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Source link: http://archive.mises.org/10680/keynesianism-loves-the-total-state/

Keynesianism Loves the Total State

September 18, 2009 by

From John Maynard Keynes introduction to the 1936 German edition of the General Theory:

The theory of aggregate production, which is the point of the following book, nevertheless can be much easier adapted to the conditions of a totalitarian state [eines totalen Staates] than the theory of production and distribution of a given production put forth under conditions of free competition and a large degree of laissez-faire. This is one of the reasons that justifies the fact that I call my theory a general theory. Since it is based on fewer hypotheses than the orthodox theory, it can accommodate itself all the easier to a wider field of varying conditions.

Although I have, after all, worked it out with a view to the conditions prevailing in the Anglo-Saxon countries where a large degree of laissez-faire still prevails, nevertheless it remains applicable to situations in which state management is more pronounced. For the theory of psychological laws which bring consumption and saving into relationship with each other, the influence of loan expenditures on prices, and real wages, the role played by the rate of interest — all these basic ideas also remain under such conditions necessary parts of our plan of thought.

FULL TEXT by Keynes plus analysis by James J. Martin


Dennis September 18, 2009 at 8:17 am

In addition to this informative posting, I respectfully recommend an outstanding paper by Murray N. Rothbard, “Keynes, the Man.”


Here are two quotes from Rothbard’s essay:

John Maynard Keynes, the man—his character, his writings, and his actions throughout life—was composed of three guiding and interacting elements. The first was his overweening egotism, which assured him that he could handle all intellectual problems quickly and accurately and led him to scorn any general principles that might curb his unbridled ego. The second was his strong sense that he was born into, and destined to be a leader of, Great Britain’s ruling elite. Both of these traits led Keynes to deal with people as well as nations from a self-perceived position of power and dominance. The third element was his deep hatred and contempt for the values and virtues of the bourgeoisie, for conventional morality, for savings and thrift, and for the basic institutions of family life.

Yet Keynes was much more than a Keynesian. Above all, he was the extraordinarily pernicious and malignant figure that we have examined in this chapter: a charming but power-driven statist
Machiavelli, who embodied some of the most malevolent trends and institutions of the twentieth century.

Barry Loberfeld September 18, 2009 at 8:21 am

The title might be a bit much. No less than Richard Ebeling wrote that while Keynes “understood clearer than many of his followers that the more the government controlled the economy the easier it would be to implement what soon became known as Keynesian-style policies,” still “it would be wrong to suggest that Keynes had any direct sympathy for totalitarianism or the Nazi system.”

Matt September 18, 2009 at 9:01 am

A paper entitled “JOHN MAYNARD KEYNES, SOCIALISM AND ECONOMIC POLICY OF NAZI GERMANY” by David Lipka and Dan Šťastný was published on this issue in 2008. Unfortunately, it’s not in English. The position of the authors is clear, however, from the abstract: “The conclusion is that despite his explicit repudiation of socialism and dictatorship and his efforts to ‘save’ capitalism, Keynes’s concept of economic policy was similar to the economic policy of Nazi Germany and opened the way towards socialism and planning.”


Vitor September 18, 2009 at 9:09 am

“Mises Daily by John Maynard Keynes”

*mind explodes*

Mike C. September 18, 2009 at 9:25 am

Many of capitalisms supposed best champions have in fact ended up doing more damage than its espoused worst enemies. I believe that David Gordon’s review [ http://mises.org/daily/3718 ] of Dr. Paul’s “End the Fed” also goes a long in explaining the arrogance that blinds men such as Keynes.

“Alan Greenspan epitomizes the control of the money supply by government. But is this not at first sight surprising? Greenspan was a follower of Ayn Rand and shared her devotion to laissez-faire capitalism. In an essay written for the Objectivist newsletter, reprinted in Capitalism: The Unknown Ideal, Greenspan offered a strong defense of the gold standard. The vital advantage of the gold standard, Greenspan explained, is that it prevents the government from manipulating the money supply:

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation.… The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. This is the shabby secret of the welfare statists’ tirades against gold. (p. 81)

Greenspan, amazingly, told Dr. Paul “that he had just recently reread it [the article] and wouldn’t change a word of it.” (p. 86). How could Greenspan say this, while presiding over a system that embodies the government control of money that his article repudiated? Greenspan thought that he could conduct the financial system in the same way as the gold standard would operate.

