Recently, someone left a comment on a post here along the lines of: “What’s your problem with Keynes?” One of the replies mentioned Hazlitt’s The Failure of the New Economics which is a critique of Keynes’s General Theory.
As that very book had been gathering dust on my bookshelves for a number of years I thought it was about time I actually read it. So, I did.
And, what did I learn? Sadly, not much. I learnt that Hazlitt writes well but I knew that already. Economics in One Lesson is a masterpiece. And he is on form here too. His put downs of Keynes are tremendous fun:
I have been unable to find in it a single important doctrine that is both true and original. What is original in the book is not true; and what is true is not original. (p6)
So I have found in Keynes’s General Theory an incredible number of fallacies, inconsistencies, vaguenesses, shifting definitions and usages of words, and plain errors of fact. (p7)
One reason Keynes’s thought is so often difficult to follow…, is that he writes so badly…. And one reason he writes so badly… is that he is constantly introducing technical terms that are not only unnecessary but inappropriate and misleading. (p16)
One begins to suspect that Keynes’ reputation, like Shaw’s, rests in large part on sheer impudence. (p346)
Keynes’s trick in this chapter is to mix plausible statements with implausible statements (p173)
The theory embodied in this paragraph is that the public is irrational, that it can be easily gulled, and that the object of government is to be the chief party to the swindle. (p245)
And so on.
But I was left with a problem. Hazlitt’s criticisms may be witty and elegant but are they true? I didn’t have the time to go through the whole of Keynes’s General Theory to check but I could at least have a stab at one chapter and see if it Hazlitt’s criticisms stand up. Does Keynes say what Hazlitt says he says? And is Hazlitt’s analysis correct? I took as the sample chapter the one on the Multiplier.
Sadly, this experiment didn’t work. Keynes is so opaque – even arch-Keynesian Paul Krugman admits it’s “tough meat” – that, try as I might, I couldn’t understand it. All I can say is that Hazlitt’s description appears to be correct. The idea that there is a causal relationship between current marginal investment and current marginal incomes appears to be absurd. To say that this relationship can be used to increase incomes seems doubly absurd.
At this point some wise words from Brian Micklethwait kicked in: if you can’t understand it that’s their problem, not yours. It is up to Keynes (or his supporters) (and for that matter Mises and his) to make me understand what they are on about. I will make moderate efforts and no more.
Of course, we are assuming that there is such a thing as “Keynesianism” to understand. One of Hazlitt’s complaints is that he is constantly changing his definitions and contradicting himself. I, myself, am aware that having described gold as a “barbarous relic”, Keynes went on to support its being part of the monetary system, before condemning it in the General theory and then supporting it again as part of Bretton Woods.
Now, people do change their minds over time. I am sure there are differences in Mises’s thinking between The Theory of Money and Credit and Human Action but I suspect they are not that great – certainly nothing like as great as Keynes’s.
Still, I feel obliged to give Keynes one last chance. If the theory can’t help us what about the practice? I grew up in Britain at a time when Keynesian policies were being practised red in tooth and claw. They didn’t work. On two occasions – the early 1980s and the early 1990s – semi-Austrian policies were followed. They did work. I am not aware of any time or any place where Keynesian policies have worked and I am not aware of any time or any place where freedom (to give Austrianism its real name) – even in a watered-down form – did not.
As an aside I’ll allow Paul Krugman to have the final word. This is what he had to say in an introduction to the General Theory in 2006:
One can identify a number of occasions, most notably Japan in the 1990s, where depression-like conditions might well have returned without the guidance of Keynesian economics.
Words fail me.