation. As many historians of the period have said, it was very influential in cultural and intellectual life in England, especially in the 1910s and 1920s. The emphasis here was not on science, but on art and the overthrow of Victorian standards in order to embrace the avant-garde. Keynes' contribution to the effort was mainly financial, for he had made a fortune as a speculator and spent lavishly on Bloomsbury causes. He also provided the members with contacts in the world of finance and economics. In discussing how immoralism and the rejection of all principles applied to economics, Rothbard draws attention to Keynes' position on free trade.

9:31As a good Marshalian, he was a proponent during most of his early life of free trade. Then suddenly in 1931, that changed with a paper that loudly and aggressively called for protectionism and economic nationalism, a total reversal of what he had previously said his whole life. The press ridiculed him for his shift. That never troubled Keynes. For as an apostle and a champion of immoralism, he contended that there was no contradiction worthy of notice. He believed that he could take any position, whenever he wanted, on any issue, and he could live his life unhinged from any standard or rule. He was always ready to change his opinion, given the new makeup of the political constellation, and he never felt any burden to explain himself.

10:19It was precisely because of this tendency to change his point of view on a dime that critics became tired of dealing with him. Hayek spent a great deal of time refuting them on various subjects, particularly Keynes' book on money, only to have Keynes dismiss the criticisms on grounds that he no longer held those views. He praised FDR and urged all governments to follow the New Deal, but were impressed on the details of programs like the disastrous National Industrial Recovery Act. He'd back away and grant, well, it was probably ill conceived. His opportunism was palpable and infuriating. As the depression deepened, he began to see himself as the philosopher king of the world economics establishment, advising governments all over on their politics.

11:08His main target was the gold standard, which he regarded as a relic of a bygone era, the ultimate symbol of Victorianism, the monetary embodiment of morality and standards, a restraint on the ability of government to tinker with the economy, and therefore from his point of view, the ultimate enemy of everything he hoped to accomplish. The General Theory made its appearance in 1936. Let me introduce that book with a question. What would we call a person who believed that government policy can completely eliminate the scarcity of capital? Most economists in history, even most today perhaps, would call this person a nut. The whole economic problem that economic theory grapples with concerns the invincible reality of the scarcity of capital. The idea that we can somehow concoct a system in which there would be no scarcity amounts to the belief that government can create a permanent utopia with a push of a few buttons. It's no different from a belief in some kind of magical land of fantasy. It represents a fundamental failure to grapple with reality. And yet this is what

12:16This is what precisely Keynes hoped to achieve through his policy prescriptions in The General Theory. His idea was to create this land of universal happiness by one, driving the interest rate to zero, and two, achieving his sought after, quote, euthanasia of the rentier class, unquote, close quote. That is, the killing off of people who live off interest, and thereby, three, eliminating what he considered to be the most exploitive aspect of capitalism, that which rewards investors for their sacrifices. The ghastly situation we find ourselves in today, where savings earns virtually nothing and the Fed holds rates down to zero, seems to be a fulfillment of the worst of the Keynesian dream. As for the contributions of the book to theory, Rothbard writes, quote, the general theory was not truly revolutionary at all, but merely old and unperfuted mercantilist and inflationist fallacies dressed up in shiny new garb, replete with newly constructed and largely incomprehensible jargon. What bad economic policies lacked was a prestigious economist to come to their defense. And this is precisely the role that the general theory

13:29played. Governments all over the world welcomed and celebrated this book. As for the success of the book within economics itself, there are important sociological reasons to consider. Keynes' language was nearly impenetrable. He coined new terms on nearly every page. Rather than being a disadvantage, this is often an advantage in a profession that has lost its way. And as Murray Rothbard pointed out, of course, the source of thousands and thousands of PhD dissertations, too, explaining what Keynes really meant. Keynes set out to divide the world into two broad classes of people, stupid consumers whose behavior is determined by external force and savers who are a drag on economic growth. The job of government policy, he thought, is to goad the first group into a different set of behaviors and pretty much destroy the second group.

14:21Everything else in the Keynesian system follows from those two general propositions. This accounts for his hatred of the gold standard, of traditional capitalism, and of the price system that functions as a signaling mechanism for the production and allocation of resources. It also accounts for why Keynes was one of the world's most passionate advocates of the fascist impulse in the 1930s. He celebrated the, quote, enterprising spirit, quote, unquote, of Sir Oswald Mosley, the founder of the British Fascist Party. He joined the New York Times in praising the central planning of Mussolini. Thus, it was not a surprise when Keynes wrote a forward to the German edition of his book in 1936, which was welcomed by the Nazis. and in that forward he said that his system is more quote more easily adapted to the conditions of a totalitarian state than to one of free competition.