I [Greenspan] think that you will find … that the most effective central banks in this fiat money period tend to be successful largely because we tend to replicate that which would have probably have occurred under a commodity standard in general. (p. 88)

In other words, we need to remove government from the money supply, unless, of course, I and people like me are in control. Greenspan’s position brings to mind a Jewish tradition about King Solomon; he thought that the restrictions imposed in Deuteronomy (17: 16–17) on kings about wives and horses did not apply to him.

As the wisest of men, Solomon believed he knew the reasons for these restrictions, so he could avoid the temptations that the rules guarded against and take more wives and horses than allowed. His overweening arrogance led to disaster, and Greenspan fell victim to the same syndrome.”

Charleston Voice September 18, 2009 at 9:29 am

I respectfully submit another view of Keynes, a darker side:

John Maynard Keynes: Lavender & Bolshevik


Thomas M McGovern September 18, 2009 at 9:37 am

It would be better to state the relationship as “The Totalitarian State Loves Keynes.” Collectivists use neo-Keynesianism for the intellectual cover they need to legitimize their confiscations of property and other violations of the citizens’ rights.

The collectivists’ use of Keynes is neo-Keynesian in that they conveniently ignore half of Keynes’ policy prescription. Keynes advocated that governments spend more and run deficits that would be counter-cyclical to a downturn in the general business cycle, BUT he also said that governments should run surpluses in other times. The US federal budget has been balanced only twice in the past forty years; the federal government has run in the red regardless of the state of the business cycle.

I have no fondness for Keynesian economics or any of its varieties, but we should realize that what the collectivists use to justify their confiscations and interventions is a grossly distorted version of what Keynes advocated. We need tell others of this to destroy the intellectual foundation of interventionism; they need know that the emperor has no clothes.

Eric September 18, 2009 at 9:50 am

An article (either here or on LewRockwell.com) referenced a recent speech by Greenspan where he predicts that current Fed Policy will lead to double digit price inflation.

However, I doubt if he also takes credit for this predicted result. It sounds like he is preparing for the inevitable and also laying the groundwork for passing all of the blame onto his successor.

But one wonders why if he believes he was steering the FED in a path that would have occurred with a commodity standard anyway, then wouldn’t the obvious conclusion be that the FED is superfluous at best and capable of only causing trouble when deviating from that path?

Sean Amavisca September 18, 2009 at 10:27 am

Wow, I am stunned by this outright admission. This sight further educates me each day. I knew him to be a Statist, but I always took him for a closet Statist. That intro is in essence saying “ya I’ve adjusted my theory so that those western capitalists can cling to their false beliefs, yet in truth it works better with the Totalitarian movement you undertake.” And yet economist proclaiming themselves on the side of free-markets voice themselves Keynesians. I’ll submit that Keynes must have been a true genius to have manipulated so many people. And a president supposedly fighting for Capitalist system against the tyranny and oppression of Communism proclaims “we’re all Keynesian now.” Corruption and ignorance in politics is a dangerous and inevitable mixture.

William Anderson September 18, 2009 at 10:29 am

Another point here is that Keynes’ words discredit the notion that he “saved capitalism.” Indeed, if free markets, a free price system, and free competition are obstacles to the Keynesian “system” being implemented and a totalitarian state is fertile ground for his “ideas,” then we need to abandon any notion that Keynes cared about freedom of any sort.

After all, freedom of speech also would be a barrier to the implementation of his ideas into a system girded by law (if we can call it law). Thus, we have to understand that at its very heart, the Keynesian system is a totalitarian system and none other.

awankx September 18, 2009 at 10:55 am

I do really admit Keynes’ ideas about the role of the state and government toward the market….unluckily, his ideas, his suggestions were used to justify all of the totalitarian acts by the state…..that is the fact….!

Current September 18, 2009 at 10:57 am

I remember reading this when I read the General Theory and thinking it a bit of an embarrassment for Keynesians.

Rothbard: “The first was his overweening egotism, which assured him that he could handle all intellectual problems quickly and accurately and led him to scorn any general principles that might curb his unbridled ego. The second was his strong sense that he was born into, and destined to be a leader of, Great Britain’s ruling elite. Both of these traits led Keynes to deal with people as well as nations from a self-perceived position of power and dominance. The third element was his deep hatred and contempt for the values and virtues of the bourgeoisie, for conventional morality, for savings and thrift, and for the basic institutions of family life.”

The quote that someone gives above of Rothbard sums up Keynes quite nicely. When Hayek wrote “The Road to Serfdom” Keynes said it was brilliant and he agreed with it. Why then did he write what he did in this preface?

