WEBVTT NOTE 29. Summary 1 00:00:00.000 --> 00:00:10.240 Chapter 29 Summary 2 00:00:10.240 --> 00:00:15.640 In the present book, we have followed the exposition and argument of the general theory 3 00:00:15.640 --> 00:00:18.320 as Keynes presents it. 4 00:00:18.320 --> 00:00:25.520 This means that the argument has taken a winding course, often involving repetition. 5 00:00:25.520 --> 00:00:31.600 The reader may find it helpful, therefore, if we now briefly summarize some of the main 6 00:00:31.600 --> 00:00:37.200 negative or positive propositions in each chapter. 7 00:00:37.200 --> 00:00:38.640 Chapter 1. 8 00:00:38.640 --> 00:00:45.280 Though Keynes has been praised as the peer of Adam Smith, Ricardo, and even Darwin, not 9 00:00:45.280 --> 00:00:50.960 a single important doctrine in his work is both true and original. 10 00:00:50.960 --> 00:00:52.200 2. 11 00:00:52.200 --> 00:01:04.200 Keynes's effort to overthrow the orthodox contention that the most frequent cause of unemployment is excessive wage rates is unsuccessful. 12 00:01:04.200 --> 00:01:14.200 His arguments characteristically rest on en bloc thinking that assumes away the individual differences that make up reality. 13 00:01:14.200 --> 00:01:24.200 Prices and wage rates never change uniformly or as a unit, but always relatively and individually. 14 00:01:24.200 --> 00:01:32.200 Aggregative and macroeconomics conceal real interrelationships and real causes. 15 00:01:32.200 --> 00:01:38.200 3. Keynes did not succeed in refuting Say's law of markets. 16 00:01:38.200 --> 00:01:39.680 Markets. 17 00:01:39.680 --> 00:01:46.440 His attempted refutation consisted merely in ignoring the qualifications that the classical 18 00:01:46.440 --> 00:01:52.720 economists themselves insisted on as an integral part of the doctrine. 19 00:01:52.720 --> 00:01:53.960 4. 20 00:01:53.960 --> 00:01:58.640 Keynes's thought is honeycombed with contradictions. 21 00:01:58.640 --> 00:02:06.040 His central idea of an equilibrium with unemployment is self-contradictory by the very concept 22 00:02:06.040 --> 00:02:09.040 and Definition of Equilibrium. 23 00:02:09.040 --> 00:02:17.640 Five, Keynes's choice of units for economic measurement was hopelessly confused. 24 00:02:17.640 --> 00:02:25.180 What he calls a quantity of employment and puts into algebraic equations as such turns 25 00:02:25.180 --> 00:02:33.080 out on his own definition to be not a quantity of employment but a quantity of money received 26 00:02:33.080 --> 00:02:37.880 by Laborers Who Are Employed 6. 27 00:02:37.880 --> 00:02:44.340 There is nothing particularly original in Keynes's treatment of the role that expectations 28 00:02:44.340 --> 00:02:47.160 play in economic life. 29 00:02:47.160 --> 00:02:52.120 He does not, in fact, sufficiently recognize that role. 30 00:02:52.120 --> 00:02:59.200 He sees that expectations affect current output and employment, but seems to forget that they 31 00:02:59.200 --> 00:03:05.760 They are also embodied in every current price, interest rate and wage rate. 32 00:03:05.760 --> 00:03:07.420 7. 33 00:03:07.420 --> 00:03:15.520 The current disparagement of static theory is mainly the result of confusion of thought. 34 00:03:15.520 --> 00:03:22.040 Static theory is necessary not only for the solution of many basic problems, but as a 35 00:03:22.040 --> 00:03:25.960 preliminary to dynamic theory. 36 00:03:25.960 --> 00:03:32.120 There is no difference in kind between the methods of static analysis and the methods 37 00:03:32.120 --> 00:03:34.880 of dynamic analysis. 38 00:03:34.880 --> 00:03:40.160 There is merely a difference in the specific hypotheses made. 39 00:03:40.160 --> 00:03:47.500 The appropriateness or utility of any hypothesis depends mainly on the particular problem we 40 00:03:47.500 --> 00:03:50.000 are trying to solve. 