Tuesday, 7 July 2015

Greece, Keynes & intellectual decay: What made it possible?

Greece is in many ways the dead end of Keynesian economics; of the idea that aggregate demand alone, regardless of its source, is what fires prosperity. Like many modern top-heavy welfare states, Greece has abundant demand; but thanks to unaffordable government promises it has few willing to produce enough to pay for it, and –even now!—an infrastructure of credit creation ready, willing and able to underpin it.

The result, of course, has been prosperity’s opposite.

So how does something as intellectually lame as Keynesian apparatus get traction? Why were Keynes’s nonsensical nostrums accepted so readily in the mid-twentieth century by neoclassical economists when they’d been thoroughly exploded decades before by British classical economists?

The answer given by Austroclassical economist George Reisman is: “intellectual decay.” Not just in those (like Hayek and the ineffectual Pigou) who attempted to answer Keynes in the 1930s, or later on post-war when the Keynesian technocrats took control of the academies and their centres of economic “planning” -- because the decay had started several generations earlier.

So, you want to know what made Keynesianism possible, and with it disasters like Greece? Answer: intellectual decay.1


Doesn’t it make you want to know more about the wages-fund doctrine “and other such essential doctrines of classical ‘economics” like Say’s Law that Keynes was supposed to have assailed? And about that intellectual decay? Because it wasn’t just exhibited in economics – and it didn’t of course originate there. Because, to paraphrase Keynes himself,

So-called practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct philosopher. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.

Dewey-Character-and-EventsWe can identify the scribbler most at fault as German philosopher Immanuel Kant3, that “catastrophic spider” as Nietzsche called him who had declared “a few years back” that it was senseless to seek causes or try to integrate knowledge of phenomena since all these mere appearances – the notion for example that saving was somehow causally related to wage levels and future production, for example – or that production of commodities itself creates a market for the commodities produced -- were only surface manifestations of the unknowable.

Trying to explain these slippery manifestations by means of causality and integrated argument would be, argues Kant, a long, slow path to bedlam. American pragmatist John Dewey essentially holds that the ultimate source of the decay recounted above was  German idealism, noting Kant as “the thinker who for the past seventy-five years supplied the bible of German thought” that would foment a “revolt” against British support and enthusiasm for laissez-faire liberalism in economics and politics.4 The Kantian “bible’s” core themes, says Dewey, were skeptical, idealist, and duty-based:

Kant to himself and to many in his own day was a revolutionary. There is no valid intellectual access, he taught, to the things of ultimate importance to man. …

Dewey notes

    the immense interest taken in professional German philosophy in the generation after 1870 — the generation of revolt against the empiricism that reigned in Great Britain from Locke onwards. …
    German philosophy was seized upon [by this generation] as a weapon with which to attack the former official philosophy of England. It is more than a coincidence that the reign of German idealism in Great Britain5 coincided with the revolt against laissez-faire liberalism in economics and politics, and with the growth of collectivism … .

… and of intellectual decay.

1. Reisman’s phrase echoes Mises’s on the rise in those earlier generations of “the anti-capitalist mentality”: [T]he supremacy of those modern doctrines is a proof of intellectual decay … . It demonstrates … the decay of the intellectuals and of the bourgeoisie.” (Mises, Omnipotent Government, pp. 118–19)
2. From George Reisman’s book Capitalism: A Treatise on Economics, p. 865. (You can download a free PDF copy at Reisman’s site, www.capitalism.net)
3. Of Kant, the “all-pulveriser,” H.L. Mencken once observed, “Kant was probably the worst writer ever heard of on earth before Karl Marx. Some of his ideas were really quite simple, but he always managed to make them seem unintelligible. I hope he is in Hell." Mencken was being generous.
4. Quotes from Dewey’s 1929 collected essays, Characters and Events: Popular Essays in Social and Political Philosophy, which also suggests: “It is possible that the Great War [no less] was in some true sense a day of reckoning for Kantian thought” (68).
5. Hard to believe, but one of the prime popularisers of Kant’s “idealism” in England was a book written and intended as an entertainment. Little-known now, for a generation of British and American romantics Carlyle's Sartor Resartus was the populariser of Kant’s philosophy.
The book Sartor Resartus (literally, 'The Tailor Re-Tailored') purports to describe dialectically a 'Book of Clothes' produced by a 'professor of clothing' Doctor Diogenes Teufeldrockh (Dr Heaven-Sent Devil's-Dung), which book, we are told, argues that clothes are simply appearances or metaphors for the true 'inner state' of a thing -"the material world is symbolic of the spiritual world of ultimate reality. Man's creeds, beliefs, and institutions, which are all in tatters because of the enormous advances of modern thought and science, have to be tailored anew as his reason perceives the essential mystery behind the natural world."
Itself written metaphorically (of course), the book is in may ways an ancestor to the books of Umberto Eco.