The reason rests on understanding that he believed that in a Socialist Britain his own influence would be lessened. Particularly he despised egalitarian socialism because it notionally involved removing people like him form their privileged positions. He wanted enough socialism to defend himself and his friends from loss of power, and enough to challenge the bourgeoisie. But he didn’t want too much so that his own position and those of people like him would be challenged.

This is why he wanted socialization of investment. That would imply the existence of an upper class to manage the task.

I’m a Brit. Something I’ve noticed is that there is a long line of Brits who have followed the same plan, since before Keynes. The idea was that landowners and members of the true upper class are already stewards who serve the long-term interests of all classes. The path to Socialism is to resurrect a form of feudalism, to dispense with common people holding stock and savings, to dispense with corporate businesses. To limit the capitalist class and replace these powers with the old upper class.

This is why in Chapter 11 and Chapter 12 Keynes criticises corporate business and stock markets as suffering from problems due to speculation. He says however that privately owned businesses don’t have the same problems. The book heavily criticises saving but not direct investment. The reasons given in Ch11 and Ch12 are not the real reasons, they are excuses. The real reason is that discouraging saving and allowing only direct investment would perpetually secure the status of him and his class.

Current September 18, 2009 at 11:04 am

I didn’t really finish that post.

Keynes didn’t mind about Socialism in other countries because it didn’t affect him or his friends. He saw experiments in other countries as providing possibly useful results for types of Socialism that could be created in Britain. So he treated different countries inconsistently.

Olde European September 18, 2009 at 11:12 am

Amazing. Definitely not something which appeared in my high school economics book (one of the worst books in the curriculum btw) nor was mentioned by the teacher. I have to confess I was mostly sleeping through the course though. You could pass the exam by rote learning.

“You can subscribe to future articles by John Maynard Keynes via this RSS feed.”


Frank V. September 18, 2009 at 11:23 am

Keynes was not a poet but his writings are actually quite good compared to most men. Furthermore, his General Theory was revolutionary. He openly admits that some of his thinking may still be influenced by classical economics. A closer examination of the GT, for example by Hyman Minsky, shows that some parts of the GT borrow heavily from the classics but the vast majority is aligned with his new form of economics. This is one of the reasons why so many people misinterpret his message. They focus on the small tidbits that they are familiar with and downplay what is new. They create models, like the IS-LM, that he would later directly refute was his intent. Instead of being revolutionary later economists mad him a small part of the previous theory (ex: a dialectical synthesis).

Another reason why it is hard for people to understand him was that he wrote a very complex piece of economic literature. If you do not have formal training in economics it would be extremely difficult to read him. If you have read the economic writings of the great classical economists (Smith, Ricardo, Malthus, Mill, and Marx) they are pretty easy to understand and no real understanding of math is necessary. Keynes is the exact opposite. While men like Hayek and Friedman wrote both laymen books and academic theory, Keynes focused solely on theory. This means that few in the general public try to read him and even fewer understand him. Trying to read Keynes without a formal background is like trying to read Sartre’s ‘Being and Nothingness’ without ever having read existential philosophy or Newton’s ‘Mathematical Principles of Natural Philosophy’ without knowing calculus. You can try but your wasting your time.

N. Joseph Potts September 18, 2009 at 11:45 am

This material suffers greatly from the vagaries of translation (e.g., Marie Antoinette: “Let them eat cake.”) The German version is described as “the original,” while I say it is NOT the original – the original would be some English text that Keynes provided his translator (named in the text) for the piece.

What WE get to see, evidently is someone’s translation BACK to English of a German text that was originally translated from English. I’m a translator myself (see the Daily Article for September 15, my name at the bottom), and this is just too much for me.

When I consider how much BETTER we might understand what Keynes meant to say on this occasion if we had what he gave the translator, I really have very little use for the text presented in this article.

Two (serial) translations = at least 50% nonsense.

Current September 18, 2009 at 12:01 pm

Frank V.,

Certainly the GT was revolutionary, but it wasn’t right. Indeed knocking his ideas on the head is very easy.

N. Joseph Potts ,

No, Keynes spoke German and probably wrote the preface directly in German. German is easy to translate into English anyway and vice versa, many of Mises books are translated from German.

Lord Buzungulus, Bringer of the Purple Light September 18, 2009 at 12:09 pm

The German version of the text is included in the original book by Martin, as well as the pdf file, so at least the question of compounding of translation vagaries should be easy to check by any German speakers here.

