WEBVTT NOTE Best Books Criticizing Keynesian Economics 1 00:00:00.000 --> 00:00:08.600 Our next speaker earned his PhD in Intellectual History at UCLA. 2 00:00:08.600 --> 00:00:13.800 He's the editor of the Mises Review, contributor to such journals as Analysis, 3 00:00:13.800 --> 00:00:19.500 the International Philosophic Quarterly, Journal of Libertarian Studies, 4 00:00:19.500 --> 00:00:22.100 Quarterly Journal of Austrian Economics. 5 00:00:22.100 --> 00:00:26.800 He's a senior fellow at the Mises Institute. 6 00:00:26.800 --> 00:00:35.900 He's written a couple of books, Resurrecting Marks, Philosophical Origins of Austrian Economics, 7 00:00:35.900 --> 00:00:41.100 An Introduction to Economic Reasoning, the editor of Succession, State and Liberty, 8 00:00:41.100 --> 00:00:45.300 and he was the author of The Essential Rothbard. 9 00:00:45.300 --> 00:00:52.300 His speech today, Best Books Criticizing Keynesian Economics, The Smartest Guy in Any Room, 10 00:00:52.300 --> 00:01:03.800 Dr. David Gordon. 11 00:01:03.800 --> 00:01:15.660 I very often have people telling me I speak too softly, so can everybody hear me? 12 00:01:15.660 --> 00:01:31.140 If you said no, you can. I've been asked to talk to you this afternoon on books critical 13 00:01:31.140 --> 00:01:37.300 of Keynesian economics and the first one that I want to mention is the one I think people 14 00:01:37.300 --> 00:01:43.060 should read first if they're unfamiliar with the subject because it's written in a very 15 00:01:43.060 --> 00:01:50.620 Easy to Understand Style, and this is by Hunter Lewis where Keynes went wrong. 16 00:01:50.620 --> 00:02:00.220 Now Lewis brings out what I think is the real paradox of the whole Keynesian episode, and 17 00:02:00.220 --> 00:02:08.300 the paradox is this, Keynes had during his life a reputation for brilliance. 18 00:02:08.300 --> 00:02:13.580 Bertrand Russell, who was one of the greatest philosophers of the 20th century, said that 19 00:02:13.580 --> 00:02:21.660 he was afraid to disagree with Keynes in conversation, that he had the feeling whenever he was in 20 00:02:21.660 --> 00:02:27.740 an argument with Keynes, he took his life into his hands, and other people like Lord 21 00:02:27.740 --> 00:02:33.820 Lionel Robbins have made similar comments attesting to Keynes' brilliance. 22 00:02:33.820 --> 00:02:43.020 Rebecca West, the writer, great British writer, mentioned Keynes' abilities as a conversationalist, 23 00:02:43.020 --> 00:02:49.340 although on the other hand she also said that he looked like a seal. 24 00:02:49.340 --> 00:02:57.400 But so on the one hand we have that Keynes has this reputation for brilliance, but as 25 00:02:57.400 --> 00:03:02.720 Hunter Lewis points out, when you actually look at his book, General Theory of Employment 26 00:03:02.720 --> 00:03:08.680 Interest in Money, 1936, seems like it's absolute nonsense. 27 00:03:08.680 --> 00:03:14.280 So we have, how could someone with such a reputation, acquire such a reputation of brilliance 28 00:03:14.280 --> 00:03:16.320 when he's written nonsense? 29 00:03:16.320 --> 00:03:22.000 Because we can see what is the essence of the Keynesian prescription. 30 00:03:22.000 --> 00:03:31.720 What Keynes says is that the cure for unemployment and depression is an increase in spending. 31 00:03:31.720 --> 00:03:52.720 Now, this has to be distinguished when it says increase in spending. It's not as the people at the Chicago School like Milton Friedman say, they say the problem in a depression is that there's not enough money, so the Federal Reserve System has to increase the supply of money. 32 00:03:52.720 --> 00:03:58.000 Kane said, no, that isn't right. What we need is spending, because if you just have an increase 33 00:03:58.000 --> 00:04:03.760 in the supply of money, that doesn't ensure that there's going to be an increase in spending. 