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Source link: http://archive.mises.org/5376/new-working-paper-on-hazlitt-and-keynes/

New Working Paper on Hazlitt and Keynes

July 25, 2006 by

“Hazlitt vs. Hansen: Differences in the Analysis of Keynes”, by Alexander Villacampa

{ 18 comments }

Robert July 26, 2006 at 4:26 am

I read Hazlitt’s Failure of the New Economy when I want to laugh at an author whose work goes well beyond ignorance. In many places Hazlitt does not know what he is talking about (e.g., on marginal productivity in comments on Keynes’ chapter 2).

Dennis Sperduto July 26, 2006 at 6:55 am

I read Keynes’s General Theory when I need the original source reminder as to what an intellectual garbage bin the Keynesian foundations of mainstream “macroeconomics” are. The Keynesian system was one of the great intellectual retrogressions of the 20th century.

Old Whig July 26, 2006 at 9:23 am

I hate to mention grammar, but “Both Hazlitt and Hansen had different goals in mind when writing their respective texts and each succeeded in their own right in delivering their message to the public” is a bad sentence that could be salvaged by replacing both uses of “their” with “his”. There is not [much] ambiguity about their gender and a singular pronoun is called for.

adi July 26, 2006 at 11:01 am

Axel Leijonhufvuds works ( On keynesian economics and economics of Keynes, Information and Coordination ) seem to imply that for example L. Klein and A. Hansen may have had different kind of economic model in their minds when they wrote about keynesian econ.

Says Law is simply identity for Leijonhufvud since sum of all expected notional excess demand functions is zero. Its different thing altogether if these plans are realized at all. This is only explation if we are to same time hold that there cannot be a general glut and some resources ( like labour ) can be unemployed. Intertemporal structure of production is simply wrong and some reallocation is necessary.

Professor Lange has contributed much to make mess about relatively simple thing during 40s. If there is excess supply for commodities then there is unemployment ( excess supply of labour ) and excess demand for money.

Alexander Villacampa July 26, 2006 at 1:43 pm

Robert,

What do you find incorrect with Chapter 2?

Robert July 26, 2006 at 5:15 pm

I don’t why Sperduto would read the General Theory when he wants to look at the foundations of mainstream macroeconomics. Robert Clower (1965) argues that macroeconomics in the first few decades after Keynes was engaged in a “counter-revolution” against Keynes. And Joan Robinson frequently described the macroeconomics following Hansen, Hicks, and Samuelson as “bastard Keynesianism” because it missed so many of the important elements of Keynes’ book. (These are views Alexander should be aware of.)

I think Keynes’ General Theory had some argumentative threads going in cross-directions. And I think the following is a good textbook introduction to Keynes: Chick, V. (1983). Macroeconomics After Keynes: A Reconsideration of the General Theory, MIT Press.

As for pointing out some of Hazlitt’s incompetence, I’ll reserve that for my blog.

Dennis Sperduto July 26, 2006 at 8:08 pm

Despite what the neo- and post- and all the other variants of Keynesianism may argue, the analytical framework that dominates macroeconomics is built to a significant degree upon Keynesian foundations. One of the characteristics of “The General Theory” is that there are a variety of interpretations as to what he actually meant, likely due to his lack of intellectual rigor, consistency, and clarity. Keynesianism and all its variants and permutations, to varying degrees, ignore the importance of price flexibility, and have no coherent and/or tenable theories of money, interest, savings, or investment. Finally, the entire theoretical distinction between micro- and macro- economics, which is fallout of the Keynesian revolution, is erroneous, indicative of the disarray of mainstream economics.

I will paraphrase Mises concerning “The General Theory”: The quick and wide acceptance of the book was due to the fact that it provided an apparent intellectual justification for the policies that virtually all major Western governments were pursuing for several years prior to its publication. The same general conclusion applies to all of the offspring of Keynesian economics. Excuse the cliché, but the apple does not fall far from the tree. And to quote the title of a paper by Professor Roger Garrison, “Keynes Was a Keynesian”.

M E Hoffer July 26, 2006 at 8:40 pm

People would do well to heed the sagacity of Mr. Sperduto. Those that choose to get lost amongst the thickets, seeded by Keynes’ “General Theory”, do so at the peril of their own learning.

This: “The quick and wide acceptance of the book was due to the fact that it provided an apparent intellectual justification for the policies that virtually all major Western governments were pursuing for several years prior to its publication”– is all one needs to understand, distilled to its essence, about GT. That that treatise passes as an “Economics” text says much about the lack of critical thinking extant.

The exceptance, widespread, and quickly so, of GT, is to a degree that would make Ivy Lee blush.

Has there been any similiar introduction of a work, in other field, that was so embraced?

The answer should lend insight into what that tract really is.

It well fits on this list:

http://www.humanevents.com/article.php?id=7591

Robert July 28, 2006 at 4:29 am

One might think that “The analytical framework that dominates mainstream macroeconomics” these days has something to do with the contributions of Robert Lucas. So I guess Sperduto implies Lucas is a “Keynesian”.

Dennis Sperduto July 28, 2006 at 9:56 am

Robert Lucas and the Chicago School to a significant degree accept and work within the macroeconomic framework initiated by Keynes. Yes, Lucas and the Chicago School do not agree with many Keynesian conclusions and policy prescriptions and Lucas is well known for his rational expectations theory, but his overall analytical framework is still Keynesian-derived. Compare the Keynesian/Chicago/mainstream macro framework to that of the Austrian School as exemplified by Mises, Rothbard, Hayek, Hutt, and Garrison. Of special note is the Austrian reliance on micro fundamentals and analytics and their emphasis on the importance of capital, hence the Austrian-term capital-based “macroeconomics”.