Inquisitor September 18, 2009 at 2:55 pm

It’s hard to fully understand either Mises or Hayek without a rather panoramic view and understanding of various fields of knowledge too, given how much knowledge they both possessed and infused in their works. At least modern Austrians do take the time to comprehend them insofar as they’re economists.

Olde European September 18, 2009 at 4:22 pm

Though I don’t do translations, I use english and german (and french) professionally on a daily basis.

FWIW, I can absolutely confirm that the english translation of the german text as given in James J. Martins “Revisionist Viewpoints” is correct. Actually it seems to me a lot more “germanicisms” made it into the english translation than would be needed. The only difference would be the translation of “Economic Consequences of the Peace”; the german title seems to be “Economic Consequences of the Peace Contract”.

newson September 18, 2009 at 8:02 pm

to joseph n potts:

“Alan Peacock writes of the passage (without quoting it) that Keynes indicated “that the then German (Nazi) government would be more sympathetic to his ideas on the employment-creating effects of public works than the British government”(1993, 7). This view, however, runs contrary to the clear meaning of the text: it is not that the Nazi leaders chanced to be more sympathetic to one of Keynes’s particular proposals, but that, in Keynes’s view, his theory “is much more easily adapted to the conditions of a totalitarian state.” Peacock adds that “there is some dispute over whether or not the preface was accurately translated.” But that issue in no way affects the excerpt quoted here, which is from Keynes’s English manuscript.22″

ralph raico “was keynes a liberal?”, p174.

newson September 18, 2009 at 8:49 pm

…besides, as keynes had previously reviewed tmc (when only available in german), i find it difficult to believe that he misunderstood the preface to the german edition of the general theory (preface, which is neither long, nor overly technical). any author would read with particular interest, or have read to him, the translation of this most vital part of his own work. keynes was nothing if not acutely sensitive to the politics of his era, and must have agonized over how his theory was best pitched to a particular readership.

for me, guilty as charged.

Franklin September 18, 2009 at 8:58 pm

While the scholarship within the article, and among the posters, is remarkable and impressive, the headline editor ought be more careful in accidentally granting a human emotion to an ism.
This seems trite to many, I suppose, but the association of human action to economic, political, academic, or societal frameworks, is the standard paradigm of the collectivist.

newson September 18, 2009 at 9:49 pm

“…is compatible with…”???

Ned Netterville September 19, 2009 at 2:51 pm

I recently posted an article on my website about Nobel-laureate Paul Krugman, in which I says of Keynes almost exactly what Mr. Martin does. The principle source of my insight into Keynes is Henry Hazlitt, THE FAILURE OF THE “NEW” ECONOMICS, which he wrote, and, THE CRITICS OF KEYNESIAN ECONOMICS, a collection of 22 articles by other critics of Keynes, which Hazlitt edited.

From my article, “On Paul Krugman”:

In the preface to the German edition of The General Theory, which was published early in Adolph Hitler’s glorious Third Reich (1936), Keynes stated (perchance suggesting to Hitler?) that “[T]he theory of output as a whole, which is what the following book purports to provide, is much more easily adapted to the conditions of a totalitarian state, than to the theory of production and distribution of a given output produced under conditions of free competition and a large measure of laissez-faire.” Hitler, an economic ignoramus himself, evidently took Keynes’ theory of output to heart, pursing Keynes’ “full-employment” policies with some macabre twists of his own invention. Nazi Germany essentially eliminated its Depression-era unemployment (Was Keynes pleased?) by means of massive expenditures on armaments, military assaults against Europeans and Africans, forced labor in many industries, the extermination of those deemed unfit to work (e.g., Jews, gypsies, the disabled, etc.), conscription of teenagers and seniors into the armed forces and similar measures in harmony with the Keynesian full-employment objective.

Krugman refers to Keynes’ General Theory as ‘a masterwork.’ If anyone requires proof that Krugman is not an economist one need only obtain a copy of Keynes’ masterwork and try to read it. If one is not grounded in economics, she should obtain a copy of Hazlitt’s Failure of the New Economics and read that in tandem with Keynes’ book. In so doing,the validity of my equating Krugman to Arafat for their Nobel-prize worthiness will be manifest.”

FRANK V. wrote, “Keynes was not a poet but his writings are actually quite good compared to most men. Furthermore, his General Theory was revolutionary.” And FRANK V also wrote, “Another reason why it is hard for people to understand him was that he wrote a very complex piece of economic literature.”