15:17Nor should it be surprising that Keynes also dabbled in anti-Semitism praising even openly Jewish tirades of the ex-prime minister Lord George. A puzzling aspect of academia is how a sector that lives on its reputation for Objectivity and Love of Science can be so easily bamboozled by charlatans. And the success of this book is a great case in point. Most economists over the age of 50 dismissed the book, but the younger ones regarded it, many of them, as a kind of religious revelation that came to them with a huge career advantage over their elders. Keynes's personal prestige had a lot to do with that. As Rothbard wrote, quote, It's safe to say that if Keynes had been an obscure economics teacher at a small midwestern American college, his work, in the unlikely event that he'd found a publisher, would have been totally ignored. But coming from a Cambridge professor and student of Marshall and a member of the upper classes, Keynes had huge advantages. The Keynesian magnetism was so powerful that

16:21it even drew in most of the former followers of F. A. Hayek, who by then was teaching in of London. Most tragic of all was the conversion of Lord Robbins to the Keynesian cause. Robbins had written a great book on the Great Depression, the Mises Institute publishes this book by the way, and it's entirely written in a Massessian spirit. But after having worked with Keynes on economic planning, Robbins fell victim to what was apparently his extraordinary personal charisma, later writing of Keynes' quote, unearthly brilliance and quote, godlike personal He wrote that Keynes, quote, must be one of the most remarkable men who has ever lived. Robbins ended up repudiating his best work and only came back to it somewhat right at the end of his life.

17:11Hayek wrote many times that Keynes before his death was on the verge of repudiating what by then had become of the Keynesian system. This is based on Keynes' positive review of Hayek's road to serfdom, as well as Keynes' own private words to Hayek himself. In analyzing the evidence, however, Rothbard concludes that no such conversion was coming, but rather, this was just Keynes doing the Keynesian thing, shifting, moving, dodging, changing with no attachment to standards or principles or morality. He would believe anything and say anything and do anything to advance himself and put his class of technicians in charge of the world economy. It is remarkable that after a lifetime of writing, that his views would still be so difficult to pin down that even Hayek could believe, however briefly, that there was a modicum of sincerity in this man's words or actions.

18:03Comparing the life and work of Henry Hazlitt is like comparing night and day. Hazlitt never held an academic position. He had no family connections, was never formally schooled in economics, But he was an extremely hard worker who read passionately and extensively, making an extraordinary career for himself, given that he was forced to drop out of grammar school in order to support his widowed mother. He read in all his spare time, Mill, Aristotle, Nietzsche, Gibbon, and anyone else he could get his hands on. He kept extensive diaries of all he read and his thoughts on them. In all his studies, he presumed an old-fashioned view of his goal, to discover what is true as a means to guiding his life and his judgments.

18:53All the while, he was also working. His first series of jobs followed in quick succession, sometimes lasting only a few days. He later would say that this was only possible because there were no hindrances on hiring or firing employees, so it was very easy for him to get new jobs when he was fired. But each time he had a new job, he would learn a little bit more, become more valuable, be kept longer, and eventually his salaries grew, no minimum wage in those days of course, $5 a week, $8 a week, $10, $12 a week. Finally, he worked his way up to become a reporter at the Wall Street Journal. He was paid 75 cents per story, and he soon became invaluable.

19:38It was in 1910 that he received his first real exposure to economics in Philip Wickstede's great book, The Common Sense of Political Economy. This is the book that firmly embedded him in the classical and marginalist perspective on economic issues and prevented him from ever falling away, he said. He was also trying his skills as a writer, and sure enough, he managed to get his first book published by a major publisher at the age of 22. It was called Thinking as a Science. This is also a book kept in print by the Mises Institute and is certainly one of the most inspirational and instructive books ever written on self-education and the obligation to learn. He opens this book, again written in 22, as follows. Every man knows there are evils in the world which need setting right.