This macro situation is analogous to the Chicago School’s acceptance of the perfect competition model and general equilibrium framework in microeconomics, even though the Chicago School’s policy prescriptions differ considerably from those of most other economists. In contrast, both of these micro models are to one degree or another rejected by most Austrians.

M E Hoffer July 28, 2006 at 12:36 pm

This: “The exceptance, widespread…” is a gross editing error, for which, I apologize. Obviously, “The acceptance, widespread…” is proper.

Young Villacampa,

Out of curiosity, Who(m)(?), beyond yourself, of course, acted as Editor for your paper?

Robert July 29, 2006 at 4:11 am

I document an example of Hazlitt’s incompetence.

Peter July 29, 2006 at 8:27 am

ME: Proper? “The widespread acceptance” is proper; “the acceptance, widespread” is just another example of your weird and often unintelligible English – I’m sure you don’t speak this way; please write how you speak. I think you’re trying to write in a more formal style, but you miss by a mile.

Dennis Sperduto July 29, 2006 at 8:46 am

Regarding the unemployment issue, widespread and persistent unemployment did not exist in Western market economies until the major governments of these countries began to intervene in the labor market, which began in earnest in the 1920s and became much more prevalent in the 1930s.

This government intervention into the labor market severely hampered price flexibility and raised the legal cost of employing labor above what it would have been absent the intervention. If wage rates are not legally permitted to be set at a level low enough to clear the market, unemployment is the inevitable result. Ignoring this basic fact of (microeconomic) price theory is one of the grave errors of the Keynesian system and mainstream macroeconomics in general. For virtually every other market, most economists will admit that there will be unsold goods or services if the price of the good or service is not permitted to drop to the market clearing price. Somehow, though, we are supposed to believe the labor market is different and this fundamental and correct conclusion of price theory does not apply to the labor market. Hamper the free functioning of the price system in any market, and inevitably you will have shortages or surpluses.

More generally, government hampering of the price system in the 1920s and 1930s was not limited to the labor market, although its deleterious effects are perhaps most visible in the labor market. Policy makers and many economists had come to believe that maintaining existing prices or the overall “price level” was necessary for economic growth, and thus, they attempted to prevent prices from falling in many markets.

Actually, Keynes arguably realized what would be the result of his and others effective denial of the implications basic price theory as applied to labor markets. That is why he included language in The General Theory regarding persuading workers to accept “green cheese”. A significant aspect of Keynes’s system was its attempt to lower real wage rates through general price inflation so as to offset the negative effects on employment that government intervention into the labor markets had caused.

Dennis Sperduto July 30, 2006 at 8:45 am

My apologies, but my initial posting contained a few typos and omitted words. Here is a corrected version.
**********************************************
Regarding the unemployment issue, widespread and persistent unemployment did not exist in Western market economies until the governments of these countries began to intervene in the labor markets, which began in earnest in the 1920s and became much more prevalent in the 1930s.

This government intervention into the labor markets severely hampered price flexibility and raised the legal cost of employing labor above what it would have been absent the intervention. If wage rates are not legally permitted to be set at a level low enough to clear the market, unemployment is the inevitable result. Ignoring this basic fact of (microeconomic) price theory is one of the grave errors of the Keynesian system and mainstream macroeconomics in general. For virtually every other market, most economists will admit that there will be unsold goods or services if the price of the good or service is not permitted to drop to the market clearing price. Somehow, though, we are supposed to believe that labor markets are different and this fundamental and correct conclusion of price theory does not apply to labor markets. Hamper the free functioning of the price system in any market, and inevitably you will have shortages or surpluses.

More generally, government hampering of the price system in the 1920s and 1930s was not limited to labor markets, although its deleterious effects are perhaps most visible in labor markets. Most policy makers and many economists had come to believe that maintaining existing prices or the overall “price level” was necessary for prosperity and economic growth, and thus, they attempted to prevent prices from falling in many markets.

Actually, Keynes arguably realized what would be the result of his and others effective denial of the implications of basic price theory as applied to labor markets. That is why he included language in The General Theory regarding persuading workers to accept “green cheese”. A significant aspect of Keynes’s system was its attempt to lower real wage rates through general price inflation so as to offset the negative effects on employment that government intervention into the labor markets had caused.

M E Hoffer July 30, 2006 at 5:09 pm

Peter,

Here’s the whole sentence: “The acceptance, widespread, and quickly so, of GT, is to a degree that would make Ivy Lee blush.”

Please offer a rewrite, if you would.
Also, If you see “another example of your(my) weird and often unintelligible English”, please feel free to point them out.

Writing, that does not carry, holds little use, Right?

Thank You, in advance~

Peter July 31, 2006 at 12:32 am

How about “the widespread – and quick – acceptance of (the) GT would make Ivy Lee blush” or “the quick acceptance of (the) GT is widespread to a degree that would make Ivy Lee blush” or something…I’m not entirely sure of the intended meaning, since I can’t parse it – and I don’t know who Ivy Lee is.

M E Hoffer July 31, 2006 at 1:20 am

Peter,

Thanks for the suggestions.

Re: Ivy Lee

try: http://www.nku.edu/~turney/prclass/readings/3eras2x.html

the dude is thought to be, by some, the “Father of PR”, or, today: “The original Spin Doctor.”

any web search, using his name, will divulge more info.

Edward Bernays, a fellow traveler of Lee’s, could have been used as readily.

Though, that which would have made Lee blush, probably would have made Bernays jealous.

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