The blind rush into massive “stimulus packages” is the culmination of generations of economic ignorance transmitted from professor to student in the guise of advanced, revolutionary thinking – the “Keynesian revolution.” The accelerating destruction of our economic system that we are now experiencing is the product of a prior destruction of economic thought. Our entire intellectual establishment has been the victim – the willing victim – of a massive intellectual con job that goes under the name “Keynesianism.” And we are now paying the price.
Browse by title
The key to unequivocally undoing Keynesian economics is via the price system. Aggregation leads Keynesian economics down the flawed path of giving primacy to demand instead of to production. In turn, this shifts its focus away from the role of prices in determining the makeup of production and in guiding the economy out of trouble. The damage stimulus expenditure – the epitome of Keynesian policy – inevitably and conclusively does in retarding recovery, by interfering with price signals, is thus buried out of sight.
The purpose of this chapteris to discredit Keynesian income–expenditure analysis and the concept of the multiplier embedded within it. These two key concepts of the Keynesian textbook mainstream omit variables critical to the determination of macroeconomic outcomes. The omissions are so serious that the income–expenditure circular flow is incomplete and misleading if it pretends to constitute a policy-making framework. Critically, when organized in its familiar textbook form, income–expenditure analysis has no room for either the banking system or the quantity of money. But changes in the quantity of money have major impacts on asset portfolios and expenditure decisions. These changes must be integrated in all discussions of the macroeconomic conjuncture if such discussions are to make any claim to real-world plausibility.
Roger W. Garrison
Keynesian theory is a set of mutually reinforcing but jointly questionable propositions purporting to show how, in a market economy, a few excessively broad macroeconomic aggregates play off against one another. The writing style of TheGeneral Theory,coupled with its poor organization and seeming conflict with Keynes’s earlier writings, has subjected academic economists to years of conflicting interpretations of Keynes’s message. Meanwhile, policymakers, seeing the short-run advantage to fiscal and monetary stimulation, have been quick to adopt Keynesian thinking. And finally, the lessthansatisfactory performance of the so-called mixed economies has allowed for differing opinions among the electorate about whether the Keynesianizedeconomy’s lackluster performance has been bolstered or hamperedby Keynesian policies.
In sharp contrast to the private sector, where firms will go out of business if revenues do not cover costs, most government spending is not value-adding. That is not of itself an argument against public spending,but it is an argument against thinking that when governments spend they are necessarily helping the economy grow. The belief that public spending is good for growth is the largest fallacy associated with modern macroeconomic theory. Being unable to tell the difference between welfare and wealth creation is possibly Keynes’s most lasting legacy, a legacy which has been poisoning public policy since the 1930s.
Edited by Steven Kates
Peter Boettke and Patrick Newman
Our contention is that the real opponents of Keynes are the Austrians, who belong to the school of thought that best champions the theory of a self-correcting market economy. The countercyclical policies embraced by Keynesians as well as the Chicago School Monetarists are generally seen as counterproductive. In particular, this chapterprovides critiques of the liquidity trap theory from an Austrian perspective. It is argued that if prices are allowed to freely fall and are not propped up by government intervention, the liquidity trap roadblock poses no genuine threat for the free market economy. Only when prices are rigid and government intervention is pervasive does the phenomenon of a “liquidity trap” and hoarding money result in a stagnant economy.
Richard M. Ebeling
Keynes took economic thinking back to a new “dark age.” At its core was its focus on macroeconomic aggregate building blocks: Aggregate Demand, Aggregate Supply, Total Output and Employment, and the average Price Level and Wage Level. This new world of Keynesian or macroeconomics turned its back on the contributions of nearly a century and a half before the appearance of The General Theory. Practitioners of Keynes’s macroeconomic framework threw to the wind the alternative theories developed for understanding many of the subtleties of the intricate and interdependent relationships of a market system, including monetary and cyclical processes.
Saving, investing, and capital formation are the principal ingredients of economic growth. Countries with the highest growth rates are those that encourage saving and investing. Such investing in turn results in better consumer products at lower prices. They do not seek to artificially promote consumption at the expense of saving. Stimulating the economy through excessive consumption or wasteful government programs may provide artificial recovery in the short run, but cannot lead to genuine prosperity in the long run.An emphasis on supply-side economics will do a far better job than Keynesianism to encourage sound capital investment and higher living standards.