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Source link: http://archive.mises.org/10727/what-keynes-said-and-meant/

What Keynes Said, and Meant

September 29, 2009 by

Keynes is a famously difficult writer to understand. While his ideas have achieved tremendous influence, most people have been exposed to them only by reading macroeconomics textbooks (which provide a second- or third-generation graphical synthesis of The General Theory). FULL ARTICLE

{ 12 comments }

Mike September 29, 2009 at 8:12 am

Don’t forget, the fact that Keynes basically tells the state “It’s cool, do whatever you feel like! Responsibility is soooooooo overrated! Woooooo!” probably contributed quite a bit to the acceptance of his theories.

fundamentalist September 29, 2009 at 9:42 am

Keynes succeeded because he told the people what they wanted to hear. Sometimes, people want the truth, but most of the time they just want their prejudices repeated back to them. Keynes took advantage of that. There is nothing new in Keynes. Bad economists had believed the same things for centuries. Socialism was very popular in the 1930′s and 1940′s and Keynes offered a backhanded defense of socialism in his attack on free markets. Socialists desperately needed that after Mises’ and Hayek’s devastating attacks on socialism.

Also, I think economics under Mises, Hayek and their contemporaries in the 1930′s was becoming too difficult for most economists to understand. By digging deeper in search of the truth, they had uncovered the complexities of economics. They were so complex that even the great Milton Friedman would call Hayek’s “Pure Theory of Capital” unreadable. Keynes offered to simplify economics for those who couldn’t keep up with Mises and Hayek.

Ned Netterville September 29, 2009 at 9:48 am

Thanks for this review Robert Blumen. I will buy a copy of Mr. Lewis’ book post haste. I would buy two copies and send one to Paul Krugman, but he doesn’t speak or read “Austrian,” is fluent only in Keynesianisms (black is white, up is down, spending is investing, cats are dogs, nettles are corn, economics is bunco, etc.,), and, like Keynes, struggles in English with anything logical that doesn’t involve flowery legerdemain.

Scott O September 29, 2009 at 11:44 am

“Could several generations of professional economists have been so wrong as to adopt an intellectual pile of rubbish as the basis for making decisions having impacts of trillions of dollars?”

This question has puzzled me for several decades. I know individuals with degrees in economics (I know, that’s not worth much) who can be shown the errors of Keynes and the logic of Austrianism and still will not budge. I guess Kuhn had it right when he said that the generation holding the old view has to die to let a new view flower.

Richard September 29, 2009 at 1:14 pm

I read the book over 2 days – it’s excellent and I thoroughly recommend it.

Ohhh Henry September 29, 2009 at 1:33 pm

One could go on, almost indefinitely, citing Keynes’s obscurities, convolutions, inconsistencies, factual or logical lapses, and so on, but it is time to ask the obvious question: why did he write The General Theory this way? … And he offers the answer … Keynes was a salesman. He was trying to sell a particular type of economic policy, and he was prepared to utilize any rhetorical device, from crystal clarity and wit all the way to complete unintelligibility, in order to make the sale.

I would like to offer refinement to this theory. A long time ago I read a book on handwriting analysis, in which was shown an example of a fraudulent personal check. The writing, especially in the numbers, was fudged and written in a strange kind of ambiguous way that made it hard to understand if the check was for $66.66 or for $6,666.00. It was explained that this kind of equivocation and obscuration was part of a fraudster’s toolkit, to be able to pass off the check for the higher amount if possible, but to have a plausible way to deny the charge if called out on the fraud.

Keynes was not the ordinary, garden-variety type of salesman, but the other kind, the flim-flam artist.

Robert Blumen September 29, 2009 at 1:34 pm

fundamentalist: Hayek is a difficult writer but possibly to some extent because of his writing style and because he was writing for other professional economists. And Pure Theory of Capital is his most inscrutable work. I think it could be generalized that non-Austrians who have found Austrian works to be incomprehensible don’t have any grounding in capital theory and that is why they get confused.

A second point: when you talk about economists whose work is difficult to understand, Keynes tops that list.

Ned Metterville: By all means do buy two copies. If Dr. Krugman doesn’t want one, then give one away to your friend.

fundamentalist September 29, 2009 at 3:40 pm

Robert, I agree that Anglo economists didn’t have the grounding in capital theory that they needed, but what stopped them from getting it? I think the main problem was that it was difficult and they didn’t want to put the time into it.

Keynes and Hayek are difficult for different reasons. Keynes wanted to be obscure. Wannabe scholars who lack the intellectual ability needed to be a true scholar flock to obscurity, mistaking it for depth. I have seen that trait in modern literature. It’s very popular to be opaque, even to right nonsense, but if you do it with a serious face people think you’re very deep.

Hayek is difficult in part because of his style, but that can be overcome simply by reading him. The real difficulty is to keep all of the abstract ideas and their relationships in the air at the same time.

