Best Books Criticizing Keynesian Economics

0:00Our next speaker earned his PhD in Intellectual History at UCLA. He's the editor of the Mises Review, contributor to such journals as Analysis, the International Philosophic Quarterly, Journal of Libertarian Studies, Quarterly Journal of Austrian Economics. He's a senior fellow at the Mises Institute. He's written a couple of books, Resurrecting Marks, Philosophical Origins of Austrian Economics, An Introduction to Economic Reasoning, the editor of Succession, State and Liberty, and he was the author of The Essential Rothbard.

0:45His speech today, Best Books Criticizing Keynesian Economics, The Smartest Guy in Any Room, Dr. David Gordon. I very often have people telling me I speak too softly, so can everybody hear me? If you said no, you can. I've been asked to talk to you this afternoon on books critical of Keynesian economics and the first one that I want to mention is the one I think people should read first if they're unfamiliar with the subject because it's written in a very Easy to Understand Style, and this is by Hunter Lewis where Keynes went wrong.

1:50Now Lewis brings out what I think is the real paradox of the whole Keynesian episode, and the paradox is this, Keynes had during his life a reputation for brilliance. Bertrand Russell, who was one of the greatest philosophers of the 20th century, said that he was afraid to disagree with Keynes in conversation, that he had the feeling whenever he was in an argument with Keynes, he took his life into his hands, and other people like Lord Lionel Robbins have made similar comments attesting to Keynes' brilliance. Rebecca West, the writer, great British writer, mentioned Keynes' abilities as a conversationalist, although on the other hand she also said that he looked like a seal.

2:49But so on the one hand we have that Keynes has this reputation for brilliance, but as Hunter Lewis points out, when you actually look at his book, General Theory of Employment Interest in Money, 1936, seems like it's absolute nonsense. So we have, how could someone with such a reputation, acquire such a reputation of brilliance when he's written nonsense? Because we can see what is the essence of the Keynesian prescription. What Keynes says is that the cure for unemployment and depression is an increase in spending. Now, this has to be distinguished when it says increase in spending. It's not as the people at the Chicago School like Milton Friedman say, they say the problem in a depression is that there's not enough money, so the Federal Reserve System has to increase the supply of money.

3:52Kane said, no, that isn't right. What we need is spending, because if you just have an increase in the supply of money, that doesn't ensure that there's going to be an increase in spending. In a letter that Kane's wrote to Franklin Roosevelt, he said that people who say there's just be an increase in the supply of money are like someone who wanted to gain weight, and how do you propose to do so by buying a larger belt? He said, no, you have to actually get the people spending. But we can see this is really a ridiculous idea because if the problem is that the economy isn't producing enough, the only way it can produce more is to actually have goods and services being produced.

4:45do just increase pieces of paper, get more people spending your pieces of paper. That won't produce any fundamental change in how things are going. We need an actual increase in production just having, unless we have an increase in the structure of capital, development structure of capital, we won't have any revival from from Depression, just giving out pieces of paper to people, getting them to spend it isn't enough. So one wonders sometimes, how could Keynes, how did Keynes, where did he get all these ideas from? Perhaps it was like the Roman Emperor Gaius Caligula, who shortly after he ascended became William Emperor AD 37 announced that he was regularly in communication with the god Jupiter who told him what to do. Perhaps this is how Keynes had some similar facility. It would be hard to see otherwise how he could come up with the prescriptions he did.

5:53Now, another point Lewis brings out very well is that there are some people who claim that Keynes was not particularly radical. For example, Bruce Bartlett has a book out where he says Keynes is really a conservative because he was saying the capitalist system is basically all right, it just needs the government to come in and stabilize things, the economy, the free market isn't perfect, will generate the unemployment from time to time, so we just need a little corrective action by the government and then everything will be all right. So, according to this argument, Keynes was really pretty close to being a free market advocate. He just thought there were some problems with the market. But Hunter Lewis brings out this isn't true at all. Keynes, In the general theory, calls for, quotation, a somewhat comprehensive socialization of investment.

7:02What he wanted was for the government really to assume control of all investment. He thought that it was not a good idea to have private business people doing that, because this, he said the stock market was really something like a casino, everything was based on Speculation, and this is irrational, it's much better if we have government planners like him in control of things, and he called for the euthanasia of the rentier, those who get interest on bonds and stocks, so he said they should be eliminated, we'd have the government Taking Control of Things. Now, the next one I want to mention, if you read Hunter Lewis, I think you get a very good perspective on the basics of Keynes. Lewis is very good.

8:01He sets out first what Keynes said in quotations, and he goes back and gives you the same quotations with his analysis and what he thinks is wrong with him. The next one I want to mention is is probably perhaps the most important of all books that are critical of Keynes, and this is by Henry Hazlitt, The Failure of a New Economics. What Hazlitt did was to take every chapter of Keynes's general theory and go over it in detail and explain what's wrong along with it, and he says that everything original in the book is false and everything that's true is said by other people.

8:52I should say this book has not gotten the attention from economists that it deserves. Actually, Brad DeLong, who's a very Keynesian professor at Berkeley University, said that he had been reading Hazlitt's Economics in One Lesson. I'm sure almost all of you know that book, and he said he was impressed by this book. He said it was a very well-written and argued book, but he doesn't understand that even Even though the book was written in the 1940s, Hazlitt apparently is unaware that Keynes ever existed. He delonged, although he's a professional economist specializing in Keynes, has no knowledge that Hazlitt wrote a whole book criticizing Keynes in detail.

