WEBVTT

NOTE Why Your Grandfather’s Economics Was Better Than Yours

1
00:00:00.000 --> 00:00:06.800
I'd like to take this opportunity to recognize the people in our program who have traveled

2
00:00:06.800 --> 00:00:12.240
very long distances from foreign countries to be here. We do have people from France,

3
00:00:12.240 --> 00:00:20.880
Ireland, Guatemala, Great Britain, Germany, Chile, Dominican Republic and Turkey, which

4
00:00:20.880 --> 00:00:28.920
allows me to segue nicely into the introduction to this lecture. Our speaker has come 8-10,000

5
00:00:28.920 --> 00:00:43.920
This is the Ludwig von Mises lecture. Dr. Stephen Cates spent most of his career working as the Chief Economist for the Australian Chamber of Commerce and Industry.

6
00:00:43.920 --> 00:00:51.920
Until last year, he was also Commissioner on the Australian Productivity Commission, the Australian near equivalent of the U.S. Council of Economic Advisers.

7
00:00:51.920 --> 00:00:57.920
He co-directed a massive study on science and innovation as well as working on other areas of the Commission's work.

8
00:00:57.920 --> 00:01:05.280
He is now an academic at the RMIT University in Melbourne. Most of his research is in the

9
00:01:05.280 --> 00:01:10.480
history of economics, in which his most intensive contribution has been in the area of Keynesian

10
00:01:10.480 --> 00:01:16.640
economics and Say's Law. Dr. Cates was born in Canada but has spent the last 35 years

11
00:01:16.640 --> 00:01:21.720
in Australia. He holds an honors degree in economics from the University of Toronto,

12
00:01:21.720 --> 00:01:26.800
a master's of arts degree in economics from the University of Western Ontario, and a doctorate

13
00:01:26.800 --> 00:01:32.520
and Economics from Latrobe University in Melbourne. He has been a visiting scholar at Cambridge.

14
00:01:32.520 --> 00:01:39.360
His PhD thesis was published in 1998 as Say's Law and the Keynesian Revolution, How Macroeconomic

15
00:01:39.360 --> 00:01:45.160
Theory Lost Its Way, and I highly recommend the book. His latest book is an edited collection

16
00:01:45.160 --> 00:01:50.040
on the global financial crisis which includes a number of Austrian scholars. It is titled

17
00:01:50.040 --> 00:01:56.000
Mainstream Economics and Its Failings. Dr. Cates will speak to us on Why Your Grandfather's

18
00:01:56.000 --> 00:02:03.000
Economics was better than yours. Please join me in giving a warm welcome to Dr. Kates.

19
00:02:09.480 --> 00:02:16.360
Thank you very much. I appreciate that. And I'm very grateful to Joseph Salerno himself

20
00:02:16.360 --> 00:02:22.440
and to the Mises Institute for inviting me. It's a great honor for me to be able to present

21
00:02:22.440 --> 00:02:32.440
Why Your Grandfather's Economics Was Better Than Yours, Present Company Exempted

22
00:02:52.440 --> 00:03:22.440
for many years with great interest. At the turn of the century back in 1999, December 1999, I put together a, I was writing a column in the Canberra Times at the time, and I did a column on the ten most influential economists of the 20th century, and the reason I used the word influential is that there is no one but Keynes who you can put first, and I didn't want to say the best, the greatest,

23
00:03:22.440 --> 00:03:52.440
I just want to say influential, which Keynes was, but when I did that list, I then had numbers two and three as you can see, and my second one was Friedrich von Hayek, and the third one was Ludwig von Mises, and what I said about von Mises at the time was this, that Ludwig von Mises took the fight up to the socialist dogmas of the early 20th century and showed on paper that no economy

24
00:03:52.440 --> 00:03:56.560
could ever solve the problem of allocating resources without a price

25
00:03:56.560 --> 00:04:02.800
mechanism, free markets and private property. Who doesn't know it now? He knew

26
00:04:02.800 --> 00:04:08.080
it 80 years ago, which is right, except that I might revise it now. Who

27
00:04:08.080 --> 00:04:13.840
doesn't know it now? I would say legions don't know it now. Anyway, there is

28
00:04:13.840 --> 00:04:17.880
something else I've always used. I always tell people how I have in

29
00:04:17.880 --> 00:04:27.880
I have a common with von Mises and it's this that he was the economist for the Austrian Chamber of Commerce for 24 years.

30
00:04:27.880 --> 00:04:37.880
I was economist for the Australian Chamber of Commerce for 24 years. So that I think we have this common.

31
00:04:37.880 --> 00:04:46.880
But I think what it means it actually has a more important thing and that is when you are the economist for a business association,

32
00:04:46.880 --> 00:04:54.320
You see things and you're involved with things that most people are not involved with.

33
00:04:54.320 --> 00:04:59.800
And therefore I think it helps you shape your view of the world.

34
00:04:59.800 --> 00:05:04.200
And one of the things that was important for me, one of the reasons I actually think that

35
00:05:04.200 --> 00:05:12.560
in my own way I reinvented Say's law by accident, was that we have something, a tradition in

36
00:05:12.560 --> 00:05:19.280
in Australia was much worse back when I began called the national wage case and in the national

37
00:05:19.280 --> 00:05:27.320
wage case something like at the time 90% of the wages in Australia not the minimum wage

38
00:05:27.320 --> 00:05:34.200
90% of the actual wages paid were determined by a central body called the Australian Industrial

39
00:05:34.200 --> 00:05:41.000
Relations Commission and I used to go in on behalf of the employers and say why they shouldn't

40
00:05:41.000 --> 00:05:56.000
And the unions would come in on the other side saying why they should be raising wages, and one of the arguments the unions used to put up was you should raise wages in order to stimulate demand.

41
00:05:56.000 --> 00:06:06.000
And it's interesting, I've seen that argument all the way back to even prior to the Great Depression, the unions have been using that argument for something like 80, 90 years.

42
00:06:06.000 --> 00:06:21.000
So I put together an argument and said, well that really doesn't make sense. You can't stimulate demand by taking money from business, giving it to someone to spend, and then have those people spend it in your business as if you're better off at the end of it.

43
00:06:21.000 --> 00:06:32.000
So that, and what, I mean it's the obvious of it is that you simply can't create demand by taking money out of somebody's pocket and giving it back to them.

44
00:06:32.000 --> 00:06:42.000
But strangely, and then I had an early interest in history of economics, and I was reading John Stuart Mill.

45
00:06:42.000 --> 00:06:46.000
And I came across exactly the same argument.

46
00:06:46.000 --> 00:06:56.000
And this was actually in his principles first, but then I came to this in his essays.

47
00:06:56.000 --> 00:07:06.000
This is written in 1844, and it's a culmination of something in economics called the general glut debate, which I'll come back to in a minute.

48
00:07:06.000 --> 00:07:15.000
But really what Mill was writing in 1844, at the very end of it, he's saying, look, you know, we've had this argument out and now we know the true answer.

49
00:07:15.000 --> 00:07:24.000
And he said, quote, the utility of a large government expenditure for the purpose of encouraging industry is no longer maintained.