41 00:03:50.000 --> 00:03:51.360 8. 42 00:03:51.360 --> 00:03:59.520 Keynes's definitions of his key terms, income, saving and investment, are merely circular. 43 00:03:59.520 --> 00:04:02.960 They are all defined in terms of each other. 44 00:04:02.960 --> 00:04:11.420 He so defines saving and investment that they are not only necessarily equal but identical. 45 00:04:11.420 --> 00:04:18.080 He repudiates and apologizes for his confusing definitions of these same terms as given in 46 00:04:18.080 --> 00:04:26.080 in his Treatise on Money, but absentmindedly returns to these old definitions in his subsequent discussion, 47 00:04:26.080 --> 00:04:35.080 particularly when he tries to prove that investment increases employment and that saving reduces it. 48 00:04:35.080 --> 00:04:44.080 Keynes treated saving with contempt as far back as The Economic Consequences of the Peace in 1919. 49 00:04:44.080 --> 00:05:00.800 9. Mathematical economics, as Keynes and others use it, can at best give precision to purely 50 00:05:00.800 --> 00:05:08.840 hypothetical assumptions. To mistake these hypotheses for known or determinable realities 51 00:05:08.840 --> 00:05:14.120 leads to a merely spurious precision and compounds error. 52 00:05:14.120 --> 00:05:21.640 Keynes's alleged consumption function, his fundamental psychological law governing the 53 00:05:21.640 --> 00:05:28.960 propensity to consume, is an unsuccessful attempt to turn a loose truism known from 54 00:05:28.960 --> 00:05:35.240 time immemorial into a precise and predictable relationship. 55 00:05:35.240 --> 00:05:41.800 Even if this relationship existed, it would not have the economic consequences that Keynes 56 00:05:41.800 --> 00:05:44.240 attributes to it. 57 00:05:44.240 --> 00:05:46.000 10. 58 00:05:46.000 --> 00:05:50.680 Keynes's list of eight motives for saving is arbitrary. 59 00:05:50.680 --> 00:05:57.680 It could either be expanded to a much larger number or reduced to one to build up a reserve 60 00:05:57.680 --> 00:06:01.560 against future needs or contingencies. 61 00:06:01.560 --> 00:06:08.160 In addition to this motive for plain saving, however, we must set down the motive to capitalistic 62 00:06:08.160 --> 00:06:15.080 saving to make roundabout methods of production possible, which is quite overlooked in Keynes's 63 00:06:15.080 --> 00:06:17.280 8. 64 00:06:17.280 --> 00:06:23.920 His argument that a rise in the rate of interest will diminish investment rests on the fallacy 65 00:06:23.920 --> 00:06:31.240 of assuming an arbitrary or uncaused rise in the rate of interest, rather than a rise 66 00:06:31.240 --> 00:06:40.880 11. 67 00:06:40.880 --> 00:06:44.640 Keynes's investment multiplier is a myth. 68 00:06:44.640 --> 00:06:49.120 There is never any fixed, predictable multiplier. 69 00:06:49.120 --> 00:06:55.940 There is never any precise, predeterminable or mechanical relationship between social 70 00:06:55.940 --> 00:07:02.220 Financial Income, Consumption, Investment and Extent of Employment. 71 00:07:02.220 --> 00:07:09.300 An equilibrium with unemployment, to repeat, is a contradiction in terms. 72 00:07:09.300 --> 00:07:16.380 No investment multiplier can be calculated or even discussed, except in relation to the 73 00:07:16.380 --> 00:07:23.980 extent of maladjustment or discoordination among prices and wage rates, or to the state 74 00:07:23.980 --> 00:07:27.340 of Business Sentiment. 75 00:07:27.340 --> 00:07:34.080 Keynes's implied definitions of saving and investment constantly shift. 76 00:07:34.080 --> 00:07:40.060 He tacitly assumes that what is not spent on consumption goods is not spent on anything 77 00:07:40.060 --> 00:07:42.380 at all. 78 00:07:42.380 --> 00:07:50.780 By investment he most frequently means government deficit spending financed by inflation. 