This address, given to the British Society For Individual Freedom
on September 14, 1959, was first published in Freedom First,
Let the dead
rest in peace. But would that the dead let us rest in peace!
Today's case in point is John Maynard Keynes, who died in 1946,
but whose ideas and troops go marching on, now openly, now insidiously,
ever capturing new citadels of intellectual opinion.
It is these
ideas, alive and virulent, sold so effectively by disciples of Keynes
in the marketplace of ideas, that plague us today. Ideas have consequences,
and it is these consequences — Keynes' legacy — that we examine
I need hardly
remind you of the magnitude of Keynes' ideas or their far-reaching
consequences into every crook and cranny of our existence. In America,
Keynes has sparked the Keynesian Revolution, a "new economics."
Professor Paul Samuelson of the Massachusetts Institute of Technology
has hailed Keynes as a "genius." The London Times
in its obituary called him not great, but "Very Great."
In America, Congress passed the Full Employment Act of 1946, in
effect a tribute to Keynes.
his mark in history — as Marx made his. I do not mean this comparison
to be odious, though of course it is. Marx, to be sure, wanted to
destroy capitalism; Keynes wanted, merely, to reform it. But, while
differing in degree, both wanted to enlist, and really to unleash,
the power of the state. Both disdained individual freedom. Both
were callous towards the rights of property. Both based their cases
on the supposedly inherent tendency of free enterprise to veer into
depression. Both were enemies of private ownership of the tools
of production. Marx spoke of "the liquidation of the capitalists";
Keynes spoke of the "liquidation of the rentiers."
in philosophy differ — I repeat — in degree. Marx wanted total socialism,
i.e., communism, or, as he himself called it, "scientific socialism."
Keynes wanted some "socialization of demand," and "a
somewhat comprehensive socialization of investment." Keynes,
in brief, chose the middle way, forgetting that the middle has a
strong and constant tendency to drift toward the left.
Keynes was no friend of laissez faire capitalism. In an article
in the Yale Review in 1933, he wrote:
decadent international but individualistic capitalism, in the
hands of which we found ourselves after the war, is not a success.
It is not intelligent, it is not beautiful, it is not just, it
is not virtuous — and it doesn't deliver the goods. In short we
dislike it, and we are beginning to despise it. But when we wonder
what to put in its place, we are extremely perplexed."
Keynes' perplexity didn't last long. He did indeed spin out a "new
economics," a whole new set of momentous ideas. Capitalism
betrays, he told us in 1935 when his General Theory appeared,
long-run tendencies toward stagnation and an equilibrium "between
workers and the economy at less than full employment." Underconsumption,
he pontificated, stems in great measure from a mal-distribution
of income. Money is but credit, and gold is but a "barbarous
relic." Saving and investment are non-related, and saving amounts
to hoarding and is, in effect, anti-social. There are also assorted
ideas distributed among such semantic labels as "the multipliers,"
"the accelerator principle," "liquidity preference,"
"propensity to consume," "inducement to invest,"
and so on.
And in practice,
what has this bundle of warmed-over mercantilism meant? I wish to
look into the Keynes legacy in three ways. First, on the matter
of inflation, then on the method of macro-economics and aggregate
thinking, finally on the Keynesian treatment of the state.
Now, what of
Keynes' penchant for inflation? Of course, Keynes did not openly
embrace inflation, but certainly he was having quite an affair with
it, and rather an illicit one. For behind Keynes' open sesame formula
of Y = C + I lay Keynes' earth-shaking — to him, anyway — discovery.
Keynes argued depression — more specifically, unemployment — was
the offspring of the failure of consumption demand and the failure
of investment demand.
— i.e., underspending — was the economic culprit. Well, if too little
private spending causes unemployment, then more public "compensatory"
spending will create employment. Hence Keynes' banner in effect
became "Let us spend ourselves into prosperity" and, "Lead
us not into temptation of saving." Saving was thought virtuous
in the days of Poor Richards Almanac — a penny saved is a penny
earned, and all that — but in the modern 20th century,
saving is downright sinful, cutting off as it does the flow of spending.
Ah, and how
would the gentlemen of Whitehall and Washington spend that which
was not available from taxes and that which they didn't already
have? Well, that really is a small problem — they go into debt,
beautiful, virtuous, just intelligent debt — and with an eye to
the Radcliffe Report, may I add "indispensable" debt.
