We are developing the social individualist meta-context for the future. From the very serious to the extremely frivolous... lets see what is on the mind of the Samizdata people.

Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]

Samizdata quote of the day

“It was John Maynard Keynes, a man of great intellect but limited knowledge of economic theory, who ultimately succeeded in rehabilitating a view long the preserve of cranks with whom he openly sympathised.”

F.A. Hayek, Choice in Currency, a Way to Stop Inflation, Institute of Economic Affairs (1975), page 10.

Prof. Hayek was usually a restrained and polite demolisher of nonsense but in this quote, I think we get a sense of the rage that he must have felt at how Lord Keynes, with his easy charm and confident manner, could persuade politicians of what they wanted to hear anyway – that you can create wealth by spending other people’s money. But even later on Hayek tries to argue that Keynes would have been alarmed at how his ideas have been used as cover for monetary insanity. I think that is a mark of how basically decent an intellectual opponent Hayek was.

Meanwhile, following on from Kevin Dowd’s lecture last night – which I thought was very good – I will have more to say about his talk later on.

22 comments to Samizdata quote of the day

  • Hayek’s Choice in Currency can also be downloaded, free of charge, here. It is a superb read.

  • Current

    I think Hayek was more angry at Keynes’ views in 1975 than ever before.

    The rate of inflation in that year was 24% in the UK and ~15% in US. The savings of those of Hayek’s age were being made very rapidly worthless.

  • Stavros

    The savings of those of Hayek’s age were being made very rapidly worthless.

    Until institutionalised theft and plunder gets people hung from the nearest tree rather then re-elected to office, we will live in the world of Keynes.

  • Andrew Duffin

    “The savings of those of Hayek’s age were being made very rapidly worthless.”

    As, shortly, will be the savings of – well, anyone who’s got savings.

  • Millie Woods

    There is only one sensible economic theory – that of Charles Dickens. You know the old saw about income one pound and expenditure just under that amount and just over.

  • Ian B

    Rothbard’s Keynes, The Man is a rollicking good read.

  • Ian B

    Oops, let’s try that again…

    Keynes, The Man

  • William H Stoddard

    I have been reading the General Theory, and was rather stunned to find, a few chapters in, a reference not just to the views of Marx but to those of Silvio Gesell and some other notorious crank. I’ve got to say, the book is slow going; Keynes’s exposition is not very clear. But it strikes me as telling that he discusses Say’s law and regards it as a dogma imposed by some sort of inquisition in the face of popular awareness that it’s obviously wrong. He could equally well have objected to the dogma of physicists that perpetual motion doesn’t work. His whole approach seems to be providing sophisticated rationales for agreeing with The Celebrated Man In The Street.

  • Winston Churchill said: “If you put two economists in a room, you get two opinions, unless one of them is Lord Keynes, in which case you get three opinions.”

    The Political Dictionary – Kenyesian Economics
    My contribution to the definition of Keynes and his economic theory.

  • RobtE

    Until institutionalised theft and plunder gets people hung from the nearest tree rather then re-elected to office, we will live in the world of Keynes.

    I’d like to make one small change to that:

    Until Robin Hood is no longer considered a hero, we will live in the world of Keynes.

  • John

    Hey, I thought Robin Hood’s gig was extracting money from tax collectors and such and returning it to the folks (more or less and with a cut for himself I guess…) who made it in the first place. Am I remembering that wrong?

    … a quick googling tells me I’m not remembering wrong, it’s just that it’s an old legend with a lot of versions and by now everyone and everything is right in some sense…

    Maybe he could be, uh, re-meta-contextualized? Is that a word? Probably not…

  • Isn’t it all about demand? At a macroscopic level there’s very little economic output that can be saved-that’s why economists talk about corn (which is a store of value). In particular, unless you store it in pumped reservoirs or whatever, unused labour (like soft fruit ) is wasted.
    If I understand the arguments correctly (and I think I do), the fundamental underpinning of the Keynesian approach is to stimulate demand just enough to ensure that this waste does not happen and no more.