I am in the process of reading GT (through chapter 18 so far) and I can state with apodictic certainty that JMK was neither poet nor economist. The man was manifestly stupid, for he believed spending money was the way to create wealth. Mises referred to K’s “eloquence” as cheap rhetorical tricks.

Current September 20, 2009 at 7:23 am

Ned Netterville,

Keynes’ other books are much better written than General Theory. However, Mises was really quite right. Keynes’ was a skill rhetorician but not much of an economist.

Another good source for critique of Keynes is Roger Garrison’s website.

Franklin September 20, 2009 at 4:09 pm

A policy of so-called “full employment” is, on its face, anti-liberty.

Mushindo September 21, 2009 at 8:01 am

N Joseph Potts:

‘Two (serial) translations = at least 50% nonsense.’.

ROFL! There is much entertainment to be had by putting any text through an online translation engine, bouncing it from one language to another, and then taking it back to the original language.

I digress. An earlier correspondent provided a link to a discussion around Keynes’s , ahem, lavenderism.

I dont favour this sort of ad hominem approach: any person’s work should stand or fall on its own merits, and aspects of his or her personal life are frankly irrelevant. Jeffrey Archer’s criminal record of perjury around his associations with prostitutes is irrelevent to his prowess as a novelist. Ditto for an economist’s sexual leanings.

Still, while on the subject of Keynes’s personal inclinations, I find a comparison between him and the late Alan turing to be a significant indictment of the British State’s asymmetric treatment of its citizens: Keynes’s homosexuality and foreign adventures seems to have raised scarcely a ripple among the powers that were during his life. But Turing (whose intellectual legacy outweighed Keynes’s a thousandfold by the simple virtue of being right), was essentially driven to suicide by the treatment meted out to him: chemical castration enforced by the courts. Sauce for the goose is clearly not sauce for the gander.

mpolzkill September 21, 2009 at 8:59 am


(Obviously the State valued Keynes more than Turing. Also, Turing may have been more a victim of the times: the recently revealed KGB games of homosexual entrapment creating skittishness in the herd)

Why can’t both be done, straight discredit the ideas AND speculate on psychology? “In the end, we’re all dead.” Do you think that a nihilist is more likely to advocate “eating the seed corn”? I sure do. The man, to me, was clearly evil, and I find it interesting to examine all the possible avenues as to how he got that way.

You know, I’m sure, that most are not so gentlemanly as you. Is it wrong to fight fire with fire? You reminded me of this, but it is only peripheral (or maybe not so peripheral, it’s extremely entertaining at any rate; cheers):


newson September 21, 2009 at 11:00 am

hans herman hoppe got into strife with his college by inferring that the time preference of homosexuals could be less than heterosexuals, for the lack of progeny. that certainly sheds light on keynes glib remark “in the long run…”.

there’s plenty to despise in keynes without worrying about his sexual orientation.

R. Zelle March 25, 2011 at 3:23 pm

I wonder what mr. Martin is trying to prove her. To suggest that Keynes’ preface to the German edition of The General Theory… was obscured for later generations, was something of a secret, is laughable. My edition of The General Theory (part VII of the collected writings of John Maynard Keynes published by the Royal Economic Society in 1973) flatly contains this challenged preface, besides two introductions and prefaces to the English, Japanese (!) and French edition.

Richard Moss March 26, 2011 at 11:53 am

R. Zelle,

You wrote;

“I wonder what mr. Martin is trying to prove her. To suggest that Keynes’ preface to the German edition of The General Theory… was obscured for later generations, was something of a secret, is laughable”

I did not read where Martin said the preface was ‘obscured’ (left out out of the various publications of TGToEI&M) or a ‘secret.’ What I did read was that many biographers, commenters and critics of Keynes’s works never brought up his controversial passage in the preface to the German edition. Martin writes;

“One can read whole reams of economic literature written by both fervent followers of John Maynard Keynes and his attackers as well and never know that there was a German language edition of his profoundly influential General Theory late in 1936, for which Keynes wrote a special foreword addressed solely to German readers. By that time the National Socialist regime of Adolf Hitler was four months short of four years in power in Germany”

Martin is not stating that the preface to the preface to the German edition was never or seldom published. He is saying that you would never know it existed at all based on the writings of Keynes’s commentators. That they never commented on this passage is what Martin thought to be a “sinuous evasion.”

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