34 00:04:03.760 --> 00:04:09.240 In a letter that Kane's wrote to Franklin Roosevelt, he said that people who say there's 35 00:04:09.240 --> 00:04:16.120 just be an increase in the supply of money are like someone who wanted to gain weight, 36 00:04:16.120 --> 00:04:22.120 and how do you propose to do so by buying a larger belt? 37 00:04:22.120 --> 00:04:27.120 He said, no, you have to actually get the people spending. 38 00:04:27.120 --> 00:04:37.120 But we can see this is really a ridiculous idea because if the problem is that the economy isn't producing enough, 39 00:04:37.120 --> 00:04:45.120 the only way it can produce more is to actually have goods and services being produced. 40 00:04:45.120 --> 00:04:52.600 do just increase pieces of paper, get more people spending your pieces of paper. 41 00:04:52.600 --> 00:04:57.720 That won't produce any fundamental change in how things are going. 42 00:04:57.720 --> 00:05:05.440 We need an actual increase in production just having, unless we have an increase in the 43 00:05:05.440 --> 00:05:11.920 structure of capital, development structure of capital, we won't have any revival from 44 00:05:11.920 --> 00:05:17.220 from Depression, just giving out pieces of paper to people, getting them to spend it 45 00:05:17.220 --> 00:05:18.660 isn't enough. 46 00:05:18.660 --> 00:05:24.660 So one wonders sometimes, how could Keynes, how did Keynes, where did he get all these 47 00:05:24.660 --> 00:05:27.160 ideas from? 48 00:05:27.160 --> 00:05:34.740 Perhaps it was like the Roman Emperor Gaius Caligula, who shortly after he ascended became 49 00:05:34.740 --> 00:05:41.900 William Emperor AD 37 announced that he was regularly in communication with the god Jupiter 50 00:05:41.900 --> 00:05:48.180 who told him what to do. Perhaps this is how Keynes had some similar facility. It would 51 00:05:48.180 --> 00:05:53.260 be hard to see otherwise how he could come up with the prescriptions he did. 52 00:05:53.260 --> 00:06:02.740 Now, another point Lewis brings out very well is that there are some people who claim that 53 00:06:02.740 --> 00:06:07.100 Keynes was not particularly radical. 54 00:06:07.100 --> 00:06:13.700 For example, Bruce Bartlett has a book out where he says Keynes is really a conservative 55 00:06:13.700 --> 00:06:18.500 because he was saying the capitalist system is basically all right, it just needs the 56 00:06:18.500 --> 00:06:26.180 government to come in and stabilize things, the economy, the free market isn't perfect, 57 00:06:26.180 --> 00:06:32.580 will generate the unemployment from time to time, so we just need a little corrective 58 00:06:32.580 --> 00:06:39.180 action by the government and then everything will be all right. So, according to this argument, 59 00:06:39.180 --> 00:06:46.580 Keynes was really pretty close to being a free market advocate. He just thought there 60 00:06:46.580 --> 00:06:54.740 were some problems with the market. But Hunter Lewis brings out this isn't true at all. Keynes, 61 00:06:54.740 --> 00:07:02.980 In the general theory, calls for, quotation, a somewhat comprehensive socialization of investment. 62 00:07:02.980 --> 00:07:09.300 What he wanted was for the government really to assume control of all investment. 63 00:07:09.300 --> 00:07:17.340 He thought that it was not a good idea to have private business people doing that, because 64 00:07:17.340 --> 00:07:23.780 this, he said the stock market was really something like a casino, everything was based 65 00:07:23.780 --> 00:07:30.220 on Speculation, and this is irrational, it's much better if we have government planners 66 00:07:30.220 --> 00:07:39.380 like him in control of things, and he called for the euthanasia of the rentier, those who 67 00:07:39.380 --> 00:07:46.340 get interest on bonds and stocks, so he said they should be eliminated, we'd have the government 68 00:07:46.340 --> 00:07:54.620 Taking Control of Things. Now, the next one I want to