    The problem with most interventions of this sort is that governments don’t know when to stop. There are two reasons for this neither of which reflect well on them. The first is that they are stupid-they don’t realise that this is a complex system with substantial lags. To control such a system you need to stop well before the desired effect has materialised, otherwise you’ve oushed too hard [pushing too hard here means that you’ve overstimulated demand, producing galloping inflation].
    The second reason is greed-they get to spend this stimulus money on their pet projects – which basically means buying votes.
    Governments also forget that they should probably be fiscally neutral on average. But Gordon Brown has already said enough about this…

    Personally I’m betting that the stimulus has already gone too far and am budgeting for significant inflation in 2011.

  • Laird

    Robin Hood did indeed take money (“steal” isn’t the proper word, as theft implies ownership) from the tax collector (the Sheriff of Nottingham) and return it to its proper owners. As such, that makes him the quintessential libertarian hero. Unfortunately, the story has been bastardized to make him into a socialist archetype (“stealing from the rich to give to the poor”). We should use every opportunity to restore the story to its proper meaning. [Does that constitute “re-meta-contextualization”?]

    Canker, you’re right that Keynes advocated that the government increase spending during recessions to stimulate demand, with the corollary that it should cut back on spending during the good times (the politicians all conveniently forget about that part). But it’s still wrong, because it isn’t “all about demand”, as you state. That’s a common fallacy. In reality it’s all about supply, which creates its own demand. Demand creates nothing. Google “Say’s Law” for a fuller explanation.

  • guy herbert

    But even later on Hayek tries to argue that Keynes would have been alarmed at how his ideas have been used as cover for monetary insanity.

    As I have tried to argue here, too. Generally ‘Keynesians’ seem to be much more ignorant of Keynes than their opponents. (Which is not to say they always are: there are plenty of ignoramuses on the Know Nothings right.)

    Unlike, it seems, our governments, Keynes wasn’t a Greenshirt. Even though he wanted bigger government, he advocated government borrowing as a countercyclic measure, not ever increasing and all the time. I find it difficult to believe that he would have proposed tightening controls on private (i.e. priced) credit at the same time as printing money. I find it difficult to believe anyone is so crazy as to do it as a purported cure for the unavailability of private credit.

    Given so much economic theory was and is bunk, I’m not sure Hayek’s apostrophe isn’t here just to emphasise Keynes was wrong on policy: to clarify that while his influentialness is impressive, his influence is less so.

  • @Laird,
    Thanks for the reference. I have to disagree with Say’s Law. Like most such statements it’s clearly far too strongly phrased (just think corn) and could only apply in a barter economy with (only) perishable goods.
    Just look at the problems with a standard recession (ignoring all the government induced extras such as wage amd price inflexibility): far from spending the same amount to consume more, people with money increase their propensity to save.

  • Ian B

    In reality it’s all about supply, which creates its own demand.

    That’s the “Keynesian Straw Man” definition of Say’s Law, and it’s not correct. Keynes used that phrasing to create a Say’s Law he could disprove and abolish. Say’s Law states that supply constitutes demand. A carpenter makes a chair in order to trade it for something else; bread or an iPod (in a money economy, by the indirect means of selling it for money, then spending the money). The chair represents [the carpenter’s] demand for other goods. What Say’s Law doesn’t state is that manufacturing a chair will automatically conjure up a demand for it from other people.

  • Current

    Guy Herbert,

    Certainly, Keynes recommended governments to run budget surpluses in good time and not to continually increase debt.

    However, it is an inevitable consequence of his policies that things don’t work this way.

    Henry Hazlitt wrote about this:
    ” John Maynard Keynes was, basically, an inflationist. This has not been clearly recognized because he never spelled out, step by step, the consequences of his proposed remedy for unemployment and depression. That remedy was deficit spending by the government. He recognized that increased government spending paid for by equally increased taxation would not “add purchasing power.” The increased taxation would offset any “stimulus” that the increased government spending would provide. What counted, he confessed, was the government deficit.

