The name of Hunter Lewis’ book says it all: Where Keynes went wrong – and why world governments keep creating inflation, bubbles and busts.
What Mr Lewis has done is to update Henry Hazlitt’s “The Failure of the New Economics” – the classic line by line refutation of Lord Keynes that the older ones among us read as undergraduates (before such works were purged from university libraries). Of course Hunter Lewis uses work on Keynes that was not available to Hazlitt in the 1950′s and he explains the terrible effects that the influence of Keynesian ideas on the policies of modern governments (especially in the United States), but basically Hunter Lewis is a Hazlitt for our time.
To say this is not to diminish the achievement of Mr Lewis – which is a considerable one. Many people when the first come upon Keynesian doctrines at school and then at university spot some of the absurdities (such as the idea that the government spending more money makes a nation more wealthy), and when not satisfied by textbooks and by the explanations of teachers and lecturers, we go on to seek out J.M. Keynes’ “General Theory of Employment, Interest and Money” (1936) but then we are confronted with a tested mess. Not just a very badly written book (so different from the witty paragraphs that are quoted in the textbooks), but such a complex mass of absurdities and contradictions that one despairs (or let me be honest “one despairs” means “I despaired”) of writing a full refutation of the work that was actually readable.
For example, the use of mathematics. It was obvious even to someone as ignorant of mathematics as me that Keynes used mathematics improperly – he used mathematical means that assumed, in their very structure, the very things the mathematics were supposed to “prove”. Yet Keynes also downplayed the importance of mathematics in the “General Theory…” and in other works – so what was the point of trying to explain his misuse of mathematics? Hunter Lewis deals with this problem (as he deals with all the other problems that trying to seriously examine Keynes presents), by using enough words to fully explain what Keynes is doing – whilst not falling into the trap of making the language so complex that his book becomes unreadable. The great strength of Keynes’ “General Theory…” is that it is almost unreadable – the nature of the writing is not an accident (Keynes could write perfectly clearly if he wanted to), it is deliberate – in order to obscure the line of “argument” and intimidate the reader into thinking “I can not follow this – Keynes must be a genius”. Paul Samuelson (the main American spreader of the ideas to undergraduates in the post World War II world) admits all of the above, but then (without irony) takes it as proof of the ‘genius’ of Keynes – as Hunter Lewis explains in chapter 20 of his work, especially on pages 267 to 268. Hunter Lewis takes the opposite approach, he writes very clearly indeed. And when he comes upon something in Keynes (as one does so often) that goes off at a tangent or raises a different subject he does not follow him in the main text of “Where Keynes Went Wrong” he carefully takes the matter and makes it an endnote of the book. This means that an person can read Mr Lewis’ book at one sitting and see the full argument -and then (if someone wishes to do so) one can follow the various tangents and side issues.
Mr Lewis manages to do what I thought impossible – he takes the work of Keynes and divides it into logical themes and sections. He also fits the “General Theory…” into the background of the other works of Keynes and into the philosophical and social thought of Keynes. Neither over-stressing links (as, for example, Hayek once did by saying that Keynes lack of concern with the long term was explained by his homosexuality – i.e. because he was not going to have children he did not care about future generations), nor pretending that the personality and general philosophical beliefs of Keynes had no influence on his economics. After all Keynes himself accepted that they did – for him economics was not a value free science (for all his use of the authority of “science” to try and make people accept his suggestions) economics was a “side of ethics” (page 45 of this work).
For the sake of critics, Hunter Lewis calls calls chapter four of the book “a digression” but in truth the “immoralism” of Keynes is clearly directly relevant to his work in economics. The lack of a sense of honour in Keynes (his Cambridge Apostles Club and general Bloomsbury group view that the ends justify the means that an enlightened elite may use any means in order to rule the ignorant masses). Keynes does not produce illogical arguments (or rather arguments that look logical, but when one examines them with care one finds to be based on on violations of logical reasoning) out of ignorance – he does so because deception does not matter to him, indeed to deceive people by violating the laws of reasoning, or by just confusing them with a mist of words in debate is a good thing, if it leads to good ends – as Keynes defines good ends. In this I (although not Mr Lewis) might be tempted to add that Keynes is a true academic – in the sense of being in the tradition of Plato the prince of the “noble lie”.
However, Hunter Lewis does not make the mistake of thinking that all was well with the theory and practice of money and banking before J.M. Keynes came along. On the contrary, several times (in different sections – as the matter becomes relevant) Mr Lewis shows us that things were very bad indeed. Not just were there terrible booms and busts (the worst of all being the credit money boom of Benjamin Strong in the late 1920′s – see pages 323-325 of this work), but the basic understanding of such things by the establishment was fundamentally mistaken.
