Wednesday, June 8, 2016

Peter Boettke Responds to My Happy Birthday Keynes Post Critique

Peter Boettke has responded to my post: Koch-Funded GMU Economist Sends Out a Happy Birthday Note to Keynes

First, I want to make clear that from my observations Peter by far is better than 99% of the economic professors out there. He appears to be enthusiastic about his work and seems to care about his students. We need more second-hand dealers like Peter,

If a student asked me about Peter. I would say he ranks among the top 10 Austrian-leaning economists in the country at present, perhaps in the top 5.

My problem was specific with Peter's earlier Facebook happy birthday note to Keynes, not his entire body of work.

Peter is correct, our intellectual movement is not served well by absurdities repeated again and again.

Unqualified praise of Keynes falls directly in this category. It is absurd to praise Keynes without qualifiers and the entire industry damn well does it. Shouldn't Austrians be consistent counterweights?

I note that F.A. Hayek, who was on good personal terms with Keynes, never failed to qualify his comments on Keynes. He would call Keynes a genius, brilliant and an original thinker but always put it into the context that Keynes did not know much about economics.

Peter's original comment does not do this. There is no qualifier:
Happy birthday John Maynard Keynes (1883) ... Gifted with the pen, charismatic in person, he transformed economics and impacted economic policy for the last 70 years.
A student just attempting to learn about Keynes would get no indication from Peter's post that Keynesian economics is poor theory and has resulted in 70 years of horrific economic policy decisions near globally.

Aren't there enough economists failing to put the true Keynesian legacy into perspective?

Our intellectual movement is not served well by such efforts of repeated out of context absurdities  again and again.



  1. I have had the audio recording of that second video since 1977. Hayek essentially calls TGT a hoax, a completely ad hoc policy meant to deal specifically with the problems of a) Great Britain b) in the 1930s.

    Mr. Buckley: Well, how would you account for the almost unanimous opinion of liberal Democrats that in order to reduce unemployment it is necessary for the government to pursue vast spending projects? Since you speak of this as being almost manifestly ill-advised, the question arises why such superstitions should survive?

    Mr. Hayek: Well, it’s almost entirely the work of one man – in a way a genius, Lord Keynes – who is much more concerned about influencing current policies than about advancing the right sort of theories and he was operating then in a very peculiar situation. Now in Great Britain, a successful attempt was made after World War I – which brought a good deal of inflation – to bring prices down to the pre-war level. Prices came down but wages did not, so you had in the 1920s a position in Great Britain where wages were internationally too high and Britain had become noncompetitive on the world market. The problem in Great Britain was to make Britain competitive again and it was clear that this required a reduction of real wages. Notice these real wages had been artificially increased by increasing the value of the pound. So because the pound was par to its former level, people receiving the same wartime salary and wages, or inflated wages, could buy much more. Wages had not come down.

    Now, his first argument was wages must come down. Then he found that was politically impossible, so he must find another way.
    Instead of getting money wages down, we must depreciate the pound so that given money wages should correspond to a lower level of real wages and then by a curious intellectual somersault I would almost say he led himself to believe that even bringing down money wages was not of any use. It involves a complex economic argument and all he concluded was that – well, we must inflate, in short.

    Now notice several things. Keynes was a genius, but a genius who spent only a fraction of his time on economics – one of the busiest men I ever knew. But he knew very little economics except particularly the Cambridge tradition, and he was much more concerned to influence policy at a particular moment than develop a true theory. In fact, the last time I talked to him was after the war. I knew him very well. When I asked him wasn’t he getting alarmed about what his pupils who swallowed all this theory were doing after the war when the danger was clearly inflation, his answer was:

    “Oh, don’t mind. My theory was frightfully important in the 1930s. Then, we needed an expansion to correct a situation. Do trust me. If this theory becomes dangerous, I’m going to turn public opinion around like this”.

    Six month later, he was dead. And as usual, what happened is that the very doctrine – pupils of this man did apply to completely different situation a theory which was designed to influence policy in a particular situation. The only thing I blamed Keynes for is to making his theory more attractive and effective, he called it THE general theory. In fact, he knew precisely that it was not a general theory, but it was an argument to persuade government in the 1930s to do particular things.

    Mr. Buckley: It was an ad hoc.......?

    Mr. Hayek: It was entirely ad hoc. He was one of the most fascinating men I knew, but the personal magnetism of this man not only persuaded the younger generation of economists. And if I had been a much younger man and a student, I probably would have been swept off my feet as were most of the people.

    Mr. Buckley: Like Nixon.

    Mr. Hayek: No, no. (laughter).

    1. So, in the short run, he was dead...

    2. Thanks Bob, that's really an informative piece. Do you have this on your blog so that I can bookmark it and refer to it in the future?

  2. I've heard that, in academia-land, to disparage Keynes or his ideas leads to an automatic 50% pay cut and an immediate revocation of tenure. Just kidding...I think...