mention, if you read Hunter Lewis, 69 00:07:54.620 --> 00:08:01.540 I think you get a very good perspective on the basics of Keynes. Lewis is very good. 70 00:08:01.540 --> 00:08:09.180 He sets out first what Keynes said in quotations, and he goes back and gives you the same quotations 71 00:08:09.180 --> 00:08:15.180 with his analysis and what he thinks is wrong with him. The next one I want to mention is 72 00:08:15.180 --> 00:08:22.540 is probably perhaps the most important of all books that are critical of Keynes, and this 73 00:08:22.540 --> 00:08:33.380 is by Henry Hazlitt, The Failure of a New Economics. What Hazlitt did was to take every 74 00:08:33.380 --> 00:08:39.760 chapter of Keynes's general theory and go over it in detail and explain what's wrong 75 00:08:39.760 --> 00:08:47.960 along with it, and he says that everything original in the book is false and everything 76 00:08:47.960 --> 00:08:52.000 that's true is said by other people. 77 00:08:52.000 --> 00:09:01.960 I should say this book has not gotten the attention from economists that it deserves. 78 00:09:01.960 --> 00:09:10.600 Actually, Brad DeLong, who's a very Keynesian professor at Berkeley University, said that 79 00:09:10.600 --> 00:09:16.000 he had been reading Hazlitt's Economics in One Lesson. 80 00:09:16.000 --> 00:09:21.600 I'm sure almost all of you know that book, and he said he was impressed by this book. 81 00:09:21.600 --> 00:09:27.360 He said it was a very well-written and argued book, but he doesn't understand that even 82 00:09:27.360 --> 00:09:35.000 Even though the book was written in the 1940s, Hazlitt apparently is unaware that Keynes 83 00:09:35.000 --> 00:09:36.640 ever existed. 84 00:09:36.640 --> 00:09:45.120 He delonged, although he's a professional economist specializing in Keynes, has no knowledge 85 00:09:45.120 --> 00:09:50.720 that Hazlitt wrote a whole book criticizing Keynes in detail. 86 00:09:50.720 --> 00:09:56.360 I'm afraid this is just typical of what academic life is like today. 87 00:09:56.360 --> 00:10:09.160 Now, what I think is the key thesis of Hazlitt's book is that he says, Keynes realized that 88 00:10:09.160 --> 00:10:16.200 the cause of unemployment is that wage rates are too high, just like with any other commodity 89 00:10:16.200 --> 00:10:25.560 if you have, if the supply and demand aren't correctly aligned, there's going to be trouble. 90 00:10:25.560 --> 00:10:38.060 The same is true of wages. If there's unemployment, that indicates that at least some workers are asking too much in their wages. 91 00:10:38.060 --> 00:10:43.060 And if there would be a lowering of wages, then you could get unemployment. 92 00:10:43.060 --> 00:10:54.560 But has it said, Cain's real thought that labor unions and the government won't allow this, they won't allow wage reductions. 93 00:10:54.560 --> 00:10:59.560 He said, wages are sticky downwards. You can't reduce wages. 94 00:10:59.560 --> 00:11:05.260 So the way around this, he thought, people are in the grips of a money illusion. 95 00:11:05.260 --> 00:11:13.760 They tend to concentrate just on how much money they're making in dollars or pounds or whatever. 96 00:11:13.760 --> 00:11:20.860 And they're unaware or they don't take too much note of the purchasing power of their money. 97 00:11:20.860 --> 00:11:28.740 So if the government increases the supply of money and gets more spending going, then it'll 98 00:11:28.740 --> 00:11:34.540 reduce purchasing power and this in effect will lower wages. 99 00:11:34.540 --> 00:11:40.860 So even though you don't have money wages going down, wages will be lower. 