The people with influence did not warn against either government expansion of the money supply or the fundamental idea that bankers (nor anyone else) can not really lend out money that has not been first really saved (real savings being income that people choose not to consume – but make available to be lent to others) and that the same money can not be in the hands of different people in different places at the same time (a violation of basic logic). Indeed most people with influence did not even hold that banks that got into trouble should be faced with the same consequences as other business enterprises that got into trouble.
The warnings of men like Thomas Hankey in the 19th century were ignored and the policy advice of his foe Walter Bagehot (the second editor of the “Economist” magazine) was followed by, for example, the people who set up the Federal Reserve system in 1913. What Keynes did was to take the errors of men like Walter Bagehot and vastly inflate them (whilst removing the rational side of the writings of men like Bagehot) – mixing them with the worst elements of the various monetary cranks (i.e. the people who thought wealth could be increased by increasing “demand”, spending, rather than by the hard road of work and saving). Keynes would not have had the success he did if he had not poisoned ground on which to plant his corrupt seed. Indeed he was careful to not be a revolutionary in how he suggested policy be put into effect.
Keynes may have told jokes from time to time about putting money in bottles, putting the money in old coal mines and allowing it to be dug up. But for the most part Keynes kept to the established policy of expanding the money supply by the route of working with the banks and other financial enterprises – governments would not just print money and spent it, there would be complex (and, for some people, profitable) game played. Keynes may have sometimes written as a radical (sometimes to the harm of his reputation – as with his friendly words about the new German system of government in the introduction to the German edition of the General Theory…), but at heart he was an establishment man. Even in economics Keynes did not try to really produce a revolutionary “New Economics” – he worked with the errors that already existed in theory, vastly expanding them and trying (as much as was practical) to distort or get rid of elements in economics that were true. Even the language of economics remained much the same – even if the meanings were altered. As the late W.H. Hutt was fond of pointing out (and Hunter Lewis knows well) Keynesians were not interested in open battle (for all Keynes love of debating – with people he knew would be respectful of course, he was not fond of debating with people who treated him with the contempt he treated them) Keynesians worked as their master had worked. They gained control of the leading journals, and they took control of academic appointment and the setting of examinations – they were masters of academic politics, just as they are masters of political manipulations in London and Washington D.C.
We will not be seeing a review of “Where Keynes Went Wrong” in the “Economist” magazine or in the “learned journals” – because that is not how Keynesians work, they work by marginalizing their critics (either trying to shout them down – or just ignoring them) not be trying to refute their arguments. At best the Keynesian will sneer at their foes – such as when “Nobel Price” winning Paul Krugman sneered at the Austrian theory of the boom-bust cycle as a “moral theory”, to a Keynesian of course (when they are being honest) the use of the word “moral” is meant as an insult – just as using the term “common sense” is an insult. To say people should not try and lend out money that they do not really have sounds “moral” (it sounds like “do not spend money you have not got”) and, therefore, the Keynesian is vile and common – no matter how “value free” the point may be as part of economics. Just as to say something is “common sense” (i.e. is accordance with the basic laws of reasoning) is an insult to the Keynesian – as to them if something goes along with traditional reasoning it must (again) be vile, something from the common herd. More government spending makes a nation richer, if you have a problem with deficits and debt – make them bigger, saving is not a virtue in fact it can undermine an economy, financial investment is not a matter of long term judgement – it is just casino betting, interest payments are just payments to rich parasites – ideally interest rates would be zero, “profit” is a dirty word and one should try and avoid using it in economics, taxing the rich is just a way of improving “social justice” it has no negative economic consequences one should be concerned about, and on and on. All this (and more) is what “Keynesian economics” is actually based on, when one strips away the (rigged) equations, and the mist of obscuring words.
I looked hard for errors in Hunter Lewis’ work, but I was not successful. The closest I came was his failure to fully go into the arguments against fractional reserve banking as much as he should. If one is going to take this, very controversial position (which Mr Lewis does on pages 196-8) then one has to defend it more fully or at least refer to works that do. Mr Lewis does cite Murry Rothbard and he refers to George Reisman’s “Capitalism”. But this is not enough – if one is going to go into the deep and dangerous waters one must at least also cite Huerto de Soto’s “Money, Bank Credit and Economic Cycles” for the full historical, legal and economic context.
However, overall I must recommend “Where Keynes Went Wrong” by Hunter Lewis. It is an important work, a major achievement and a vital book of warning for our times.