50
00:07:24.000 --> 00:07:33.000
I mean, way back then, he was saying, people used to think this, but no one would be so stupid to think this now.

51
00:07:33.000 --> 00:07:45.000
And he said, and it is no longer supposed, and this is the same argument I was trying to use, that you benefit the producer by taking his money, provided you give it to him again in exchange for his goods.

52
00:07:45.000 --> 00:07:53.000
You see, now what I did not know, and I thought, oh this is really interesting, this is my argument,

53
00:07:53.000 --> 00:07:57.000
this is what I've been saying in the wage case, and here I find it in the mill.

54
00:07:57.000 --> 00:08:02.000
And what I didn't know, was what I had stumbled across by accident, was Say's Law.

55
00:08:02.000 --> 00:08:11.000
And what Say's Law actually says, and I'll go into this in a bit more detail,

56
00:08:11.000 --> 00:08:17.000
What it actually says is that high levels of public spending do not encourage industry.

57
00:08:17.000 --> 00:08:27.000
I mean, we just think it automatic. If you take your typical standard Keynesian text, you think that's just public spending, good for industry.

58
00:08:27.000 --> 00:08:34.000
Back in 1844, they knew it wasn't so. Spending does not of itself great growth and employment.

59
00:08:34.000 --> 00:08:40.000
You cannot make an economy prosper through expenditure, but only through value-adding production.

60
00:08:40.000 --> 00:08:45.720
production and demand does not drive an economy forward nor does demand deficiency cause recessions.

61
00:08:45.720 --> 00:08:53.400
Now this was the very core of what John Stuart Mill was arguing in 1844 and he was summing

62
00:08:53.400 --> 00:09:00.200
up what everybody by then agreed with and he was making a statement that would be accepted

63
00:09:00.200 --> 00:09:09.200
by economists all the way through to 1936 with no exceptions amongst the mainstream.

64
00:09:09.200 --> 00:09:19.040
Now what the Keynesian Revolution did, and this is what Keynes did, was that he deliberately

65
00:09:19.040 --> 00:09:27.920
and willfully destroyed Say's Law. That in fact, you cannot, in my view, understand

66
00:09:27.920 --> 00:09:33.520
the Keynesian Revolution or even modern macro relative to what came before without first

67
00:09:33.520 --> 00:09:42.400
understanding what Say's Law is and what Say's Law meant to economists before Keynes

68
00:09:42.400 --> 00:09:48.920
actually not only destroyed it as a concept, but actually almost completely made it impossible

69
00:09:48.920 --> 00:09:54.960
for someone to know what Say's Law really meant.

70
00:09:54.960 --> 00:09:58.900
The question is, what was revolutionary about Keynes?

71
00:09:58.900 --> 00:10:04.020
We talked about the Keynesian Revolution, but what made it revolutionary?

72
00:10:04.020 --> 00:10:10.300
And what is very clear, what is very clear, if you read the general theory and if you

73
00:10:10.300 --> 00:10:16.660
look at itself, Keynes himself is as specific as you want.

74
00:10:16.660 --> 00:10:20.900
You can go to any number of textbooks now and they'll tell you what the general theory

75
00:10:20.900 --> 00:10:24.540
was about and they'll tell you it's about risk versus uncertainty or it's about this

76
00:10:24.540 --> 00:10:25.540
and that.

77
00:10:25.540 --> 00:10:31.540
Keynes was in no doubt whatsoever that he was refuting Say's Law, which he was.

78
00:10:31.540 --> 00:10:35.540
Not properly, not correctly, but he was actually trying to do it.

79
00:10:35.540 --> 00:10:38.540
And what he was talking about was Say's Law.

80
00:10:38.540 --> 00:10:46.540
And interestingly, that he got the idea from reading Malthus.

81
00:10:46.540 --> 00:10:51.540
Now this is kind of one of those things that if you say this to almost any Keynesian economics,

82
00:10:51.540 --> 00:11:21.540
Keynes goes out of his way to say what a genius he was, and how he worked this all out, and then afterwards discovered that others had had the idea before him, including Malthus, when in fact the evidence is so overwhelming now that he got the idea by reading Malthus that, anyways, so general theory comes out of Malthus, what has Malthus got to do with anything? Malthus was the Keynes of his own time, he was the single most

83
00:11:21.540 --> 00:11:51.540
Malthus was a famous economist in the world, bar none, Keynes had written as we heard on two days ago, he had written a book that was a worldwide sensation, the economic consequences of the peace, made his name a worldwide, there was no one more famous as an economist than Keynes by the time he wrote The General Theory, Malthus was in the same position,

84
00:11:51.540 --> 00:11:57.820
called On Population and On Population is the book about how population will

85
00:11:57.820 --> 00:12:03.940
continue to rise above until either pulled back by not enough food or plague

86
00:12:03.940 --> 00:12:11.180
or disease so that he wrote his economics textbook in 1820 it wasn't just

87
00:12:11.180 --> 00:12:16.260
another textbook by another economist it was written by the single most famous

88
00:12:16.260 --> 00:12:27.260
The famous economist in the world. And the thing that made Malthus' text so unique and different from all the others of his time was that he went in and he specifically said,

89
00:12:27.260 --> 00:12:37.260
you know, the reason we've had this recession, the recession following the polionic wars, the reason we've been having this recession is because there isn't enough demand.

90
00:12:37.260 --> 00:12:59.260
Now you go, we're talking 1820, we're talking an era of such, if you think about it, how low the living standards were, but already by then, by 1820, the Industrial Revolution had been so successful, that relative to even in their own memories, people were looking fantastically prosperous.

91
00:12:59.260 --> 00:13:06.260
And he said, we are not buying the stuff, that's the problem, we're saving rather than spending.

92
00:13:06.260 --> 00:13:31.260
Malthus had vehemently opposed Ricardo's doctrine that it was impossible for effective demand to be deficient, but vainly.

93
00:13:31.260 --> 00:13:44.740
So he's saying, here was Malthus, this genius, here was Ricardo, this really overblown economist,

94
00:13:44.740 --> 00:13:51.820
and Ricardo had said that it was impossible for effective demand to be deficient. Malthus had

95
00:13:51.820 --> 00:13:58.620
opposed that. For since Malthus was unable to explain clearly, apart from an appeal to the

96
00:13:58.620 --> 00:14:04.760
Facts of Common Observation, how and why effective demand could be deficient or excessive, he

97
00:14:04.760 --> 00:14:09.960
failed to furnish an alternative construction and Ricardo conquered England as completely

98
00:14:09.960 --> 00:14:13.920
as the Holy Inquisition conquered Spain.

99
00:14:13.920 --> 00:14:21.180
So what you had here was Keynes saying that the big mistake we made in economics was that

100
00:14:21.180 --> 00:14:26.540
we followed Ricardo and not Malthus, if only we followed Malthus.

101
00:14:26.540 --> 00:14:33.180
And so what he says, again this is Keynes, a continuation of that passage, a great puzzle

102
00:14:33.180 --> 00:14:39.380
of effective demand with which Malthus had wrestled vanished from the economic literature.