100 00:11:40.860 --> 00:11:50.420 So according, as Hazlitt saw things, this is the way that Keynes wanted to get around 101 00:11:50.420 --> 00:11:58.700 wage reductions and then he opposes that, he says, well, the workers are pretty much 102 00:11:58.700 --> 00:12:06.060 aware of how much, what the purchasing power of their money is, they're not in the grips 103 00:12:06.060 --> 00:12:15.940 In any case, that won't do the job because what's wrong is not that wages are taken in 104 00:12:15.940 --> 00:12:25.180 the aggregate or not correct, but that particular wages are wrong. If you have unemployment, 105 00:12:25.180 --> 00:12:33.460 it means that particular workers need to have their wages lowered, not everyone. Keynes 106 00:12:33.460 --> 00:12:42.400 has had a tendency, as Hazard brings out, to think in aggregates rather than understand 107 00:12:42.400 --> 00:12:47.180 how the economy worked, didn't have a knowledge of price theory. 108 00:12:47.180 --> 00:12:57.500 One of Keynes' disciples, the British economist Joan Robinson, said she thought it would have 109 00:12:57.500 --> 00:13:03.740 would have been much better if Maynard, people always referred to Keynes as Maynard, to distinguish 110 00:13:03.740 --> 00:13:09.200 him from his father, John Neville Keynes, who was actually a much better economist than 111 00:13:09.200 --> 00:13:16.500 he was. He also outlived Keynes, who died at age 97, but she said it would have been 112 00:13:16.500 --> 00:13:23.500 much better if Maynard had taken the half hour or so that would have been required to 113 00:13:23.500 --> 00:13:29.180 to Learn Price Theory, but according to her, he never bothered to do it. 114 00:13:29.180 --> 00:13:36.880 I should say something about Joan Robinson, I was interested this morning when Tom Woods 115 00:13:36.880 --> 00:13:49.580 was speaking, he mentioned Paul Samuelson's somewhat, some problems with the Soviet Union. 116 00:13:49.580 --> 00:13:59.580 Now Joan Robinson went beyond Samuelson. She thought North Korea was really the outstanding economy in the world. 117 00:13:59.580 --> 00:14:03.580 You could really develop things much better in North Korea. 118 00:14:03.580 --> 00:14:14.580 Now the next book I want to mention is a collection edited by Hazlitt called The Critics of Keynesian Economics. 119 00:14:14.580 --> 00:14:26.580 This includes a number of articles, including reviews by Frank Knight and Jacob Weiner who did contemporary reviews of Keynes' book when it came out. 120 00:14:26.580 --> 00:14:33.580 I want to call attention to two articles in that collection by Ludwig von Mises. 121 00:14:33.580 --> 00:14:46.580 One is called Stones into Bread, The Keynesian Miracle, and the other is Lord Keynes and Say's Law. 122 00:14:46.580 --> 00:15:02.580 And what Mises points out is that really in the economy, the fundamental thing we have to consider is that demand for goods really consists of a supply of other non-competing goods. 123 00:15:02.580 --> 00:15:09.140 So, we can't really increase production just by increasing the amount of money or increasing 124 00:15:09.140 --> 00:15:10.140 spending. 125 00:15:10.140 --> 00:15:16.620 The economy can only get going by a genuine increase in production. 126 00:15:16.620 --> 00:15:23.180 Mises, I should say, as you would expect, had a very low opinion of Keynes. 127 00:15:23.180 --> 00:15:30.260 I remember a friend of mine who attended Keynes, I mean, Mises for a time taught in addition 128 00:15:30.260 --> 00:15:38.500 to a seminar at NYU. He also taught an undergraduate course for a while. And Mises had said that 129 00:15:38.500 --> 00:15:44.900 no economist would ever make a particular statement. So a student put up his hand and 130 00:15:44.900 --> 00:15:51.260 said, oh, but Professor Mises, and he quoted from a textbook, this professor said just 131 00:15:51.260 --> 00:15:58.660 what he said no economist would ever say. And Mises replied, you see, he is not an economist, 132 00:15:58.660 --> 00:16:13.820 by Misa Keynesian. The next book I want to mention continues Mises' point on Say's law. 133 00:16:13.820 --> 00:16:21.020 This is by W. H. Hutt called The Keynesian Episode. There was an earlier version of the 134 