79 00:07:50.780 --> 00:07:57.220 His multiplier easily lends itself to a reductio ad absurdum. 80 00:07:57.220 --> 00:08:03.900 His belief that gold or money is sterile is a relic of medieval prejudice. 81 00:08:03.900 --> 00:08:05.940 12. 82 00:08:05.940 --> 00:08:13.060 Keynes uses one of his key phrases, the marginal efficiency of capital, in so many different 83 00:08:13.060 --> 00:08:19.820 senses that it is difficult, if not impossible, to keep track of them. 84 00:08:19.820 --> 00:08:27.020 He fails to recognize that interest rates are as much governed by expectations as is 85 00:08:27.020 --> 00:08:31.020 the marginal efficiency of capital. 86 00:08:31.020 --> 00:08:37.980 Instead of using this latter term to cover at least six different possible meanings, he 87 00:08:37.980 --> 00:08:44.700 should have been careful at all times to distinguish between these meanings. 88 00:08:44.700 --> 00:08:50.940 But if he had, he might not have written the general theory at all. 89 00:08:50.940 --> 00:08:52.940 13. 90 00:08:52.940 --> 00:09:00.300 Keynes's arguments against liquidity and against speculation are untenable. 91 00:09:00.300 --> 00:09:07.860 Speculative anticipations and risks are necessarily involved in all economic activity. 92 00:09:07.860 --> 00:09:10.700 Somebody must bear them. 93 00:09:10.700 --> 00:09:17.580 What Keynes is saying is that people cannot be trusted to invest the money they have themselves 94 00:09:17.580 --> 00:09:24.820 earned, and that this money should be seized from them by government officials and spent 95 00:09:24.820 --> 00:09:30.940 or invested in the directions in which those officials, seeking to hold on to political 96 00:09:30.940 --> 00:09:34.220 power, deem best. 97 00:09:34.220 --> 00:09:35.700 14. 98 00:09:35.700 --> 00:09:42.020 It is not helpful to explain interest rates as the reward for parting with liquidity any 99 00:09:42.020 --> 00:09:48.720 more than it would be to explain the price of tomatoes or a house as the reward to the 100 00:09:48.720 --> 00:09:52.900 buyer for parting with cash for them. 101 00:09:52.900 --> 00:09:59.380 Without previous saving, moreover, there can be no liquidity to part with. 102 00:09:59.380 --> 00:10:05.100 If Keynes's theory of interest were right, interest rates would be highest at the bottom 103 00:10:05.100 --> 00:10:12.000 of a depression and lowest at the peak of a boom, which is almost precisely the opposite 104 00:10:12.000 --> 00:10:15.740 of their actual tendency. 105 00:10:15.740 --> 00:10:19.620 Keynes is wrong in regarding money as barren. 106 00:10:19.620 --> 00:10:27.380 It is a productive asset, and productive in the same sense as other assets. 107 00:10:27.380 --> 00:10:34.100 Keynes is also wrong in regarding interest as a purely monetary phenomenon. 108 00:10:34.100 --> 00:10:40.520 His fallacy consists in assuming that because monetary factors can be shown to affect the 109 00:10:40.520 --> 00:10:48.220 rate of interest, real factors can safely be ignored or even denied. 110 00:10:48.220 --> 00:10:55.660 Whatever is true in Keynes's theory of interest was already recognized by Newt Wichsel and 111 00:10:55.660 --> 00:11:02.180 is fully taken account of in the work of the best contemporary economists. 112 00:11:02.180 --> 00:11:04.440 15. 113 00:11:04.440 --> 00:11:10.300 Though Keynes attacks the classical theory of the rate of interest, there is no uniform 114 00:11:10.300 --> 00:11:13.780 classical theory of interest. 115 00:11:13.780 --> 00:11:19.540 Current theories of interest might be divided into three broad categories. 116 00:11:19.540 --> 00:11:21.300 1. 117 00:11:21.300 --> 00:11:23.700 Productivity Theories, 2. 118 00:11:23.700 --> 00:11:28.340 Time Preference or Time Discount Theories, and 3. 119 00:11:28.340 --> 00:11:33.380 Theories which combine productivity and time preference. 