103
00:14:39.380 --> 00:14:46.180
Now that is the truest statement Keynes ever made. There is nothing else in general theory

104
00:14:46.180 --> 00:14:53.340
like it. It is the only one. No economist ever thought about what I call R&D, recession

105
00:14:53.340 --> 00:14:59.300
and Depression, in terms of demand efficiency for the following almost a hundred years.

106
00:14:59.300 --> 00:15:00.300
No one did that.

107
00:15:00.300 --> 00:15:03.780
It was just simply verboten amongst economists.

108
00:15:03.780 --> 00:15:08.880
And so, as Cain said, the celebrated optimism, this is a general theory again, of economic

109
00:15:08.880 --> 00:15:15.000
theory, is to be traced, I think, to their having neglected to take account of the drag

110
00:15:15.000 --> 00:15:21.540
on prosperity, which can be exercised by insufficiency of effective demand.

111
00:15:21.540 --> 00:15:30.820
And then he says, Say's law, you see, this is demand efficiency, Say's law, is equivalent

112
00:15:30.820 --> 00:15:36.940
to the proposition that there is no obstacle to full employment.

113
00:15:36.940 --> 00:15:40.980
Now anybody who's done economics just knows this is in fact we're all taught.

114
00:15:40.980 --> 00:15:44.900
If you are taught economics and you're taught this at all, you're told, look at all those

115
00:15:44.900 --> 00:15:49.020
crazy classical economists, they always assume that you're going to have a fully employed

116
00:15:49.020 --> 00:15:50.020
economy.

117
00:15:50.020 --> 00:15:51.020
What idiots.

118
00:15:51.020 --> 00:16:20.020
Thank goodness Keynes came along. Now, there have been 150 years of recessions and downturns and depressions and yet Keynes was somehow able, his authority, his name, to get away with actually convincing, and everybody to this day even thinks it, that up until then there was no acceptance of the possibility even of long-term mass unemployment and recession.

119
00:16:20.020 --> 00:16:36.020
Therefore, if you want to understand what Say's law is, you have to see it in relation to the response of classical economists to Malthus.

120
00:16:36.020 --> 00:16:45.020
Malthus writes his book in 1820. It is not enough to say that, you know, as Keynes wrote,

121
00:16:45.020 --> 00:16:53.020
Supply creates its own demand or any other short form version of what Say's Law is.

122
00:16:53.020 --> 00:16:57.020
You have to see it in the longer term in a series of propositions.

123
00:16:57.020 --> 00:17:06.020
It is not, I shall also say this, it was not called Say's Law during classical times.

124
00:17:06.020 --> 00:17:11.020
It's very important to know this, that when Cain said Say's Law, he was saying something

125
00:17:11.020 --> 00:17:41.020
was something that was actually a new term that had been introduced into economic discourse and the interesting thing about the fact that it had just been introduced was that it was an American term and the fact that it was in America was discussed here on the American side of the Atlantic but was unfamiliar amongst those who would be reading general theory in England and the other thing I find just so remarkable, one of those pieces of research

126
00:17:41.020 --> 00:17:56.020
The phrase supply creates its own demand, which is Keynes' phrase for what Say's law meant, was actually first written by an American economist.

127
00:17:56.020 --> 00:18:05.020
He was the professor of economics over at LSU, a guy named Harlan McCracken, and he's the one who invented this term.

128
00:18:05.020 --> 00:18:15.020
and there is no question whatsoever that Keynes directly took this phrase from McCracken

129
00:18:15.020 --> 00:18:21.020
because McCracken sent him a copy of his book in 1933 and Keynes wrote back and said

130
00:18:21.020 --> 00:18:24.020
thank you very much for your book, I have now read it in full

131
00:18:24.020 --> 00:18:30.020
so that there is no doubt that Keynes was getting these ideas from American economists

132
00:18:30.020 --> 00:18:33.020
and he has told nobody, he said I got all these ideas myself

133
00:19:03.020 --> 00:19:10.320
in French, which because Say being French himself was a theory to deboucher and we brought

134
00:19:10.320 --> 00:19:18.260
it into English law of markets. And really it's, there's a lot of history on this, did

135
00:19:18.260 --> 00:19:24.060
he get it from Turgo, where did it come from, but happy enough to see that Say gets the

136
00:19:24.060 --> 00:19:31.400
kind of credit for it. But it's a series of propositions and bearing in mind that the

137
00:19:31.400 --> 00:19:40.600
The propositions are all in response to Malthus. Malthus saying that these recessions are being

138
00:19:40.600 --> 00:19:48.640
caused by demand deficiency. There is then a series of propositions to grow out of it.

139
00:19:48.640 --> 00:19:53.880
And what needs to be actually said, when I put these propositions together, you also

140
00:19:53.880 --> 00:19:58.160
have to take into account what Keynes said. In Keynes said, there's no obstacle to full

141
00:19:58.160 --> 00:20:21.160
and Social Employment. So, the first of these propositions is this one. And this is it. And this is, this is, as I, when I, if I have a short-form definition of Say's Law, it's this.

142
00:20:21.160 --> 00:20:28.920
Recessions are never due to demand efficiency.

143
00:20:28.920 --> 00:20:34.160
An economy can never produce more than its members would be willing or able to buy.

144
00:20:34.160 --> 00:20:39.680
High levels of savings do not cause recessions.

145
00:20:39.680 --> 00:20:45.720
In the paper I have with this, I have four different sets of quotes going back through

146
00:20:45.720 --> 00:20:46.720
time.

147
00:20:46.720 --> 00:20:48.480
I think the first one is Adam Smith.

148
00:20:48.480 --> 00:20:53.520
I have one from Marshall, another one from Mr. and Mrs. Marshall, but there's this fourth one,

149
00:20:53.520 --> 00:20:58.800
and it's from, it's from Friedrich Hayek and it's from 1931. It's interesting here again,

150
00:20:59.680 --> 00:21:03.200
there's this question, why didn't Hayek go after General Theory when he could?

151
00:21:04.640 --> 00:21:10.320
Part of the reason was, as we've heard, and I think he had said it himself, that, that, no,

152
00:21:10.320 --> 00:21:16.400
Keynes keeps changing his mind, why should I keep spending life, my life trying to refute what he

153
00:21:16.400 --> 00:21:38.400
He will then realize it was wrong to begin with, but there's another reason, and that is in 1931, he wrote this massive paper, 30-40 pages long, dealing with two American under-consumptionists, and in that paper he writes this, and he says, I'll just read it again,

154
00:21:38.400 --> 00:22:00.400
The assertion that saving renders the purchasing power of the consumer insufficient to take up the volume of current production is almost as old as the science of political economy itself.

155
00:22:00.400 --> 00:22:06.640
Because the idea recurs in the writings of Malthus, which gave rise to the celebrated

156
00:22:06.640 --> 00:22:13.320
theory de de Boucher, of J.B. Say, you see, here was Malthus saying it, and J.B. Say responded

157
00:22:13.320 --> 00:22:21.320
to it. In spite of many attempts to refute it, it being the assertion that saving renders

158
00:22:21.320 --> 00:22:27.480
purchasing power and consumption insufficient, in spite of many attempts to refute it, it

159
00:22:27.480 --> 00:22:31.480
permeates the main doctrines of socialist economics.

