Wednesday, March 5, 2014

The Truth About Keynesian Economics in 3 Paragraphs

For the record.

I have for a long time considered Henry Hazlitt's brilliant introduction to his collection, The Critics of Keynesian Economicsthe best short destruction of Keynesian economics ever written, and these 3 paragraphs from the introduction, the best summary of Keynes' The General Theory of Employment, Interest, and Money:
I do not think we can point to any one "central" fallacy in Keynes upon which all the others depend, or of which they are all corollaries. The book is not that logical or consistent. It is a succession, rather, of a whole series of major fallacies that are intended to support each other.

But perhaps it is best to begin with a statement of  what can not be found in the The General Theory. In spite of the incredible reputation of the book, I could not find in it a single important  doctrine that was both true and original. What is original in the book is not true; and what is true is not original, but can be found in a score of previous writers.

On the negative side, the book seems mainly designed to prove that excessive money wage rates are not the major cause (or even a cause) of unemployment, and that reductions of such money wage rates to marginal-productivity levels will not restore employment. In denying this proposition, it may be pointed out, Keynes is denying what is perhaps the most solidly established of all economic doctrines--to wit, that if any commodity or service is overpriced, some of the commodity will remain unused or unsold: supply will exceed demand[...]


  1. "What is original in the book is not true; and what is true is not original, but can be found in a score of previous writers."

    Not sure who lifted from whom, but Rothbard uses the same statement in his rebuke of Adam Smith in A History of Economic Thought

  2. My understanding is that Hazlitt was never formally trained in economics, which is probably why his views on the subject make so much sense. After all, it takes years of training, preferably at an Ivy League university, to wring every last ounce of common sense out of one's system, to be replaced by macroeconomic baloney and econometric hocus pocus.

    In addition to being a fantastic journalist and self-taught economist, he was a seriously good writer. I very much enjoy his prose as well as the ideas he espoused.

    We could use more Hazlitts to debunk the Keynesian nonsense being practiced today.

  3. As to Hazlitt's phrase: He beat Murray to it by about 35 years. Another gem in the introduction is "Unintelligibility was assumed to be the mark of profundity." This describes most of current academic writing in the social sciences of all sorts.