20:27Every man has pretty definite ideas as to what those evils are. But to men, one in particular stands out vividly. To some, in fact, this stands out with such startling vividness that they lose sight of other evils or look upon them as the natural consequences of their own evil in chief. I, too, have a pet evil to which, in more passionate moments, I am apt to attribute all the others. This evil is the neglect of thinking. When I say thinking, I mean real thinking, independent thinking, hard thinking. Here we have the tone and approach of a man with integrity, intellectual integrity, a man who was determined to find his way to what is true.

21:14The entire book reads this way. I'm particularly struck by his analysis on why some people attach themselves to error and will not let go. He might as well have been discussing the seduction of the economics profession by Keynes. In this passage, again from a book he wrote at the age of 22, He's speaking of the prejudice that in particular affects intellectuals, their propensity to imitate the ideas that seem fashionable at the moment. Writes Haslett, we agree with others, we adopt the same opinions as other people around us because we fear to disagree. We fear to differ with them in thought in the same way we fear to differ with them in dress. In fact, this parallel between style and thought and style and clothing seems to hold throughout.

22:02Just as we fear to look different from the people around us because we will be considered freakish, so we fear to think differently because we know we were looked upon as weird. He recalls a conversation he had with an intellectual, which he raised a point made by Herbert Spencer. The person recoiled and said, well surely Spencer's ideas have all been superseded. Hazlitt discovered this person had never read Spencer, had absolutely no idea of anything and what Dean Spencer had actually said about anything clearly has, at least initially, like most non-academics, had a tendency to have higher expectations of the integrity of the intellectual classes than they merited then or now. Nevertheless, he condemns the tendency to absorb prevailing ideas as uncritically as completely foolhardy, as a path towards making life meaningless, writes Hazlitt.

22:59I am willing to wager that most of these same people, now so dithyrambic in their praise of James, Bergson, Eugen, and Russell, all will 25 years hence be ashamed to mention those names, and will be devoting themselves solely to post-neo-futurism or whatever else happens to be the passing fatosophy of the moment. He goes on to speak of what might be the credo of his life. If this is the most prevalent form of prejudice, it is also the most difficult to get rid of. It requires moral courage. It requires the rarest kind of moral courage. It requires just as much courage for a man to state and defend an idea opposed to the one in fashion as it would be for a man to dress in hot clothes on a sweltering day or for a young society woman to attend a smart affair in one of last year's gowns. The man who possesses this moral is blessed beyond kings, for he must pay the fearful price, but he must pay the

24:00fearful price of ridicule or contempt. He later went on to work and went back to work at the journal and resumed his reading, tracing footnotes to ever greater books. He followed the footnotes in Benjamin Anderson's book, All the Way to Discover Mises's Theory of Money and Credit. He had fallen in love with economics in the same way most of us did. He loved its elegance, its explanatory Power, its implicit love of liberty and its central role in the rise of civilization. But it was not his only love. He read widely in literature as well and found a market for his talents in this area. He moved from newspaper to newspaper until he eventually took a position as the literary editor of The Nation, which was then known as a liberal but not a status publication.

24:46It was far more important in those days than today. So this was a very high prestige job for him. And he took it at a time that would turn out to be a major turning point in our nation's history and also in his own life. In 1932, after FDR's election, The Weekly would start to weigh in on various aspects of New Deal policy. It was Hazlitt's internal constitution, that belief in truth that led him to write in these pages what he believed about FDR's policy. He wrote about the real cause of the Great Depression, which he saw not as a failure of capitalism, but as connections, but as a correction from the credit-fueled bubble. The nation itself was not yet firmly entrenched as a propaganda paper for economic central planners, and so the editors let Hazlitt have his say. He warned about the results of protectionism, price controls, subsidies, and economic planning in general. Not only would these methods not work, he said, to dig us out of the depression,

25:45that they were contrary to the spirit of human liberty that liberals embraced as a matter of their creed. In saying these things, he was saying pretty much what any economist would have said a few decades earlier. But he also knew, Phil Well, that he was going against, very much going against, the existing zeitgeist. Of course, that Keynes himself was helping to draft. Sure enough, Hazlitt won the debate, but lost his job at the nation. This was the first of many such events in his life, and it was something to which he would become accustomed. He had worked too hard for too long, believed too much in the power of truth to turn away from it. He had established a dictum early in his life that he would not go along with an opinion simply because powerful and influential people around him held to it. He would have courage now and always. It was not only his writing ability that attracted H.L. Mencken to him, and Mencken named Hazlitt as his successor at the American

26:44Mercury where he was for three years until he moved on to become the lead editorialist for the New York Times. Probably the last time the Times would write about anything. In 1946, this job came to an end in the dispute over the Bretton Woods monetary agreement. Hazlitt was relentless in attacking its fallacies and in predicting its doom. The publisher Hazlitt came to him and explained the paper could not continue to oppose what everyone else seemed to support. Hazlitt knew this routine rather well and so he left without bitterness or acrimony and proceeded to write what would become the best-selling economics book of all time. In these years too he had met Ludwig von Mises, who had come to our shores in 1940.