9:50I'm afraid this is just typical of what academic life is like today. Now, what I think is the key thesis of Hazlitt's book is that he says, Keynes realized that the cause of unemployment is that wage rates are too high, just like with any other commodity if you have, if the supply and demand aren't correctly aligned, there's going to be trouble. The same is true of wages. If there's unemployment, that indicates that at least some workers are asking too much in their wages.

10:38And if there would be a lowering of wages, then you could get unemployment. But has it said, Cain's real thought that labor unions and the government won't allow this, they won't allow wage reductions. He said, wages are sticky downwards. You can't reduce wages. So the way around this, he thought, people are in the grips of a money illusion. They tend to concentrate just on how much money they're making in dollars or pounds or whatever. And they're unaware or they don't take too much note of the purchasing power of their money. So if the government increases the supply of money and gets more spending going, then it'll reduce purchasing power and this in effect will lower wages.

11:34So even though you don't have money wages going down, wages will be lower. So according, as Hazlitt saw things, this is the way that Keynes wanted to get around wage reductions and then he opposes that, he says, well, the workers are pretty much aware of how much, what the purchasing power of their money is, they're not in the grips In any case, that won't do the job because what's wrong is not that wages are taken in the aggregate or not correct, but that particular wages are wrong. If you have unemployment, it means that particular workers need to have their wages lowered, not everyone. Keynes has had a tendency, as Hazard brings out, to think in aggregates rather than understand how the economy worked, didn't have a knowledge of price theory.

12:47One of Keynes' disciples, the British economist Joan Robinson, said she thought it would have would have been much better if Maynard, people always referred to Keynes as Maynard, to distinguish him from his father, John Neville Keynes, who was actually a much better economist than he was. He also outlived Keynes, who died at age 97, but she said it would have been much better if Maynard had taken the half hour or so that would have been required to to Learn Price Theory, but according to her, he never bothered to do it. I should say something about Joan Robinson, I was interested this morning when Tom Woods was speaking, he mentioned Paul Samuelson's somewhat, some problems with the Soviet Union.

13:49Now Joan Robinson went beyond Samuelson. She thought North Korea was really the outstanding economy in the world. You could really develop things much better in North Korea. Now the next book I want to mention is a collection edited by Hazlitt called The Critics of Keynesian Economics. This includes a number of articles, including reviews by Frank Knight and Jacob Weiner who did contemporary reviews of Keynes' book when it came out. I want to call attention to two articles in that collection by Ludwig von Mises. One is called Stones into Bread, The Keynesian Miracle, and the other is Lord Keynes and Say's Law.

14:46And what Mises points out is that really in the economy, the fundamental thing we have to consider is that demand for goods really consists of a supply of other non-competing goods. So, we can't really increase production just by increasing the amount of money or increasing spending. The economy can only get going by a genuine increase in production. Mises, I should say, as you would expect, had a very low opinion of Keynes. I remember a friend of mine who attended Keynes, I mean, Mises for a time taught in addition to a seminar at NYU. He also taught an undergraduate course for a while. And Mises had said that no economist would ever make a particular statement. So a student put up his hand and said, oh, but Professor Mises, and he quoted from a textbook, this professor said just what he said no economist would ever say. And Mises replied, you see, he is not an economist, by Misa Keynesian. The next book I want to mention continues Mises' point on Say's law.

16:13This is by W. H. Hutt called The Keynesian Episode. There was an earlier version of the book called Keynesianism, Retrospect and Prospect, came out in 1963, but it's basically the same Now, what Hutt does is to go into detail on this point about Say's law explaining in detail how it works and how it invalidates the Keynesian system, and he also shows how earlier economists were, Keynes pretended that no economist before him had really addressed the problem of unemployment, But Hutt shows in detail that it was very, many economists had done so and that unemployment can readily be handled within the framework of standard economics.

17:07Now one does have to be a bit careful, Hutt is a bit hard to read, he had a rather difficult style. Someone said that he really wrote his books in Huttite and the, I see I'm running out of time. What I want to mention is there are some chapters in Murray Rothbard's Man Economy and State that are really deal with Keynes in a really outstanding way as we would expect of Murray Rothbard. What Rothbard points out is there's one way in which the Keynesians try to get out of This claim that really, if you allow wages to fall sufficiently, then you wouldn't have unemployment.

17:56They say, well, what about if people just didn't, just took all their money and didn't spend it at all? What about hoarding? What if people just didn't spend it all? Keynes spoke of liquidity preferences. People would just take all their money and not spend it or not invest it. So then the economy would just spiral downwards, and what Rothbard points says is, and no, if he doesn't think this is going to happen, but if it did, he said that would just speed the process of adjustment, so it wouldn't be a problem at all. He also has really, I think Bob Murphy and his study guy is quite right to say that Rothbard is simply brilliant on these points. He makes fun of a famous Keynesian multiplier where Keynes said that if the government spends a dollar, it's really several dollars will be, there will be several dollars increase in spending depending on what the multiplier is, what Rothbard says, well, if you use that same kind of argument, you could get a personal multiplier showing if you say you give me

19:07me, or give him money, it will generate a multiplier of millions of times. So he's really great reductio ad absurdum of the whole Keynesian system. So those are a few of the books that I think people should read that criticize Keynes and I think if we're to have any hope For the hope of having a good economy, we have to abandon Keynes and read Mises and Rothbard as people who have studied or go by Keynes need to follow the advice that Saint Remagius gave to the early French King Clovis where he said, Burn what you've read, read what you have burned. Thank you.