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Source link: http://archive.mises.org/8673/hazlitt-calls-it-again/

Hazlitt calls it again

October 2, 2008 by

Consider this passage from The Wisdom of Henry Hazlitt, newly online:

John Maynard Keynes was, basically, an inflationist. This has not been clearly recognized because he never spelled out, step by step, the consequences of his proposed remedy for unemployment and depression. That remedy was deficit spending by the government. He recognized that increased government spending paid for by equally increased taxation would not “add purchasing power.” The increased taxation would offset any “stimulus” that the increased government spending would provide. What counted, he confessed, was the government deficit.

But he failed to take his readers beyond this step. How would that deficit be financed? Either the money would have to be borrowed, or new (paper) money or credit would have to be created. But if the money were borrowed, then the previous spending stimulus would be reversed by a deflation when the borrowing was repaid. The only thing to prevent this reversal would be to allow the new spending to remain outstanding. In other words, the Keynesian solution to every slow-down in business or rise in unemployment was still another dose of inflation.

I may point out (if that is still deemed necessary in this inflationary era) that no inflation of which we have historical knowledge resulted in sound and continued business expansion but only in currency depreciation, a wanton redistribution of profits and losses, disorganized output, and economic demoralization. This has been true whether we begin with the coinage debasement of ancient Rome or the paper money scheme of John Law in 1716.

The lessons of inflation are soon forgotten. They apparently must be relearned in every generation.


Bill October 2, 2008 at 10:36 am

I was trained in Keynesianism back in the early 80′s, and it was this one issue that send me looking for something else. My first rebellious thought was, “yeah that works in theory, but the real world experience shows that those deficits are never paid back.”

From there I found the Chicago School, and then thankfully, the Austrians. It’s kind of amazing to look back at that coursework and realize how rudimentary Keynes’ theory is.

MattYoung October 2, 2008 at 11:41 am

Keynes simply got fame for demonstrating the same law of supply and demand applies to government. When labor is very cheap, then government should take advantage of cheap labor to the extent that government has useful projects.

Otherwise, government acts like any normal, monopoly conglomerate and moves toward its equilibrium very slowly. Just like any other large wealthy investor.

Both sides of the stimulus proposals miss this point. Government is no more destructive than any other super monopoly, and if we examine the wealth distribution there is going to be wealthy monopolies, an instability. Government is not necessarily bad or good, it is simply what occupies the far wealth point on the distribution and acts with slow equilibrium.

This result comes from a deep study of cows in a herd, they do the same thing, have the same instability. It is an imperfection of evolution and the need for evolution to maximize the efficiency of the herd by balancing the requirement for a normal distribution of cows across the plains of grass while still maximizing the possibility of mating.

To make theory short, any economic herd in which individuals try to match the aggregate while maximizing its own resources will be unstable.

William Rader October 2, 2008 at 2:38 pm

I’m proposing that the Mises Institute produce a new product. It would either be a button or a shirt. SIN would appear vertically in upper-case characters. Stop Inflation Now would appear as the logo. A picture of Henry Hazlitt would appear somewhere near the logo.

P.M.Lawrence October 2, 2008 at 10:21 pm

He [Keynes, according to Hazlitt] recognized that increased government spending paid for by equally increased taxation would not “add purchasing power.” The increased taxation would offset any “stimulus” that the increased government spending would provide.

That is incorrect. That is, that is not what that body of theory says; I’m not suggesting that the theory itself is sound (though, by chance, parts of it are, on the stopped clock principle).

The theory says that high and balanced levels of taxing and spending do flow through to a stimulus like lower levels of deficit spending, because all of it goes to current spending, whereas leaving it with the people means a proportion gets saved and withdrawn from fuelling economic activity. The effect is much less than deficit financing – according to the theory – so believers in the theory generally recommend that instead, for this reason and also because it’s politically easier than covering the spending with taxes.

Jorge Besada October 3, 2008 at 11:56 am

This is a wonderful book. It used to be available at http://www.hazlitt.org for free and fortunately one could use http://www.archive.org after site was taken offline.


I was particularly inspired by his 70th birthday speech, chapter 4 in the book.

Whenever I get discouraged that is what I read and lifts my spirits like nothing else, particularly the last two sections “”We Haven’t Been Good Enough” and “Our Continuing Duty”

that speech might make a great daily article :-)

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