But debt, deficit
spending, involves, almost invariably, inflation, and Keynes knew
it. How callous Keynes was to inflation can be seen in his fanciful
suggestion that burying banknotes is one way of giving people work
— digging them up.
that's Keynes' big idea. Jail the counterfeiter, yes, but when the
State counterfeits, when it inflates and cheats Society — the pensioned
railroad worker, the saver who had bought an insurance policy or
put money in a bank, the people locked in on salaries and wages
— well these are, after all, personal matters. The great evil don't
you see, is unemployment, and if you don't see it, you just don't
understand Keynesian economics.
of macro-economics and aggregate thinking, his propensity to amass
and then carve up astronomical G.N.P.'s — Gross National Products
— into "public sectors" and "private sectors"
and all sorts of little sectors and so on, you, as an individual
are lumped in one of those sectors — labor, farm, capital, etc.,
and these sectors like pieces on a chess board, are moved about
in a super-colossal national economic budget. And what did Lord
Keynes use as his building block for these grandiose figures — bags
of cement, tons of steel, baskets of wheat? No, much worse. He used
currency units — pounds, dollars, francs, or anything else — money,
the same battered creature we discussed under inflation. So the
G.N.P. is a money sum, and as money is inflated, so are G.N.P.'s
inflated and distorted.
And the G.N.P.
is a statistical sum, too, based on assumed sellers' prices. But
statistics and past prices record only the history that was, never
the history that will be. Keynesian economists, understandably,
who have boldly called the tune of economic times have, as you know,
a woeful record. They assume constants in economic activity when
there are only variables. They assume men are numbers with no independent
will of their own. Little wonder, then, that the economists' predictions
us examine Keynesian legacy on "the new look" of the State.
There is, permit me to say so — an enormous naïveté
on the part of Keynes and the Keynesians on the nature of man and
the State. In a typical statement Keynes declared in his General
to see the State, which is in a position to calculate the marginal
efficiency of capital-goods on long views and on the basis of
the general social advantage, taking an even greater responsibility
for directly organizing investment."
I read this
statement for I believe it shows the most rosy view of politicians
possible. Keynes seems not to have understood that politicians generally
stress short views — upcoming election views – and not long
views. He himself said "In the long run, we're all dead."
And, as for "the general social advantage," Keynes either
never heard of Lord Acton or totally ignored that Actonian advice,
"Power tends to corrupt, and absolute power corrupts absolutely."
Keynes, in short, never realized that Government, like the Tucker
car in my country a decade ago — it could go only forward and could
not reverse. Yes, government can "compensate" private
spending, and hence, eventually, it must over-compensate. Again,
Government can invest, but, inherently, it can't disinvest. In other
words, power does not, cannot, will not dissolve itself. Power,
unless checked, can move, but in one direction — more power.
knew all this, knew what he was playing with, that he was, to say
the least, immoral about the whole business, for in a posthumous
essay "Two Memoirs" published by Augustus Kelly of New
York (1949), he wrote:
repudiated entirely customary morals, conventions and traditional
wisdom. We were, that is to say, in the strict sense of the term,
immoralists. The consequences of being found out had, of course,
to be considered for what they were worth. But we recognized no
moral obligation on us, no inner sanction, to conform or to obey.
Before heaven we claimed to be our own judge in our own case.
I have to think this is, perhaps, rather a Russian characteristic.
It is certainly not an English one. It resulted in a general,
widespread, though partly covert, suspicion affecting ourselves,
our motives, and our behavior. This suspicion still persists to
a certain extent, and it always will. It has deeply coloured the
course of our lives in relation to the outside world. It is, I
now think, a justifiable suspicion. Yet so far as I am concerned,
it is too late to change. I remain, and always will remain, an
I ask this
question for you to decide: Is the essence of Keynesian economics
taken all in all, social immorality?
In the long
run, we're all dead, Keynes was fond of reminding us. Yes, Keynes
is dead. But the devil of it is that we, the living must live out
the terribly loaded short runs of John Maynard Keynes.
Peterson [send him mail]
is an adjunct scholar at the Ludwig von Mises Institute.