120 00:11:33.380 --> 00:11:41.140 As a borrower of funds, in effect, buys or borrows time, or the use or enjoyment of goods 121 00:11:41.140 --> 00:11:49.740 before he could otherwise use or enjoy them, time preference or time usance must be recognized 122 00:11:49.740 --> 00:11:55.300 as the chief factor in explaining interest and the rate of interest. 123 00:11:55.300 --> 00:12:03.060 But investment opportunity, the prospective rate of return over cost, or the expected 124 00:12:03.060 --> 00:12:11.300 net value productivity of specific new capital goods, also plays a role, because of its influence 125 00:12:11.300 --> 00:12:17.900 on the demand for loans and the rate that borrowers are willing to pay. 126 00:12:17.900 --> 00:12:26.420 Any complete theory of interest must deal not only with real but with monetary factors. 127 00:12:26.420 --> 00:12:32.900 At any given moment, the rate of interest is determined by the point of intersection 128 00:12:32.900 --> 00:12:40.740 of the supply curve of savings with the demand curve of investment, or the supply of loanable 129 00:12:40.740 --> 00:12:45.460 funds with the demand for loanable funds. 130 00:12:45.460 --> 00:12:51.340 But the chief long-run determinant of the interest rate is the community's composite 131 00:12:51.340 --> 00:12:54.460 rate of time discount. 132 00:12:54.460 --> 00:12:56.460 16. 133 00:12:56.460 --> 00:13:03.680 While Keynes formally defines saving and investment as necessarily equal in amount and merely 134 00:13:03.680 --> 00:13:11.260 different aspects of the same thing, his theory repeatedly depends on the tacit assumption 135 00:13:11.260 --> 00:13:16.860 that saving and investment are separate and independent. 136 00:13:16.860 --> 00:13:23.300 Under the assumption of a constant money supply, saving and investment are necessarily at all 137 00:13:23.300 --> 00:13:25.780 times equal. 138 00:13:25.780 --> 00:13:32.660 When investment exceeds prior genuine saving, it is because new money and bank credit are 139 00:13:32.660 --> 00:13:34.860 being created. 140 00:13:34.860 --> 00:13:43.260 When ordinary saving exceeds subsequent investment, it is because the money supply is contracting. 141 00:13:43.260 --> 00:13:50.980 An excess of saving over subsequent investment is but another way of describing deflation, 142 00:13:50.980 --> 00:13:59.500 and an excess of investment over prior saving is but another way of describing inflation. 143 00:13:59.500 --> 00:14:06.260 Keynes's assumption that it would be comparatively easy to make capital goods so abundant that 144 00:14:06.260 --> 00:14:14.740 the marginal efficiency of capital is zero is fantastic, and has absurd implications. 145 00:14:14.740 --> 00:14:17.100 17. 146 00:14:17.100 --> 00:14:23.300 Keynes's theories of own rates of interest are completely untenable. 147 00:14:23.300 --> 00:14:30.100 What he is talking about is not interest rates at all, but merely speculative anticipations 148 00:14:30.100 --> 00:14:33.060 of price changes. 149 00:14:33.060 --> 00:14:39.580 Keynes's belief that the world is so poor in accumulated capital assets overlooks the 150 00:14:39.580 --> 00:14:45.900 fact that at least two out of every three persons in the world today owe their very 151 00:14:45.900 --> 00:14:51.860 existence to accumulated capital since the Industrial Revolution. 152 00:14:51.860 --> 00:15:01.900 18. Keynes had confused ideas about economic interrelationships. Particularly absurd was 153 00:15:01.900 --> 00:15:08.980 his idea that flexible money wages, adjusting to prior changes in prices and demand, would 154 00:15:08.980 --> 00:15:16.060 cause violent oscillations in prices and that we could stabilize the economy by trying to 155 00:15:16.060 --> 00:15:21.420 to hold up wage rates regardless of what happened to prices. 