To the economic and political detriment of the Western world and those economies beyond which have adopted its precepts, 2016 marks the eightieth anniversary of the publication of one of, if not, the most influential economics books ever penned, John Maynard Keynes’ The General Theory of Employment, Interest and Money. Sadly, even to this day, despite its thorough refutation by lights such as Henry Hazlitt and other eminent scholars, The General Theory, which spawned “Keynesianism” and its later variants, remains supreme in academics, financial markets, and public policy.
Despite its outlandish theoretical flaws and nonsensical economic jargon and the catastrophic empirical evidence of its failure to prevent financial downturns or “stimulate” sustainable growth, Keynesianism remains the ruling paradigm of economic thought.
A number of trenchant reasons have been given for the General Theory’s continued dominance, however, one stands above all else: Keynesian economics provides the intellectual justification for economists, statisticians, technocrats, bureaucrats, and policy wonks in their exalted positions as “fine tuners” of economies the world over. Since markets are to Keynes and his disciples inherently unstable from erratic investment spending and aggregate demand, it is up to these theoreticians steeped in the knowledge of their master’s teachings to ameliorate any economic fluctuations.
The General Theory came on the scene at a propitious time during the height (or more accurately the depth) of the Great Depression, which in 1936, despite Roosevelt’s New Deal and other Western nation states’ initiatives, had not improved conditions. Keynesianism was actually a “middle way” between all out Soviet-style central planning and that of laissez-faire capitalism. Primarily through fiscal policy, the economy would be kept on an even keel under the astute management of Keynesian-trained economists. Naturally, this appealed to academics and intellectuals the world over who correctly envisioned positions of power and influence in expanded state apparatuses.
As history has shown, Keynesianism was to become more than a remedy for the Depression, but would be applicable after the crisis dissipated. The General Theory was based, in part, on the (false) notion that the capitalist system is inherently unstable and is, therefore, in need of state intervention. Keynes deliberately ignored the scholarship at the time, which demonstrated that the instability was not a “market failure,” but a monetary disorder caused by artificial credit expansion generated by the central banks, especially the Federal Reserve.
The enthusiasm for The General Theory came at first from younger economists while it was (rightly) dismissed by many of their elders as incomprehensible. Yet, its lack of clarity was appealing to the novices, since they would become the Creed’s interpreters.
Not all, however, were entirely overwhelmed by their mentor’s magnum opus as Paul Samuelson candidly admitted:
[The General Theory] is a badly written book:
poorly organized. . . . It abounds in mares’ nests
of confusions. . . . I think I am giving away no
secrets when I solemnly aver – upon the basis of
vivid personal recollection – that no one else in
Cambridge, Massachusetts, really knew what it
was all about for some twelve to eighteen months
Despite such an assessment, Keynesianism was never seriously challenged by its adherents, it opened too many lucrative policy making doors to be refuted.
That Keynesianism continues to reign supreme, despite its theoretical and empirical bankruptcy, speaks volumes of the state of Western intellectual and academic life. Instead of the pursuit of truth and the refutation of error, Western intelligentsia is primarily concerned with securing privilege and power for itself. At one time such status was gained by honest inquiry into social questions and issues, now it is obtained in the justification of the expansion of state power. Very few turn down such enticements!
Societies are the product of ideas. Since the release of The General Theory, the Western world has been under the destructive sway of Keynesianism, which has resulted in stagnation, financial turmoil, and eventual collapse. Until Keynes and his nutty theories have been refuted, the economic malaise will continue.
Quoted in Murray N. Rothbard, “Keynes, the Man.” In Mark Skousen, ed., Dissent on Keynes: A Critical Appraisal of Keynesian Economics. New York: Praeger Publishers, 1992, p.184
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A very poor articulation of Keyne’s main thoughts:
1. Capitalism is a term invoked by Marx to describe the current state of the economy after the industrial revolution. He regarded it as the most highly developed system of production until that time, but one which would yield to change just as had all previous systems of production.
2. Capitalist economies were not based on an idea but grew. Their is no architecture set out which makes it stable or not. However, the high rate of change involved in constantly maximizing certain production parameters and introducing new capital stock (bankrupting whole industries, forcing people to move elsewhere for work, etc) is tantamount to saying it is socially highly unstable.
3. Societies are not the product of ideas, but ideas are the product of societies.
4. One of Keynes’ main ideas, not introduced here, was counter-cyclical spending. This idea is as old as the world. In the bible, Joseph, vice-roy of Egypt, saves grain stocks for 7 years, giving him the wherewithal to sustain society throughout a 7-year drought (and earning him a tidy fortune).
5. It is silly to think of the appeal of Keynes as a conspiracy and hoax by people keen on positions of power and policy influence. Such positions could be secured better by people utilizing measures which are seen to actually work.
6. One of the main points of Keynesian thought has to do with the difference between macro- and micro-economics (something detractors deny exists) in what is known as a fallacy of composition: If you stand up you can see better, but if everybody stands up, you cannot all see better. If everybody saves at the same time, spending will fall and the economy shrinks. Not everybody can be a net exporter of goods, any more than that both sides can lead a match 6 – 4. For Keynesians, a sovereign is like the score-keeper. For his detractors the sovereign is one of the actors subject to the same restrictions as any other economic agent (aside from sovereign powers that it arrogates for itself).
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@Webej: Spoken in defense of Keynes (and one’s own existence) like a true academic.
How about “In the long run we’re all dead!” ? Where is the accountability here professor?
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This is also appropriate on a similar theme: http://www.firstrebuttal.com/the-matrix-exposed/
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