Thursday, July 09, 2009

When The Stimulus Does Not Stimulate . . .

For persons who have studied economics, it is rather appalling to see the recent revival of interest in John Maynard Keynes, a ridiculous figure whose life work was totally—even universally—discredited more than two generations ago.

Between the mid-1960’s and the late-1970’s, Keynes’s theories were completely repudiated and his reputation left in tatters. The amazing thing was that it took over thirty years for economics scholars fully to assess and finally to dismiss Keynes’s work.

For practical purposes, the jig was already up when Richard Nixon uttered his immortal line, “We are all Keynesians now”. More than anything, Nixon’s clueless dictum signaled that Keynesian economic theories were already on their deathbeds, even if Nixon himself was too obtuse to realize it.

Whoever might have believed, as recent as five years ago, that persons who should know better might one day consider Keynesian policies a sensible course for this nation to pursue?

Of course, persons who now are calling for Keynesian policies are ideologues, and idiots, but that does not make reading Keynesian hogwash any less jarring.

It is ironic—but somehow fitting—that lower classes do all the suffering when Keynesian policies are implemented. As my father gleefully says, “If the lower classes want Keynesian policies, then by all means let’s give them Keynesian policies!”

Of course, everyone knows how Keynesian policies work out in the end: the lower classes lose their jobs, and credit, and homes, and everything else. We have, after all, been through this before.

The Austrian School Of Economics had Keynes’s number from day one—and was always quick to point out that the suffering under an application of Keynesian theories was destined to fall exclusively upon the lower classes.

From the early 1930’s, The Austrian School began issuing missives from Vienna, citing innumerable and fundamental fallacies in Keynes’s work and predicting the inevitable and disastrous results of Keynesian policies. The Austrian School was an insufferable thorn in Keynes’s side.

Alas, by the time of the Anschluss in 1938, The Austrian School had been dispersed, a victim first of anti-Semitism in the Europe of the 1930’s and later a victim of Hitler’s takeover of Austria.

Between 1933 and 1938, most economists from The Austrian School came straight to the U.S., but a few landed first in Britain, emigrating to the U.S. only after the war. This latter group was appalled at The British School Of Economics, totally in thrall at the time to the various insanities of Keynes. The Austrians could not tolerate for any length of time the lack of academic freedom in Oxford, Cambridge and the LSE, where Keynesian dogma was the only line of thought allowed. They were to seek greener pastures as soon as circumstances allowed.

Thank God these giants came to the U.S.

It is always amusing to read decades-old assessments of Keynes by The Austrian School. The Austrian School had fully demolished Keynes by the end of the 1930’s, before The Austrian School was even dispersed. However, it was not until the mid-1950’s that The Austrian School gained influence in the world of American academia and began the process of rendering Keynes moot to the world at large, first in colleges and universities and, over the following twenty years, in the worlds of business and politics.

The odious Richard Nixon was probably the last person on earth to grasp that Keynes’s theories were dead. Keynes had created nothing but one more insane ideology emanating from that insane decade of insane ideologies, the 1930’s—but an insane ideology that, unlike Fascism, did not die with the end of World War II. Keynesianism took somewhat longer to kill.

And now we witness the attempted resurrection of Keynes’s "evil and vulgar" doctrines.

It’s time to call in the Austrians.

Below are some delicious quotes from The Austrian School on Keynes.

The words are not so clumsy in the original German as they are in English.


A dictum of Lord Keynes: In the long run we are all dead. I do not question the truth of this statement; I even consider it as the only correct declaration of the neo-British Cambridge school.

For what many people have admiringly called Keynes's brilliance of style and mastery of language were, in fact, cheap rhetorical tricks.

Keynes did not teach us how to perform the miracle of turning a stone into bread, but the not-at-all miraculous procedure of eating the seed corn.

What he really did was to write an apology for the prevailing policies of governments.

The essence of Keynesianism is its complete failure to conceive the roles that saving and capital accumulation play in the improvement of economic conditions.

In old-fashioned language, Keynes proposed cheating the workers.

Keynes did not add any new idea to the body of inflationist fallacies, a thousand times refuted by economists. He merely knew how to cloak the plea for inflation and credit expansion in the sophisticated terminology of mathematical economics.

The fallacies implied in the Keynesian full-employment doctrine are, in new attire, essentially the same errors which [Adam] Smith and [Jean Baptiste] Say long since demolished.


This is all going to end very, very badly—but at least the current occupant of the White House, if nothing else, is busily paving the way for the next Ronald Reagan.

There is, as always, a silver lining.

1 comment:

  1. I have corrected the disburse/disperse misusage.

    Thank you, Ms. Toensing.

    At least I got it right in the past!