160
00:22:31.480 --> 00:22:36.480
Even back then, that's what they all depend on, a socialist economist,

161
00:22:36.480 --> 00:22:43.480
would always say, ah, there's not enough demand, it's a very essence, it always had been a very essence of what's socialist economics.

162
00:22:43.480 --> 00:22:48.480
And then he says something that's kind of ironic in the end of it,

163
00:22:48.480 --> 00:22:54.480
fortunately it has not succeeded as yet in depriving savings of its general respectability.

164
00:22:54.480 --> 00:23:00.280
so that five years later when Keynes writes a general theory that that just

165
00:23:00.280 --> 00:23:04.220
simply goes out the window it is what Keynes does but that first proposition

166
00:23:04.220 --> 00:23:08.920
that first proposition the man deficiency does not cause recessions was the

167
00:23:08.920 --> 00:23:17.680
essential point in understanding what all pre Keynesian economists believe now

168
00:23:17.680 --> 00:23:23.280
the second one is what is demand where does it come from where where is it and

169
00:23:23.280 --> 00:23:51.280
And it was an essential concept within all classical economists understood this, it was intrinsic, it was in their bones and it was that demand is constituted by supply, that be able to supply, it's a sequence, to be able to demand you must first supply, that it is embedded, your ability to demand is embedded in your ability to first produce something for somebody else.

170
00:23:51.280 --> 00:24:13.280
Well the example I give here is from a chap named Henry Clay. Henry Clay wrote what I think is the best economics textbook written in the 20th century. Wrote it in 1916. You can still buy it on the net for about $8, but it's one of those books which is quite extraordinary.

171
00:24:13.280 --> 00:24:23.680
If you look at his public history, it goes 1916, 1918, 1919, twice, 1921, 1920, continues right up to 1942, I think,

172
00:24:23.680 --> 00:24:32.080
at which point he puts in a second edition, and it's 1943, and then 1944, and then gone.

173
00:24:32.080 --> 00:24:36.080
Why gone? Because Keynesian economics will come in.

174
00:24:36.080 --> 00:24:40.080
Suddenly we're going to have the Samuelsons replacing the Henry Clay's.

175
00:24:40.080 --> 00:24:51.080
And what Henry Clay says is this, it is only because our exchanges are made through money that we have any difficulty in perceiving that an increase in supply is,

176
00:24:51.080 --> 00:24:57.080
well those are not my brackets, that's his brackets, it's is, not causes, is an increase in demand.

177
00:24:57.080 --> 00:25:08.080
An increase in supply is an increase in demand. What is divided among the members of the society is the goods and services produced to satisfy its wants.

178
00:25:08.080 --> 00:25:12.600
and the same goods and services are both supply and demand.

179
00:25:12.600 --> 00:25:17.240
Now this was, like I say, the most used textbook of its time.

180
00:25:17.240 --> 00:25:21.400
I mean, this was just obvious to everybody.

181
00:25:21.400 --> 00:25:23.600
If you grew up in an economic environment,

182
00:25:23.600 --> 00:25:25.360
this pre-Keynesian economic environment,

183
00:25:25.360 --> 00:25:27.120
of course you knew that was true.

184
00:25:29.600 --> 00:25:31.000
The third proposition.

185
00:25:32.760 --> 00:25:34.780
Purchase and sale is a conversion

186
00:25:34.780 --> 00:25:37.880
of one's own goods into money.

187
00:25:37.880 --> 00:25:46.880
and then the reconversion of the money one has received back into other goods, money is intrinsic to the process involved.

188
00:25:46.880 --> 00:25:52.880
Now again, to tell you something more about the Keynesian Revolution and what Keynes writes in general theory,

189
00:25:52.880 --> 00:26:01.880
he writes very early on that the trouble with you, we classical economists, is that you never think about money,

190
00:26:01.880 --> 00:26:14.880
Well, who can I get to refute that statement?

191
00:26:14.880 --> 00:26:27.880
Well, J.B. Say, in 1821, and I note the 1821, and you'll see it again with Torrance, 1820 is the year that Malthus writes his book.

192
00:26:27.880 --> 00:26:36.880
You will see a slew, I mean, an unbelievable slew of economics books written between 1820 and 1825.

193
00:26:36.880 --> 00:26:45.880
All of them, you know, focus around the need to finally say something about Malthus and what an idiot he is.

194
00:26:45.880 --> 00:26:50.880
But here J.B. say, and it's not that he wrote, his book was written in 1803.

195
00:26:50.880 --> 00:26:56.880
He reprinted in 1812. He said, I'm going to wait until Napoleon disappears, 1814, sorry.

196
00:26:56.880 --> 00:27:19.880
This is the fourth edition in 1821. Why is that one the one that's translated? It's translated twice, once in Britain, once in America, so you can get two different translations, but both in 1821, and they both occur in that same year because Malthus has written his book, and you want the refutation.

197
00:27:19.880 --> 00:27:26.600
So what is it, so we're talking about money, you know, like, like, did classical economists

198
00:27:26.600 --> 00:27:31.760
leave out money? Well here's Say talking about it, should a tradesman say, I do not want

199
00:27:31.760 --> 00:27:36.480
other products for my woolens, I want money, there could be little difficulty in convincing

200
00:27:36.480 --> 00:27:41.640
him that his customers could not pay him in money without having first produced it, procured

201
00:27:41.640 --> 00:27:46.880
it by the sale of some other commodities of their own. Almost all produce is in the first

202
00:27:46.880 --> 00:27:51.880
in its exchange for money before it is ultimately converted into other produce.

203
00:27:51.880 --> 00:27:59.240
But that's Say writing in his treatise. This is the true Say's law. And not only is money

204
00:27:59.240 --> 00:28:06.080
not peripheral, it is central. It is the very core of the argument. You cannot even conceive

205
00:28:06.080 --> 00:28:11.480
of how Say thinks about economies unless you see that he's thinking about in terms of money.

206
00:28:11.480 --> 00:28:18.920
Now, here is a statement. This is the fourth proposition. Recessions are common and result

207
00:28:18.920 --> 00:28:25.000
in high levels of involuntary unemployment. Now, really, to have said this to an audience

208
00:28:25.000 --> 00:28:30.280
in 1930, well, you know, like how ridiculous. Course there are recessions all the time.

209
00:28:30.280 --> 00:28:35.360
You can say in 1928, people knew recessions. There had always been recessions. It is only

210
00:28:35.360 --> 00:28:39.760
because Keynes said that, hey, those stupid classical economists didn't, you know, they

211
00:28:39.760 --> 00:28:45.280
I assume that full employment was always just automatic and there were no obstacles to it.

212
00:28:45.280 --> 00:28:51.200
That we now have to go back and in fact, you see these periodically in the literature, people

213
00:28:51.200 --> 00:28:54.680
saying, oh look, you know, turns out that the classical economist actually did think

214
00:28:54.680 --> 00:28:57.480
he could have a recession.