Stephen Grossman September 29, 2009 at 3:48 pm

“Trained in college to believe that to look beyond the immediate moment—to look for causes or to foresee consequences—is impossible, modern men have developed context-dropping as their normal method of cognition….[Consider] the [Pragmatist] mentality of a savage, who can grasp nothing but the concretes of the immediate moment….He observes that people get food, clothing, and all sorts of objects simply by presenting pieces of paper called checks….and that everyone will work and produce and prosper, so long as those checks are passed from hand to hand fast enough. If that savage breaks into print with his discovery, he will find that he has been anticipated by John Maynard Keynes.”
[Ayn Rand, "Egalitarianism and Inflation,” 1974]

“There is only one power that could paralyze the country’s leaders, a power potent than the power of money, of professional knowledge, even of political force: the power of morality. This is what the inverted morality of altruism accomplished, this was the kind of moral cowardice, intellectual disintegration, professional dishonesty…it leads to in practice….There is a group of economists who deserved it: the so-called conservatives who claim that economics has nothing to do with morality.”
[Ayn Rand, "The Inverted Moral Priorities," 1974]

Gene Berman September 30, 2009 at 11:12 am

Ohhh Henry:

I seem to recall being “on the other side” of several discussions with you but on this matter, you’ve hit it right on target.

Ambiguity occurs quite often without intention. It is precisely that fact that makes it (ambiguity) a major weapon in any toolkit for deception. And I don’t mean by this to refer specifically to Keynes; we all practice deception from time to time and those who intend in any important way to achieve success will
have developed ambiguity to more or less of an “art form”–not only to aid in an immediate or “first-strike” deception but also, if unsuccessful, to be able to “run” a “plausible deniability” smokescreen to reduce or dispel detection.

To be human is to do these things (at least every now and then) and, because we have some familiarity, to be able to recognize (or, at least, suspect) them.

Bob Roddis October 1, 2009 at 7:45 am

I wrote the following analysis the day before my copy of Hunter Lewis’ excellent new book arrived in the mail. The new book is an excellent outline of Keynes’ ridiculous ideas and cuts right through Keynes’ obscurantism. Once one has absorbed the Lewis book, it is easier to then move on to Hazlett’s more technical book if one feels the need:

In order to write his nonsensical book, “The General Theory”, Keynes had to ignore recent history and, of course, the entirety of Austrian School thought. His main points are totally refuted by what happened in the 1920 depression.

Between the second quarter of 1920 to the third quarter of 1921, wholesale prices fell 44%. Factory employment and industrial production fell 30%. The Fed raised the discount rate from 4% to 7% and then back to 4%. The Harding government did basically nothing in the way of so called Keynesian stimulus. Harding specifically and intentionally did nothing to interfere with falling wages and prices. Further, Federal spending declined from $6.3 billion in 1920 to $5 billion in 1921 and $3.3 billion in 1922. Tax rates, meanwhile, were slashed—for every income group. And over the course of the 1920s, the national debt was reduced by one third. The crisis was over quickly. Thomas Woods has an excellent video on this topic.

So along comes Keynes in 1936. The 1920 depression was the first “big one” after the creation of the Fed, but it was the last one where the government did not attempt a cure. The 1920 depression had shown that the market can and will readjust all by itself to rid itself of malinvestment and dislocations caused by Fed monetary dilution. The 1929 depression showed that intervention prolongs depressions. Keynes writes in his “General Theory” (without any historical reference or proof whatsoever) that the market cannot self adjust from a depressions (Keynes ignores the fact that it was the central bank’s monetary diliution that caused the problem in the first place). He then states that it would be better if the central bank would simply just dilute the money supply so that there might be UNIFORM wage reductions to cure unemployment:

(i) Except in a socialised community where wage-policy is settled by decree, there is no means of securing uniform wage reductions for every class of labour. The result can only be brought about by a series of gradual, irregular changes, justifiable on no criterion of social justice or economic expedience, and probably completed only after wasteful and disastrous struggles, [when did this happen????] where those in the weakest bargaining position will suffer relatively to the rest. A change in the quantity of money, on the other hand, is already within the power of most governments by open-market policy or analogous measures. Having regard to human nature and our institutions, it can only be a foolish person who would prefer a flexible wage policy to a flexible money policy, unless he can point to advantages from the former which are not obtainable from the latter. Moreover, other things being equal, a method which it is comparatively easy to apply should be deemed preferable to a method which is probably so difficult as to be impracticable…….

(ii)…..If important classes are to have their remuneration fixed in terms of money in any case, social justice and social expediency are best served if the remunerations of all factors are somewhat inflexible in terms of money. Having regard to the large groups of incomes which are comparatively inflexible in terms of money, it can only be an unjust person who would prefer a flexible wage policy to a flexible money policy, unless he can point to advantages from the former which are not obtainable from the latter.

(iii) The method of increasing the quantity of money in terms of wage-units by decreasing the wage-unit increases proportionately the burden of debt; whereas the method of producing the same result by increasing the quantity of money whilst leaving the wage-unit unchanged has the opposite effect. Having regard to the excessive burden of many types of debt, it can only be an inexperienced person who would prefer the former. Pages 268-269

Basically, Keynesianism proposes that the central bank simply dilute the money supply in order to trick workers into accepting lower wages without them knowing it to cure unemployment. Keynes himself sounds exactly like Prof. Hayek describing Keynesianism.

Kathleen Metterville October 1, 2010 at 3:55 pm

Who is Ned Metterville? Doing genealogy research. I don’t know Ned. Please contact me at: KathleenMetterville@yahoo.com. Thank you. Sorry to put into your discussion!

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