00:16:21.020 --> 00:16:27.060 book called Keynesianism, Retrospect and Prospect, came out in 1963, but it's basically the same 135 00:16:27.060 --> 00:16:38.420 Now, what Hutt does is to go into detail on this point about Say's law explaining in detail 136 00:16:38.420 --> 00:16:47.060 how it works and how it invalidates the Keynesian system, and he also shows how earlier economists 137 00:16:47.060 --> 00:16:55.860 were, Keynes pretended that no economist before him had really addressed the problem of unemployment, 138 00:16:55.860 --> 00:17:02.620 But Hutt shows in detail that it was very, many economists had done so and that unemployment 139 00:17:02.620 --> 00:17:07.300 can readily be handled within the framework of standard economics. 140 00:17:07.300 --> 00:17:12.740 Now one does have to be a bit careful, Hutt is a bit hard to read, he had a rather difficult 141 00:17:12.740 --> 00:17:13.740 style. 142 00:17:13.740 --> 00:17:21.260 Someone said that he really wrote his books in Huttite and the, I see I'm running out 143 00:17:21.260 --> 00:17:22.260 of time. 144 00:17:22.260 --> 00:17:30.480 What I want to mention is there are some chapters in Murray Rothbard's Man Economy and State 145 00:17:30.480 --> 00:17:36.420 that are really deal with Keynes in a really outstanding way as we would expect of Murray 146 00:17:36.420 --> 00:17:38.620 Rothbard. 147 00:17:38.620 --> 00:17:46.140 What Rothbard points out is there's one way in which the Keynesians try to get out of 148 00:17:46.140 --> 00:17:55.100 This claim that really, if you allow wages to fall sufficiently, then you wouldn't have 149 00:17:55.100 --> 00:17:56.100 unemployment. 150 00:17:56.100 --> 00:18:00.740 They say, well, what about if people just didn't, just took all their money and didn't 151 00:18:00.740 --> 00:18:01.860 spend it at all? 152 00:18:01.860 --> 00:18:02.860 What about hoarding? 153 00:18:02.860 --> 00:18:05.980 What if people just didn't spend it all? 154 00:18:05.980 --> 00:18:09.060 Keynes spoke of liquidity preferences. 155 00:18:09.060 --> 00:18:15.180 People would just take all their money and not spend it or not invest it. 156 00:18:15.180 --> 00:18:22.380 So then the economy would just spiral downwards, and what Rothbard points says is, and no, 157 00:18:22.380 --> 00:18:26.100 if he doesn't think this is going to happen, but if it did, he said that would just speed 158 00:18:26.100 --> 00:18:31.620 the process of adjustment, so it wouldn't be a problem at all. 159 00:18:31.620 --> 00:18:37.980 He also has really, I think Bob Murphy and his study guy is quite right to say that Rothbard 160 00:18:37.980 --> 00:18:40.460 is simply brilliant on these points. 161 00:18:40.460 --> 00:18:48.320 He makes fun of a famous Keynesian multiplier where Keynes said that if the government spends 162 00:18:48.320 --> 00:18:55.040 a dollar, it's really several dollars will be, there will be several dollars increase 163 00:18:55.040 --> 00:19:02.320 in spending depending on what the multiplier is, what Rothbard says, well, if you use that 164 00:19:02.320 --> 00:19:07.960 same kind of argument, you could get a personal multiplier showing if you say you give me 165 00:19:07.960 --> 00:19:14.660 me, or give him money, it will generate a multiplier of millions of times. So he's really 166 00:19:14.660 --> 00:19:22.720 great reductio ad absurdum of the whole Keynesian system. So those are a few of the books that 167 00:19:22.720 --> 00:19:31.400 I think people should read that criticize Keynes and I think if we're to have any hope 168 00:19:31.400 --> 00:19:52.400 For the hope of having a good economy, we have to abandon Keynes and read Mises and Rothbard as people who have studied or go by Keynes need to follow the advice that Saint Remagius gave to the early French King Clovis where he said, 169 00:19:52.400 --> 00:19:57.400 Burn what you've read, read what you have burned. Thank you.