Monday, February 15, 2016
The Follies and Fallacies of Keynesian Economics
I have a new article on the “EpicTimes” news and commentary website on, “The Follies and Fallacies of Keynesian Economics.”
This February marks the 80th anniversary of the publication of John Maynard Keynes’s most famous book, “The General Theory of Employment, Interest and Money,” which appeared in London bookstores on February 4, 1936, and served as the foundation for Keynesian Economics.
Few book have so rapidly come to dominate the thinking of economists and policy-makers as Keynes’s ideas and policy prescriptions. In less than a decade after its publication all of the older insights of the pre-Keynesian economists were shoved aside for the “new economics”
Gone was the older understanding of how competitive markets worked, why a sound monetary system based on gold was desirable, and why government spending should be restrained within the requirement of balanced budgets. Also rejected was the alternative theory that if booms and busts of inflations and depressions occurred it was not because they were inherent in the capitalist system, but were set in motion as a result of monetary expansion and interest rate manipulations by central banks.
Instead, Keynes insisted that markets were unpredictably unstable for the correction of which it was necessary to have paper monies controlled at the discretion of central banks, and that governments needed to have the power and flexibility to run budget deficits whenever and to whatever extent needed to compensate for the instabilities of market capitalism that threatened mass and prolonged unemployment when left to its own devices.
Here was now the economics of perpetual budget deficits, arrogant and presumptuous monetary central planning, and dangerous growth in the size and intrusiveness of government over society wrapped in the rationale of macroeconomic stability and stabilization.
In spite of changes and developments in Macroeconomics over the last half-century, the premise and presumption remains that governments and their central banks have the knowledge and wisdom, and need the necessary economic policy tools to micro-manage the “macro-economy,” with, unfortunately, continuing disastrous effects.
Richard's summary of the problems with Keynesian economics is excellent.
For those looking for a detailed page-by-page destruction of The General Theory, Henry Hazlitt's The Failure of the New Economicss is a must read.
For an understanding of Keynes on an individual level, his intellectual shifts, his membership in secret societies, etc, see: Keynes the Man by Murray Rothbard.