156 00:15:21.420 --> 00:15:28.740 His remedy would un-stabilize the economy and create or prolong the very mass unemployment 157 00:15:28.740 --> 00:15:32.620 he professed to be trying to cure. 158 00:15:32.620 --> 00:15:34.620 19. 159 00:15:34.620 --> 00:15:40.580 Keynes is unsuccessful in his attempt to deny the most strongly established principle in 160 00:15:40.580 --> 00:15:49.020 and Economics, that if the price of any commodity or service is kept too high, i.e. above the 161 00:15:49.020 --> 00:15:57.560 point of equilibrium, some of that commodity or service will remain unused or unsold. 162 00:15:57.560 --> 00:16:03.100 When wage rates are too high, there will be unemployment. 163 00:16:03.100 --> 00:16:10.180 Adjusting the myriad wage rates to their respective equilibrium points may not always be in itself 164 00:16:10.180 --> 00:16:14.920 A sufficient step to the restoration of full employment. 165 00:16:14.920 --> 00:16:19.460 But it is an absolutely necessary step. 166 00:16:19.460 --> 00:16:28.100 Keynes tried to substitute general monetary inflation for piecemeal wage and price adjustment. 167 00:16:28.100 --> 00:16:35.380 But without proper wage-price coordination, inflation cannot bring full employment. 168 00:16:35.380 --> 00:16:37.180 20. 169 00:16:37.180 --> 00:16:44.220 There is no reason to suppose that there is a genuine and determinable functional relationship 170 00:16:44.220 --> 00:16:49.720 between effective demand and the volume of employment. 171 00:16:49.720 --> 00:16:55.740 There will be full employment with all sorts of changes in effective demand if a fluid 172 00:16:55.740 --> 00:17:01.960 and dynamic equilibrium exists among prices, wage rates, etc. 173 00:17:01.960 --> 00:17:10.480 There will be unemployment with no matter what effective demand if this equilibrium does not exist. 174 00:17:10.480 --> 00:17:18.960 Keynes was unjustified in declaring that previous economists had failed to reconcile value theory 175 00:17:18.960 --> 00:17:21.960 and monetary theory. 176 00:17:21.960 --> 00:17:24.080 21. 177 00:17:24.080 --> 00:17:31.880 Inflation is at once an uncertain remedy for unemployment, an unnecessary remedy for unemployment, 178 00:17:31.880 --> 00:17:37.080 Unemployment and a Dangerous Remedy for Unemployment 179 00:17:37.080 --> 00:17:41.200 Elasticity of demand is not measurable. 180 00:17:41.200 --> 00:17:45.680 The mathematical method is misapplied to it. 181 00:17:45.680 --> 00:17:52.880 To try to cure unemployment by inflation rather than by adjustment of specific wage rates 182 00:17:52.880 --> 00:18:00.240 is like trying to adjust the piano to the stool rather than the stool to the piano. 183 00:18:00.240 --> 00:18:06.520 The rate of interest is a market price like any other market price, and determined as 184 00:18:06.520 --> 00:18:12.440 much by the demands of borrowers as by the offers of lenders. 185 00:18:12.440 --> 00:18:14.660 22. 186 00:18:14.660 --> 00:18:21.040 The explanation of an economic crisis as a sudden collapse of the marginal efficiency 187 00:18:21.040 --> 00:18:28.320 of capital is either a useless truism or an obvious error, according to the interpretation 188 00:18:28.320 --> 00:18:35.040 When we give the phrase the marginal efficiency of capital, if this means simply a collapse 189 00:18:35.040 --> 00:18:39.480 of confidence, the explanation is a truism. 190 00:18:39.480 --> 00:18:45.360 If it means a collapse in physical productivity, it is nonsense. 191 00:18:45.360 --> 00:18:52.560 If it means a collapse in value productivity, it reverses cause and effect. 192 00:18:52.560 --> 00:18:58.400 The Keynesian cure for crises is perpetual low interest rates. 193 00:18:58.400 --> 00:19:04.840 The attempt to attain these would lead to a policy of perpetual inflation. 