  1. I think that the economics issue is a side show ( a big one of course but not the main event). This shows the basic human condition which is one of repeated stupidity and foolishness. A few, like you, think about these things but most do not and drag the thinkers down to their level in respect of living standards. The human condition is one where the lowest common denominator determines outcomes for the masses. The Greeks, with all their supposed history and culture (pffft) would do it all over again in a heartbeat.

  2. What is happening in Greece has absolutely nothing to do with Kant. Mencken was a satirist and his 'observations' need to be taken with a grain of salt. His comments on various ethnic groups in particular.

    1. You're probably right, Dave. You do mount a very powerful argument.

    2. Those quoted criticisms of Kant were miles away from the context of economics when they were made 100 years ago. Such a desperate argument hardly needs a powerful rebuttal.

  3. "It is more than a coincidence that the reign of German idealism in Great Britain5 coincided with the revolt against laissez-faire liberalism in economics and politics ... "

    Well, maybe not a million miles.

    1. German Idealism was a movement that started in the late 18th century against Kant's philosophy. From there it's at least another six degrees of separation to the current Greek crisis.

    2. Paraphrased from Stephen Hick's article, Dewey’s response in 1923 would begin, as above, with describing Kant as "the thinker who for the past seventy-five years supplied the bible of German thought."

      Sure, you can describe German Idealism as a "reaction" to Kant's philosophy. More accurately, it was an outgrowth ...
      From W.T Jones's 'Kant & the Nineteenth Century': "Kant maintained first that since cognition involves construction, things into which this constructive activity has not entered are literally unknowable; and second that there is a realm of reality that is inaccessible to minds because they have not participated in its construction. Post-Kantian philosophy has divided into two streams depending on which part of this double thesis was accepted, and which reject." (p. xx, )

      Guess which side German idealism was on.

  4. Germany has the strongest economy in the EU, while Greece has the weakest. Seems to me that Greek philosophy is the problem.

    1. Philosophy being what it is, and how it spreads and is accepted, seems to me the relevant philosophies are from some centuries ago, not last week. To paraphrase Keynes more accurately, "Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few centuries back."

    2. Right so how can you blame German philosophy for the Greece crisis when Germany has the strongest EU economy and Greece has the weakest?

    3. [shakes his head and walks away]

    4. If the Greek mess is caused by Kantian philosophy then Germany, in contrast, must have abandoned this hugely influential German philosophy for something else. If you can't answer this obvious question then clearly you don't have a clue what the hell you're talking about.

    5. Ben, that's your best question so far, so let me try to make it simple.

      That the scribblings of Keynesian economics were so widely and quickly accepted --Keynesianism in many ways being simply an economics of appearances -- was made possible by the intellectual decay that followed Kant, whose notions in post-Kantian positivist circles are taken to mean that appearances are everything. Keynesian economic thinking is largely responsible for the debacle, for the idea that you can eat your cake and have it too, and demand that someone else must pay for it. (After all, it's all about the cake being consumed today, and never mind where it came from.)

      Note that Kantian and post-Kantian "postmodern" philosophy are themselves widespread; Keynesian economics widespread but not universal. "Austrian" economics for example was founded by Carl Menger on an explicit base of being causal-realist, of being *Aristotelian* rather than post-Kantian or positivistic.

      So while while it might seem ironic, the success of the modern German economy is still at least partially underpinned by the largely "Austrian" ideas of those who kicked it off post-war, like Ludwig Erhard and Wilhem Ropke ("Erhard, economic director in postwar western Germany (and later Chancellor of the Federal Republic), unabashedly credited Röpke as the most formative single influence on his policies"), which at root are based on the causal-realist ideas of an ancient Greek.

      Whereas (whether they know it or not) modern Greece has been stuffed by an "economics of appearances" made possible, at root, by a fusty eighteenth-century German.

      Proving that both failure and success can be cosmopolitan.


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