215
00:28:57.480 --> 00:29:06.320
So, now I'm going to, now here's Robert Torrance writing in 1821, he's again, this is 1821,

216
00:29:06.320 --> 00:29:17.040
in the year 1821, and where you see the word proportion there, think structural production.

217
00:29:17.040 --> 00:29:26.960
That's how that phrase evolves into the mainstream economics of the pre-Keynesian era, and what

218
00:29:26.960 --> 00:29:36.620
Torrance says in 1821 is this, and he says, look, so long as proportion is preserved,

219
00:29:36.620 --> 00:29:41.740
every article which the industrious classes of the will and power to produce will find

220
00:29:41.740 --> 00:29:48.280
a ready and profitable vend, market vend. No conceivable increase of production can lead

221
00:29:48.280 --> 00:29:55.460
to an overstocking of the market. It's not even conceivable that you could ever produce

222
00:29:55.460 --> 00:30:01.540
so much that you couldn't sell it. It's just not conceivable. And then he says, if you know the

223
00:30:01.540 --> 00:30:06.820
phrase, the phrase in economics that Keynes brought into what supply creates its own demand

224
00:30:06.820 --> 00:30:15.060
as the meaning of Say's Law, Robert Torrens then says in 1821, and the point about, the reason to

225
00:30:15.060 --> 00:30:21.060
point this out is that you'll see how this understanding of economics, this Say's Law

226
00:30:21.060 --> 00:30:25.660
The fundamental understanding of economics was the very essence of the theory of recession.

227
00:30:25.660 --> 00:30:32.740
And so what Torrance says is, increased production will create a proportionally increased demand.

228
00:30:32.740 --> 00:30:35.820
Increased production will create a proportionally increased demand.

229
00:30:35.820 --> 00:30:38.620
Supply creates its own demand, okay?

230
00:30:38.620 --> 00:30:42.980
So this is what he is explaining.

231
00:30:42.980 --> 00:30:46.340
So what caused the recession as well?

232
00:30:46.340 --> 00:30:48.580
This is the fifth proposition, the key.

233
00:30:48.580 --> 00:30:53.260
So you see, we're going to where demand comes from, and we're talking about, and I'm using

234
00:30:53.260 --> 00:31:01.380
torrents as kind of like that going over the divide, recessions are due to structural problems.

235
00:31:01.380 --> 00:31:06.440
Recessions occur where the structure of supply, not the level, the structure of supply does

236
00:31:06.440 --> 00:31:13.000
not match the structure of demand, where things somehow go out of whack, they don't fit together.

237
00:31:13.000 --> 00:31:16.380
So that's the whole point.

238
00:31:16.380 --> 00:31:23.100
And so I, here, where they've got the three dots, so here is Torrance saying, okay, introduction

239
00:31:23.100 --> 00:31:26.580
will create a proportionate increase in demand, you can never have a problem, always going

240
00:31:26.580 --> 00:31:32.380
to have demand, as long as you produce the right things, people buy it, but, he says,

241
00:31:32.380 --> 00:31:38.860
but, this happy and prosperous state of things is immediately interrupted when the proportions

242
00:31:38.860 --> 00:31:43.100
in which commodities are produced are such as to disturb the quality between effectual

243
00:31:43.100 --> 00:31:53.100
When the structure of supply goes out of whack with a structured demand, then gluts and regurgents are experienced.

244
00:31:53.100 --> 00:32:01.100
So what he is saying is that everything is great, you can produce as much as you like, as long as you keep producing things that people want to buy.

245
00:32:01.100 --> 00:32:12.100
But if, for example, the housing market is producing the wrong things for the wrong people and you can't sell it, then you'll end up with recessions.

246
00:32:12.100 --> 00:32:32.100
So that the idea that classical economists thought that full employment was a certainty or that recessions were impossible is bizarre and wrong, but not only that, the understanding of why recessions and unemployment were possible was built upon an understanding of Say's Law.

247
00:32:32.100 --> 00:32:47.100
I find that the most astonishing irony in all the discussions I know of Keynesian economics that Say's law is not rather than being an obstacle to understanding how recessions occur, it is the very essence of what you need to understand.

248
00:32:47.100 --> 00:32:59.100
And I have torrents here to tell me this in 1821, but I also have Habler. I think Habler is up here somewhere. I mean, he's one of the names. He's one of the great names of economics.

249
00:32:59.100 --> 00:33:13.100
And in 1930, the League of Nations organized that for a book to be written on, just the beginning, it was just the very beginning of the Great Depression,

250
00:33:13.100 --> 00:33:25.100
and the League of Nations said, look, what we have to do is we have to put together a book on what caused the recessions, so that we'll have a kind of world understanding.

251
00:33:25.100 --> 00:33:31.660
So, Habler puts together this book, he is the one who finally contracted to do it, and

252
00:33:31.660 --> 00:33:42.200
he publishes in 1937, and it's a book called Prosperity and Depression, and what he says

253
00:33:42.200 --> 00:33:46.660
is, and it's the same thing as you'll see in Torrens, he's trying to explain what has

254
00:33:46.660 --> 00:33:51.360
been the collective wisdom, the collective wisdom of all the economists of the world

255
00:33:51.360 --> 00:33:55.520
Looking at the business cycle and what causes it and why it goes up and why it goes down,

256
00:33:55.520 --> 00:34:02.720
what he says is, an expansion or contraction may be interrupted on the one hand by an accident

257
00:34:02.720 --> 00:34:09.520
and then, or it may be on the other hand itself give rise to maladjustments in the economic

258
00:34:09.520 --> 00:34:15.520
system. Most cycle theorists have tried to prove that the second type of restraining

259
00:34:45.520 --> 00:35:01.520
In 1937, a year after Keynes published The General Theory in 1936, the general theory will sweep the world.

260
00:35:15.520 --> 00:35:24.520
was sure you could have too much of particular goods, but could you have too much of everything?

261
00:35:24.520 --> 00:35:33.520
Could you produce too much of everything? And the question was then, yes, no, and the answer was no, you could not.

262
00:35:33.520 --> 00:35:38.520
You could have recessions, you could have depressions, but you just could not have them because you'd produced too much.

263
00:35:38.520 --> 00:35:41.520
People would not save and you wouldn't have to worry about that.

264
00:35:41.520 --> 00:36:03.520
What is meant by Say's Law? Overproduction of individual goods can lead to a general downturn in an economy.

265
00:36:03.520 --> 00:36:10.520
You always have overproduction of particular goods, like housing, like housing.

266
00:36:10.520 --> 00:36:18.020
And that individual markets, once you oversupply some market, you can, that oversupply, some

267
00:36:18.020 --> 00:36:24.100
market being in excess supply, that can lead to a downturn in economy general.

268
00:36:24.100 --> 00:36:28.740
The transmission mechanism is from a reduction in earnings in some sectors to a fall in demand

269
00:36:28.740 --> 00:36:33.740
and in other sectors, and therefore to a wholesale downturn in activity.

270
00:36:33.740 --> 00:36:39.940
Now this is from about Walter Badgett and he's writing a book on the monetary, on the money,

271
00:36:39.940 --> 00:36:43.440
the money market in England in 1873.