    But he failed to take his readers beyond this step. How would that deficit be financed? Either the money would have to be borrowed, or new (paper) money or credit would have to be created. But if the money were borrowed, then the previous spending stimulus would be reversed by a deflation when the borrowing was repaid. The only thing to prevent this reversal would be to allow the new spending to remain outstanding. In other words, the Keynesian solution to every slow-down in business or rise in unemployment was still another dose of inflation.”

  • Laird

    I know that, Ian B, but it’s the standard “shorthand” phrase for describing Say’s Law. That’s why I advised Googling it; I didn’t want to get into details. A better formulation would be that “increased supply for, i.e., chairs, creates demand for everything which isn’t chairs”, but that isn’t as pithy, is it?

    Canker, I suspect that your disagreement is only because you don’t really understand the Law (perhaps for the reason Ian B mentions). Supply (or perhaps a better word would be “production”) is what drives an economy; demand (or “consumption”) is its inevitable result, but without supply demand creates only price inflation. Demand is sterile.

  • Jack Olson

    Had the U.S. Congress followed Keynes’s theory fully, then inflation would not have happened between 1950-1980. The Treasury would have run surpluses, thus dampening private spending by reducing taxpayers’ disposable income. That is especially true since the income tax rates weren’t indexed for inflation and were progressive (the higher the income, the higher the tax rate).

    What the Congress did instead was to run deficits in both expansions and recessions and print money to cover that deficit. The demand for government spending from power-hungry Congressmen and rent seekers turned out to be infinite. So inflation reached double digits in spite of the ever-increasing tax revenue and diminishing ability of taxpayers to foot the bill. Congress printed more and more money to cover rising deficits so a vicious circle took hold which only a steep recession could interrupt.

    Richard Nixon told many lies but one of his biggest was “We are all Keynsians now.” Had the ruling class been Keynsians, they would have run surpluses much of the time instead of thirty continuous years of deficits.

  • Midwesterner

    I don’t know if it is Say’s law or not, but they way I’ve thought of it is that surplus=demand. Said in more detail, what ever I have that I don’t need or want I will use to exchange for something else. Whether it is my effort, some zucchini, or those chairs I can make, I will offer my surplus in exchange for somebody else’s surplus that I want.

    This is why society advances exponentially faster as people gets farther and farther above subsistence existence. They have more surplus to exchange, they specialize in generating particular surpluses and become ever more efficient at their chosen specialty. Eventually they can lose the ability to subsist without bartering . . . one probable explanation for the prolonged dark ages after the Roman world imploded.

    Currency is the primary vector for exchanging surpluses. When currency fails, specializers will go through some very difficult times until they either find a new medium of exchange or rediscover general subsistence skills.

  • Current

    Jack Olson: “Had the ruling class been Keynsians, they would have run surpluses much of the time instead of thirty continuous years of deficits.”

    How is that ever supposed to be politically feasible?

    Even if it is it doesn’t matter. It is the money expansion booms that cause the subsequent busts. That is what misallocates capital and makes us poorer.

    The results can be spread about society using inflation but they can’t be changed.

  • Paul Marks

    This reminds me of when Mrs Thatcher used to dig up quote from Keynes to argue that he was a free market man.

    It is fine to say “during good times the government should have a surplus and pay down debt” – when one is saying that during a slump.

    But where is the evidence that Keynes said that during good times?

    Did he say concerning 1920’s American “good thing you are running a budget surplus – bad thing that there is a monetary expansion”.

    Of course he did not – Hayek and Mises said that.

    Keynes said nothing about the danger of the late 1920’s monetary expansion by the Federal Reserve system.

    And Keynes was in favour of big government spending programs in the 1920’s – in the United States as well as in Britain.

    The free market talk “if times were good” was just window dressing in the 1930s.

    Free marketism and government spending control “if…..” is always window dressing.

    If I am wrong, then why did not a single follower of J.M. Keynes support the policy of the “do nothing Congress” elected in 1946.

    They cut government spending and ran a budget surplus paying down government debt.

    And they were attacked for doing so – by every “modern (i.e. leftist) economist” in the world.