194 00:19:04.840 --> 00:19:12.400 The Javonian theory that business conditions vary directly with the size of crops is untenable 195 00:19:12.400 --> 00:19:18.720 and particularly implausible in the form maintained by Keynes. 196 00:19:18.720 --> 00:19:27.720 23. Keynes's system, as he came to recognize at the end of the general theory, was actually 197 00:19:27.720 --> 00:19:34.720 a reversion to the naive and discredited theories of the mercantilists and underconsumption 198 00:19:34.720 --> 00:19:44.000 theorists from Mandeville and Malthus to Hobson. It was also a reversion to all the inflationist 199 00:19:44.000 --> 00:19:49.520 Most Theories of the Currency Cranks, from John Law to Silvio Giselle 200 00:19:49.520 --> 00:19:53.520 24. 201 00:19:53.520 --> 00:20:00.080 Keynes's proposals for the euthanasia of the rentier, of the functionless investor, 202 00:20:00.080 --> 00:20:06.120 were proposals to rob the productive and expropriate their savings. 203 00:20:06.120 --> 00:20:13.560 Keynes's plan for the socialization of investment would inevitably entail socialism and state 204 00:20:13.560 --> 00:20:21.480 Seriously carried out, it would remove any significant field for the exercise of private 205 00:20:21.480 --> 00:20:24.280 initiative and responsibility. 206 00:20:24.280 --> 00:20:32.600 Keynes, in brief, recommended de facto socialism under the guise of reforming and preserving 207 00:20:32.600 --> 00:20:35.600 capitalism. 208 00:20:35.600 --> 00:20:41.920 Domestic laissez-faire and an international gold standard, blamed by Keynes as among the 209 00:20:41.920 --> 00:21:01.160 25. 210 00:21:01.160 --> 00:21:07.240 Because Keynes was continually contradicting himself, we may not be justified in calling 211 00:21:07.240 --> 00:21:31.920 26. 212 00:21:31.920 --> 00:21:38.880 If we try to use the term with scientific or objective precision, full employment is 213 00:21:38.880 --> 00:21:41.760 not even definable. 214 00:21:41.760 --> 00:21:47.200 Full employment at whatever cost is not even desirable. 215 00:21:47.200 --> 00:21:54.400 It is best either to use the term in a loose, common-sense way to mean the absence of abnormal 216 00:21:54.400 --> 00:22:01.760 involuntary unemployment or to replace it by the term optimum employment. 217 00:22:01.760 --> 00:22:10.480 It is not an end in itself, but a means to, or an accompaniment, of much broader ends, 218 00:22:10.480 --> 00:22:16.280 including mainly the maximization of consumer satisfactions. 219 00:22:16.280 --> 00:22:24.000 The economic objective of mankind, after all, is not more work, but less. 220 00:22:24.000 --> 00:22:26.760 27. 221 00:22:26.760 --> 00:22:32.880 Estimates to determine the national income in monetary terms have merely a limited usefulness 222 00:22:32.880 --> 00:22:35.400 for special purposes. 223 00:22:35.400 --> 00:22:42.780 Actually, all estimates of national income rest on certain arbitrary and sometimes false 224 00:22:42.780 --> 00:22:45.000 assumptions. 225 00:22:45.000 --> 00:22:49.920 They are not purely objective or strictly determinate. 226 00:22:49.920 --> 00:22:56.840 The present fetish made of such estimates leads not only to confusion of economic cause 227 00:22:56.840 --> 00:23:03.980 and effect, but to inflationist and totalitarian policies. 228 00:23:03.980 --> 00:23:10.440 Economic forecasting based on aggregative economics or the national income approach 229 00:23:10.440 --> 00:23:14.160 has been almost uniformly bad. 230 00:23:14.160 --> 00:23:16.120 28. 231 00:23:16.120 --> 00:23:22.680 It is not true that deficits in the government budget cure unemployment. 232 00:23:22.680 --> 00:23:28.020 It is not true that low interest rates cure unemployment. 233 00:23:28.020 --> 00:23:34.640 The Keynesian prescription leads to a constant race between the money supply and the demands 234 00:23:34.640 --> 00:23:40.240 of the Trade Unions, but it does not lead to long run, full employment.