272
00:36:43.440 --> 00:36:47.000
So that it's not as if he's unaware of monetary factors.

273
00:36:47.000 --> 00:36:52.400
He's perfectly aware that the book, Lombard's Three, is about the money market.

274
00:36:52.400 --> 00:36:56.800
And in this book he's talking about sometimes things get quiet and he's explaining why.

275
00:36:56.800 --> 00:37:02.760
He says, no single large industry can be depressed without injury to other industries, think

276
00:37:02.760 --> 00:37:03.760
housing market.

277
00:37:03.760 --> 00:37:09.760
Still, as can any great group of industries, if industry A fail and its difficulty, industries

278
00:37:09.760 --> 00:37:15.760
B, C and D would use to sell to it, will not be able to sell and in future they will stand

279
00:37:15.760 --> 00:37:18.960
idle till industry A recovers.

280
00:37:18.960 --> 00:37:24.960
Now if you want to understand what caused the recession we are in, you don't say,

281
00:37:24.960 --> 00:37:49.960
People start to save or people start wanting to buy. You say there was some kind of dislocation, something went out of phase. It's like this. It is. And in America particularly, you had the housing market, you had the car industry, and then the banking sector. All of them were in serious, serious bother. And all of that collectively brought the economy down.

282
00:37:49.960 --> 00:37:59.960
that's what Badger is talking about in 1837. We didn't have suddenly a desire for everybody to save more and to spend less.

283
00:37:59.960 --> 00:38:03.960
Proposition 7.

284
00:38:03.960 --> 00:38:13.960
Then again, Keynes, you've got to come back to the general theory and the kind of dorky notions that are put in amongst economists, and this is that, that, no,

285
00:38:13.960 --> 00:38:23.960
classical economists did not, did not actually have a view about money, like he thinks the general theory of employment interest and money, he said, I'm going to tell you about money,

286
00:38:23.960 --> 00:38:29.840
where all these people before me had never talked about money. Well, monetary

287
00:38:29.840 --> 00:38:33.960
factors, most notably a contraction of credit, can also be and often are an

288
00:38:33.960 --> 00:38:38.580
important cause of recession. Even where monetary instability has not been the

289
00:38:38.580 --> 00:38:42.400
originating cause of recession, monetary factors will often deepen recession

290
00:38:42.400 --> 00:38:47.760
brought on for other reasons. So monetary factors can cause it or something else

291
00:38:47.760 --> 00:38:52.880
has caused it, say as in the United States in the last year, something else has caused

292
00:38:52.880 --> 00:39:01.880
and other causes such as the housing downturn that an infection in the money market itself can cause it to be expanded.

293
00:39:01.880 --> 00:39:06.880
Now this is just old hat in classical economists.

294
00:39:06.880 --> 00:39:11.880
Now this is the only quote I have that is not pre-1936.

295
00:39:11.880 --> 00:39:21.880
This is from two young economists at the time, two chaps named Becker and Beaumont, who each got very successfully in their own right.

296
00:39:21.880 --> 00:39:33.380
They wrote a paper in 1952 to look at this, to actually examine, was it true that classical economists had a poor idea of money and money markets and whatever?

297
00:39:33.380 --> 00:39:41.880
And they particularly focused on John Stuart Mill and what they wrote was indeed in reading Mill on the problems caused by monetary problems.

298
00:39:41.880 --> 00:39:49.380
One is led to wonder why so much of the subsequent literature, this paper included, had to be written at all.

299
00:39:49.380 --> 00:39:58.380
Basically, they absolve them totally, totally, of any mistaken notions as far as money is concerned.

300
00:39:58.380 --> 00:40:08.380
And then there's finally this, and this was intrinsic, intrinsic to the classical theory.

301
00:40:08.380 --> 00:40:13.380
You know, I always find it really, the fact is, one of the great oddities that you say,

302
00:40:13.380 --> 00:40:18.380
oh, Keynes saved us from the Great Depression. Well, Keynes didn't save us from the Great Depression.

303
00:40:18.380 --> 00:40:30.380
The Great Depression, if you think South United States where you had Roosevelt, but if you go to England or you go to Australia, what we used to get ourselves out of the Great Depression was absolutely classical.

304
00:40:30.380 --> 00:40:37.380
In the Chancellor of the Czech Republic in Britain in 1933, he made a point of saying, at last we balanced our budget.

305
00:40:37.380 --> 00:40:44.180
In Australia, the government in 1931, it was a labor government, which is really quite amazing.

306
00:40:44.180 --> 00:40:52.680
It was a labor government. What they did was they cut spending, they cut wages, and they aimed to bounce the budget.

307
00:40:52.680 --> 00:40:55.980
And Australia was the first country in the world to come out of the Great Depression.

308
00:40:55.980 --> 00:40:58.980
We were coming out of it in 1932.

309
00:40:58.980 --> 00:41:06.680
So that the actual policies used to get out of the Great Depression, during the Great Depression, were non-Keynesian.

310
00:41:06.680 --> 00:41:18.680
And the ones that worked were the non-Keynesians, get back the fundamentals, cut back excess spending, get wages down, get to a solid foundation, and we can grow.

311
00:41:18.680 --> 00:41:23.680
That's what they did. The only country, famously, that did not do that was the United States.

312
00:41:23.680 --> 00:41:32.680
And the US stayed in double-digit unemployment rates, stayed in the Great Depression until 1941, when you entered the war.

313
00:41:32.680 --> 00:41:42.180
Anyway, so here you have this proposition, and I come back to my original quote from Mill that I gave you originally.

314
00:41:42.180 --> 00:41:48.180
The utility of a large government expenditure for the purposes of encouraging industry is no longer maintained.

315
00:41:48.180 --> 00:41:55.180
Back in 1844, a way could say, how stupid, how stupid to actually think public spending would be good for growth.

316
00:41:55.180 --> 00:42:15.180
We have lost that. This is what the Keynesian revolution has brought us. We have lost what we once knew. This is an example of lost knowledge amongst economists, in fact, the general public.

317
00:42:15.180 --> 00:42:22.980
Now, here is what I think is the perfect statement of Say's Law. It's perfect.

318
00:42:22.980 --> 00:42:31.380
And it's not, I didn't make it up, this is part of the personal correspondence between Ricardo, David Ricardo,

319
00:42:31.380 --> 00:42:36.980
great economist of the time, and Malthus.

320
00:42:36.980 --> 00:42:41.780
And what he said, just in a letter, you know, you read page after page after page,

321
00:42:41.780 --> 00:43:11.780
and then there's this and it says men air in their productions there is no deficiency of demand now this has come out just after Malthus has published his book and they're having this correspondence over the contents of the book and this is over the general glut debate and what what Ricardo is saying is look sure we have a recession sure we have people unemployed sure there's this mass downturn here here in here in Britain

322
00:43:11.780 --> 00:43:19.780
Probably everywhere else, but sure we're having this mass downturn, but look, there is no deficiency of demand, that's not the problem.

323
00:43:19.780 --> 00:43:27.780
It is not a deficiency of demand. But we do have a problem, and what is the problem? Men air in their productions.

