Austrian Economist Peter Boettke laments Tyler Cowen’s decision to host a book club reading on his blog for Keynes's General Theory. Why on earth would you want to? Keynes is now that defunct and long-dead economist to whose ideas we are now all in thrall. Sincerely, says Boettke,
you want to know what is going on in 2008 --- it is the consequence of the bad economic ideas of Lord Keynes that have led to the victory of Keynesian policy (of either the liberal or conservative variety) since 1940.
We are living through the consequences of Keynes's ideas. The Soviet Union had to confront the legacy of Marxist-Keynesianism in the 1980s, and we are dealing with the consequences of Social Democratic-Keynesianism in the 2000s.
Hayek warned us about the "tiger by the tail" problem of inflation and Buchanan warned us about the destruction of the "old-time fiscal religion" due to Keynesianism… Keynesianism represented the pushing open of an already opened door to fiscal and monetary irresponsibility and opportunistic politicians left and right walked right through… I would rather we have a serious discussion of the consequences of Lord Keynes with respect to world-wide fiscal imbalance associated with intergenerational accounting and world-wide inflation as governments attempt to meet those obligations through monetization of debt. Somehow I doubt that will take place in our current intellectual and policy context.
He’s right, you know.
I also think that the emphasis on Keynes demonstrates a collective delusion among economists. Even Milton Friedman can be quoted as emphasizing Keynes's brilliance.
But what of Knight's judgment that "what is new isn't true, and what is true isn't new", or of Hayek's judgment that Keynes's idle resources argument assumes a post-scarcity world, or of Mises's judgment that Keynesian economic policy assumes the miracle that stones can be turned into bread?
The problem with economics since 1940 has been the thorough victory of Keynes throughout the democratic western nations. We have Keynesian theory, the development of Keynesian inspired data collection, the "testing" of Keynesian theory via Keynesian data with the purpose of providing tools for Keynesian policy. This exercise survived the Monetarist and New Classical intellectual challenge, and it survived the Supply Side revolution in policy. All that remained was an oscillation between liberal and conservative Keynesianism, never a serious challenge to the paradigm of Keynesian policy manipulation of the economy.
The “theory” has failed – and so has the tinkering the theory inspired – failed spectacularly in the black hole of failed macroeconomic theory down which Ben Bernanke and Henry Paulson have now poured $7 trillion.
Fact is, says Boettke, there’ s better things to have in your suitcase for summer reading if you want to get to the bottom of “the destroyer of monies”:
Instead of reading Keynes one more time with feeling, I would suggest an alternative reading experience. (Or at least an additional one) Start with Henry Hazlitt, ed., The Critics of Keynesian Economics, move on to Hazlitt's The Failure of the "New Economics", graduate to W. H. Hutt's The Keynesian Episode, and then read closely Buchanan and Wagner's Democracy in Deficit and then Higgs's Crisis and Leviathan and War, Depression, and Cold War.
To round this off which I would add Ayn Rand’s brilliant presentation ‘Egalitarianism and Inflation,’ which fully nails home the epistemological destruction behind Keynesian macroeconomics, and the real metaphysical destruction this unleashes. (You can read the edited presentation in 'her book Philosophy: Who Needs It?). It concludes in part:
Did you think a spending orgy of [the Keynesian] kind could be paid for out of current production? No, the situation is much worse than that. The government is consuming this country’s stock seed—the stock seed of industrial production: investment capital, i.e., the savings needed to keep production going. These savings were not paper, but actual goods. Under all the complexities of private credit, the economy was kept going by the fact that, in one form or another, in one place or another, somewhere within it, actual material goods existed to back its financial transactions. It kept going long after that protection was breached. Today, the goods are almost gone.
A piece of paper will not feed you when there is no bread to eat. It will not build a factory when there are no steel girders to buy. It will not make shoes when there is no leather, no machines, no fuel. You have heard it said that today’s economy is afflicted by sudden, unpredictable shortages of various commodities. These are the advance symptoms of what is to come…
If government spending continues, that incredible wealth will not save you. You may be left with all the magnificent skyscrapers, the giant factories, the rich farmlands—but without fuel, without electricity, without transportation, without steel, without paper, without seeds to plant the next harvest.
If that time comes, the government will declare explicitly the premise on which it has been acting implicitly: that its only “capital asset” is you.