27:30Hazlitt recognized in Mises one of those men with moral courage, a man who as Henry Hazlitt put it in his early book as, quote, blessed beyond kings, for his willingness to stick up for truth even at great personal cost. He used his position at the Times to alert readers to Mises' books and ideas. He helped Mises find a publisher for English translations of his books and became a promoter and champion of the Misesian world view. As we look back on it, it seems very clear that Mises' own life, at least in the United States, would would have been very different without the help of Hazlitt. In some ways, Henry Hazlitt became a one-man Mises Institute. But let's return to Hazlitt's succession of jobs.

28:16He went from The Times to Newsweek, where his Business Tides column educated a full generation or two in economic theory and policy, including me, I might add. These were remarkable columns, beautifully written, spot on every single week. And I'm pleased to announce the Mises Institute is going to be publishing the complete collection of these columns in a book that I hope will help reestablish Hazlitt's position as one of the key intellectuals of the 20th century. But now it was time for Hazlitt to take down the man whose ideas had dogged him for decades, John Maynard Keynes himself. Hazlitt was the first and still the only economist who has ever taken the general theory, taken it on in a line-by-line analysis.

29:05He did this in a book published in 1959 called, also available in the bookstore, by the way, all these books, The Failure of the New Economics. He writes in the introduction that he was warned not to write this book because Keynes's ideas were already unfashionable. But he decided to go ahead, based on an insight of Santayana, that ideas aren't usually abandoned because they have been refuted, but because they have become unfashionable. But as so far as Keynes could tell, there was no stepping away from Keynesian fashionableness. And note, too, this was written fully 52 years ago. Keynes is fashionable all over again. What Haslett discovered was that the book was much worse than he had imagined. He found no ideas in the book that were both true and new. He patiently goes through the book, explains what he means, taking Keynes apart piece by piece through 450 pages of thrilling analysis and Pros, finishing up with a great concluding chapter that summarizes all the errors in

30:04the book. I've not mentioned many of Hazlitt's other great books, including his two books on monetary economics. On this matter, he was the perfect foil for Keynes. Whereas Keynes believed that the most important single step to destroying laissez-faire was to demolish the gold standard, Hazlitt believed that there would never be a lasting regime of freedom were all restored without addressing the monetary problem. What Keynes wanted to destroy, Hazlitt wanted to restore and firmly entrench as part of the market order. They both agreed on the centrality of the issue in achieving their dreams, and in this they were both right. But nowhere each ended up at the end of their lives. Keynes died famous and rich and beloved, heralded by one and all for his brilliance.

30:54He was never asked to do anything courageous. He was never asked to make a sacrifice for what he believed in. It would never have occurred to him to do so, for the very idea of a moral commitment or an intellectual responsibility was either unknown to him or totally rejected by him. Hazlitt, in contrast, died at what was arguably a low point in his career. He had climbed to the top but then had been pushed down time and time again, eventually writing for and by working with a small and largely embattled group of defenders of free enterprise. We have these two approaches contrasting images of the role of the public intellectual. Is this role to defend freedom of the individual and to promote the development of civilization? Or is the goal to enrich oneself, to get as close to power as possible, to become as famous and influential as one can be?

31:47It all comes down to one's moral commitments and personal integrity. In the end, this is the core issue, one arguably more important than even economic theory. Hazlitt made his choice and left us with great words of wisdom on the duty to support freedom. And he said this on the occasion of his 70th birthday party. Said Hazlitt, we have a duty to speak even more clearly and courageously, to work hard, to keep fighting this battle while the strength is still in us. Even those of us who have reached and passed our 70th birthdays cannot afford to rest on our oars and spend the rest of our lives dozing in the Florida sun. The times call for courage. The times call for hard work.

32:34But if the demands are high, it is because the stakes are even higher. They're nothing less than the future of liberty, which means the future of civilization. Thank you very much.