324
00:43:27.780 --> 00:43:35.780
This is the structural production, the maladjustment, this is what he's saying, there is no deficiency of demand.

325
00:43:35.780 --> 00:43:49.780
What there is is that people are making mistakes in what they produce, and once you get that fixed up, once people stop producing the losing things and start producing the right ones, it'll fix itself, but it is not being caused.

326
00:43:49.780 --> 00:43:57.780
Now, if this were, if this were, if Ricardo's version of things, men are in the production, there's no deficiency to man,

327
00:43:57.780 --> 00:44:06.780
if that were today, the general understanding amongst the community, business, bureaucracy, public servants,

328
00:44:06.780 --> 00:44:13.780
then we would not have the kind of reflation policies, all the stimulus programs and all the rest.

329
00:44:13.780 --> 00:44:18.780
There is no one's ambiguity, no one's certainty about what that means.

330
00:44:18.780 --> 00:44:25.580
We don't have the supply creates its own demand version, the cane is bequeathed to us as if that's what it means.

331
00:44:25.580 --> 00:44:37.580
When you see recession in the real world, it cannot be understood, that's from the very beginning, it cannot be understood ever as a consequence of too little demand.

332
00:44:37.580 --> 00:44:45.780
It has to be seen as some kind of derangement, some kind of things going out of whack with each other within the market process.

333
00:44:45.780 --> 00:44:49.620
And then, if it were understood, if we understood things in that way,

334
00:44:49.620 --> 00:44:54.340
there would never be any doubt about what you should do or what you shouldn't do.

335
00:44:54.340 --> 00:44:56.740
There'd be no excuse for the levels of spending.

336
00:44:56.740 --> 00:45:00.220
I mean, we've seen Japan in the 1990s.

337
00:45:00.220 --> 00:45:06.980
The worry now is that America and Europe and Britain will follow along that Japanese example,

338
00:45:06.980 --> 00:45:13.380
where the spending will itself be the cause of the downturn and the continuation of poor performance

339
00:45:13.380 --> 00:45:15.380
and low growth and high unemployment.

340
00:45:15.380 --> 00:45:45.380
and like with Japan, I mean I've had this argument with no end of people, look I said it's all those public spending programs that the Japanese have, that's what's kept this famous 20 year lost decade, you know, it just goes on and on, it just goes on, and why does it go on, because they still have the same economic textbooks, they still think that demand efficiency is the issue, now I wrote this book back in 1998 and

341
00:45:45.380 --> 00:45:55.380
This year it got, well last year now, but it got reissued in paperback because it's timely and even I know, I harangue people on this, I harangue people about Japan.

342
00:45:55.380 --> 00:46:10.380
My subtitle was How Macroeconomic Theory Lost Its Way. The problem with economics and maybe there's too much, but it's that it's become, it's become Keynesian.

343
00:46:10.380 --> 00:46:15.860
so infused with Keynesian, you cannot buy a textbook that does not, whether it's Mankiw

344
00:46:15.860 --> 00:46:21.920
or anybody, you cannot buy a textbook that does not have at least one of the three aggregate

345
00:46:21.920 --> 00:46:29.860
demand versions in it. It'll either say, have the Samuelson C plus I plus G, or it'll have

346
00:46:29.860 --> 00:46:34.460
aggregate supply against aggregate demand, or it'll have, non-economists will just have

347
00:46:34.460 --> 00:46:39.800
to take my word for it, something called the ISLM curve. But all of them have that Keynesian

348
00:46:39.800 --> 00:46:44.740
Aggregate Demand Curve right in it. It is the embedding of aggregate demand, something

349
00:46:44.740 --> 00:46:51.040
that no classical theory ever had. The introduction of aggregate demand is the poison that sits

350
00:46:51.040 --> 00:46:59.040
within economic theory to this minute. Keynesian economics has not had a single peacetime success.

351
00:46:59.040 --> 00:47:04.360
Now, I don't think it's even had a wartime success, but I just put that in. But it has

352
00:47:04.360 --> 00:47:10.200
has not had a single peacetime success, but has recorded many, many failures. In fact,

353
00:47:10.200 --> 00:47:15.160
it's gone almost a hundred percent ration. It has not had a success. And I think we're

354
00:47:15.160 --> 00:47:21.680
about to see another one. A return to an economic theory based around Say's law and the classical

355
00:47:21.680 --> 00:47:27.760
theory of the cycle, which removes aggregate demand from all concepts of how we think about

356
00:47:27.760 --> 00:47:33.200
macroeconomic issues, is the way in which economic theory should now move. Thank you.

357
00:47:34.360 --> 00:47:54.680
Any questions?

358
00:47:54.680 --> 00:48:01.640
Well it's now weakened and what we now have is it deals with only the minimum wage.

359
00:48:01.640 --> 00:48:05.080
So, yeah, the national wage case is still on.

360
00:48:05.080 --> 00:48:06.880
Is the whole of the game still on that?

361
00:48:06.880 --> 00:48:09.680
Is the whole of the game still on that?

362
00:48:09.680 --> 00:48:15.160
Oh, well, I believe we consider it a fantastic success.

363
00:48:15.160 --> 00:48:19.240
You know, they used to have the award, what we called the award system, and every single

364
00:48:19.240 --> 00:48:24.960
person, whatever you did, if you were a, you know, teacher while you were on, you know,

365
00:48:24.960 --> 00:48:31.480
you started your award level one and third, second year you go to, and every wage in Australia

366
00:48:31.480 --> 00:48:39.720
had an award level to it. I mean it's inconceivable. Now we've more or less got rid of the awards but with the

367
00:48:39.720 --> 00:48:44.960
labor government coming back in they're trying to revert back to that yeah it's

368
00:48:44.960 --> 00:48:49.760
insane but we is gone now

369
00:49:09.720 --> 00:49:22.720
and from China, with one additional fact that the sections of the new cultural block, cultural supplier, won't match structural to that,

370
00:49:22.720 --> 00:49:26.720
and I need you to talk to me about China, some of the, you know, some of the, you know, some of the, you know, some of the, you know, some of the, you know,

371
00:49:26.720 --> 00:49:53.280
No, no, I worry a lot about China. They are moving and trying to move away from centralized,

372
00:49:53.280 --> 00:50:02.920
Beijing-based central government five-year plans, but it's still not I think perfectly

373
00:50:02.920 --> 00:50:10.800
well understood that an economy works in the bottom up, that entrepreneurial activity anybody

374
00:50:10.800 --> 00:50:15.160
should be able to start a business and just go to some financial institution, borrow some

375
00:50:15.160 --> 00:50:18.120
money and just try their luck.

376
00:50:18.120 --> 00:50:26.400
It still is an economy based on connections, who know, what you know, so that I think they're

377
00:50:26.400 --> 00:50:27.400
getting closer.

378
00:50:27.400 --> 00:50:32.640
And I think the Chinese, being pragmatic in the way they are, are moving in that direction.

379
00:50:32.640 --> 00:50:41.000
But I think we had a very interesting presentation at the Productivity Commission last year from,

380
00:50:41.000 --> 00:50:47.720
I wouldn't call him dissident, but he's at an equivalent organization to us in China.

381
00:50:47.720 --> 00:50:52.160
And he was saying all the things I would say, and he was saying it to us and he's apparently

382
00:50:52.160 --> 00:50:58.360
saying it to them, that all this public spending going on and indulging in is going to come

383
00:50:58.360 --> 00:51:00.080
back to haunt you.

384
00:51:00.080 --> 00:51:05.840
And in fact, already you can see it in China where they're beginning to pull back on things

385
00:51:05.840 --> 00:51:10.160
and recognizing that the stimulus program has created even for them an amazing amount

386
00:51:10.160 --> 00:51:13.280
of debt, but not particularly very much value added.

387
00:51:13.280 --> 00:51:20.280
In the Polionic Wars, how did they get out of that?

388
00:51:43.280 --> 00:52:13.280
The recession is all for individual particular reasons, but by the 1820s and 1830s, the economy of Great Britain was just rolling along, as it was for pretty well everybody, but with periodic recessions, and in fact the thing about recessions was they were new in the world, that up until the industrial revolution, even what you might conceive of as a recession, couldn't happen, but now with this huge growth

389
00:52:13.280 --> 00:52:22.560
of Capital Structures and the way that the industry was now being organized, it became

390
00:52:22.560 --> 00:52:31.000
possible for a recession to happen. So they happened. But the thing that made the period

391
00:52:31.000 --> 00:52:37.920
from about 1820 to 1936 so sensible was everybody just knew the recessions would come along,

392
00:52:37.920 --> 00:52:42.000
that you were never surprised that it happened, you were often disappointed and you were often

393
00:52:42.000 --> 00:52:47.560
and Harm. But no one was surprised. We now act, and we actually seem to be like, well,

394
00:52:47.560 --> 00:52:53.360
what's happened? We've had a recession. Like, that's a zone. I mean, every classical economist

395
00:52:53.360 --> 00:52:58.360
would tell you, one day into your life, we're going to come a red light. And that's all.

396
00:53:12.000 --> 00:53:33.080
I'm really glad you asked that but not for the reason of thing. Keynes got the idea by reading Malfus.

397
00:53:33.080 --> 00:53:39.600
He got the idea. Really, I mean it's, I can talk to you about that later. But then he had to say,

398
00:53:39.600 --> 00:53:44.400
I get this idea from and he said I had my own but you know people like me would go along say but

399
00:53:44.400 --> 00:53:50.800
this is what Malthus had said so he had to disguise it I mean the kind of dishonesty here is just

400
00:53:50.800 --> 00:53:56.080
incredible but he had to disguise it so he has that chapter in which he describes these these this

401
00:53:56.080 --> 00:54:01.520
brave army of heretics I don't know if you know but he says see other people have had this idea

402
00:54:01.520 --> 00:54:06.880
before me and he names and he names you know Mandeville he names his guy the guy who began

403
00:54:06.880 --> 00:54:16.880
and social credit. He names Malthus and he names Hobson. And Giselle, that's right, how could I forget another Whacker?

404
00:54:16.880 --> 00:54:26.880
And he names them and he says, look, you know, here are all these folks who had these ideas before me.

405
00:54:26.880 --> 00:54:32.880
The two he doesn't mention are the two Americans that, if you read the drafts of the general theory,

406
00:54:32.880 --> 00:55:02.880
who were the single most prominent of the Mandeficiency people in the 1930s, before Keynes, he never quotes them as part of his brave army of heretics, but he has them in a draft as part of his brave army of heretics, so it's interesting he takes them out, he didn't want anybody to think that he had got this idea from anybody else, so that's why he goes to Mandeville, but it was after the fact.

407
00:55:02.880 --> 00:55:21.460
Question asked off mic.

408
00:55:21.460 --> 00:55:26.860
Well, I mean, I couldn't tell you an awful lot about hard money. I was assuming it was very hard.

409
00:55:26.860 --> 00:55:42.580
was certainly gold standard money I don't know well they did sell that yeah yeah

410
00:55:42.580 --> 00:55:52.980
yeah I mean they ended up indebted for it but that oh I don't know

411
00:55:56.860 --> 00:56:25.420
Okay, well, thank you. The reviews in Australia were not so good.

412
00:56:25.420 --> 00:56:36.180
That's life. But everywhere else, they were fantastic. I mean, the economic journal, I

413
00:56:36.180 --> 00:56:41.900
remember this in May 2000, has just every single review of the book, and there were

414
00:56:41.900 --> 00:56:45.860
a few, and it was unusual because something like the economic journal was not a history

415
00:56:45.860 --> 00:56:53.020
of economic journal. In fact, if I remember this right, it was reviewed by Thomas Humphrey

416
00:56:53.020 --> 00:57:00.620
of one of the Federal Reserves. And he thought it was really excellent. And there are a number

417
00:57:00.620 --> 00:57:08.260
of reviews just like that in the literature. I find that having good reviews doesn't necessarily

418
00:57:08.260 --> 00:57:14.340
make you famous or you're fortunate. But nevertheless, it really pleased me. It was people understood

419
00:57:14.340 --> 00:57:17.340
He understood the book and he understood the point of it.

420
00:57:17.340 --> 00:57:21.340
So, one more? Yeah?

421
00:57:21.340 --> 00:57:23.340
Well, at the very back.

422
00:57:23.340 --> 00:57:28.340
Do you know if Malthus Hayek is the name on the party?

423
00:57:28.340 --> 00:57:31.340
Ah, well, did Malthus?

424
00:57:31.340 --> 00:57:36.340
Well, it wasn't exactly 100% original with him,

425
00:57:36.340 --> 00:57:43.340
but there was this, the first of the people who put this idea together

426
00:57:43.340 --> 00:57:52.300
This idea together was a chap named Lord Lauderdale, and he was talking about demand efficiency,

427
00:57:52.300 --> 00:57:58.460
the Sismandi in France, simultaneously and possibly a bit earlier, was talking about

428
00:57:58.460 --> 00:57:59.460
it.

429
00:57:59.460 --> 00:58:08.860
But if you read the correspondence between Ricardo and Malthus, you find that right from

430
00:58:08.860 --> 00:58:14.180
in the beginning that they took that separate line and at Malthus very early on had just

431
00:58:14.180 --> 00:58:20.060
simply taken the view that the problem was too much saving and that there was not enough

432
00:58:20.060 --> 00:58:25.660
money in the hands of, and this is interesting because he did represent the landed aristocracy,

433
00:58:25.660 --> 00:58:31.060
there wasn't enough money in the hands of the landed aristocracy. If only the aristocrats

434
00:58:31.060 --> 00:58:36.780
had more money, they would spend it and therefore we could pull the whole economy up from their

435
00:58:36.780 --> 00:58:43.180
and literally unproductive. He made the point that if it was productive, it compounded the problem.

436
00:58:43.180 --> 00:58:49.580
It had to be just wasteful spending, so it would draw down productivity, but not build it up.

437
00:58:49.580 --> 00:58:51.580
So, anyway.