Hutt, Reflections on the Keynsian Episode
- Subject Area: Economics
Source: An essay in Toward Liberty: Essays in Honor of Ludwig von Mises on the Occasion of his 90th Birthday, September 29, 1971, vol. 2, ed. F.A. Hayek, Henry Hazlitt, Leonrad R. Read, Gustavo Velasco, and F.A. Harper (Menlo Park: Institute for Humane Studies, 1971).
Reflections on the Keynesian Episode∗ by W. H. Hutt
In my Keynesianism-Retrospect and Prospect, 1963, I enunciated and defended the thesis that the intellectual developments for which Keynes' General Theory appeared to be responsible had caused a setback to scientific thinking about human economic relations at a crucial epoch. In doing so, I referred (in the final chapter) to a growing tendency to abandon crucial theoretical tenets in Keynes' system. Nevertheless, I maintained that concepts, analytical apparatus, and policy-implications which had been erected on those apparently discarded tenets, were surviving in the form of a new neo-Keynesian orthodoxy.
I had expected reasoned objections to my rigorously-stated argument following the publication of my book. None has been forthcoming. Nor has a subsequent article of mine (entitled Keynesian Revisions)1 which submitted further evidence of a retreat by major exponents of the Keynesian gospel, called forth any reply.2 In the meantime the retreat has continued although, apart from Leijonhufvud's impressive and scholarly critique,1 I am aware of no further direct attack on the Keynesian system.
The purpose of the present article is not to present additional criticisms of Keynesian economics or of the actual content of the neo-Keynesian orthodoxy which has emerged. My aim is to throw light on some of the causes which appear originally to have created, and since to have been perpetuating, the hold that neo-Keynesianism has acquired in academic circles.2 I shall refer also to the prospects of early or ultimate emancipation from the consequences of the Keynesian episode.
The reasons for the extraordinary seductiveness of the notions which Keynes' disciples gradually systematized into “Keynesianism” and later rehabilitated into “neo-Keynesianism,” concern the psychology of opinion-the genesis of intellectual fashions, creeds and ideologies. The broad topic is one which began to interest me as a young man, very soon after I had entered academic life. In 1936, I recorded the results of my early endeavors to clarify my thoughts on the subject in my Economists and the Public, a Study in Competition and Opinion. While that book was in the press, The General Theory was published. I read quickly through such parts of Keynes' book as I could then follow, and I managed to insert an additional, last-minute passage in my own book, which recorded my rapidly gained impressions. Already, in 1936, although I had been bewildered by it, I had seen clearly, and predicted,3 that The General Theory would have a quite unparalleled influence by reason of what I judged to be its demerits as a contribution to thought. For its policy implications appeared to have been chosen for their political attractiveness; its misrepresentations of the “classical” economists seemed certain to have a powerful appeal (because the teachings of the “dismal science” had at all times been accepted with reluctance by those who were unable to refute them); and its obscurities (which I have since come to recognize as due, in every case, to defective thinking), expressed as they were in the language of science, appeared likely to enhance its reputation (for all too many people in all spheres-the academic sphere not excluded-are apt to accept obscurity for profundity).1
I shall never forget the extraordinary impression left on my mind by the brilliant preface of The General Theory. Keynes' previous writings had struck me as forceful and challenging but rather superficial. I had spent more time struggling with the Treatise on Money than I had devoted to any previous book. Yet, I felt that, in spite of a masterly discussion of index numbers2 and many beautifully phrased passages, it was a badly-planned, rambling and (I came to fear) an emphemeral work. Some of Keynes' works, such as The End of Laissez-Faire, had impressed me as shallow to the point of irresponsibility. Yet I could not escape the persuasiveness of that preface to The General Theory. It seemed to be announcing a critical, revolutionary contribution of great intellectual courage. I started reading, I remember, prepared for an exhilarating challenge. As I read, my attitude changed quickly to bewilderment and dismay. I had immediately foreseen that, in spite of the obscurity and the apparent muddle of the book, it would have an unprecedented impact; and I was moved to write the prophetic passage to which I have just referred.
Austin Robinson explains how the Keynesian revolution “consisted in inducing a reluctant body of dedicated but perhaps rather cautious, critical, and conservative thinkers to abandon a large part of what they had given their lives to learning and teaching, and to accept, as one complete (or virtually complete) package, a set of new and highly debatable propositions and of new ways of handling familiar problems.”1
I am only too conscious of the fact that, through the arguments I presented in previous contributions, I also was attempting to induce equally dedicated scholars to turn back and relinquish intellectual capital into which years of study and lecture preparation had been invested. In my case such a task seemed herculean-almost quixotic; for whereas Keynes (who had confidently-almost boastfully-forecast his success in a letter to G. B. Shaw shortly before The General Theory had appeared2 ) was well aware of how popular the policy-implications of his teachings would be, I was just as well aware of how unpopular mine were likely to be-at least for many years to come. Austin Robinson confesses that he finds it difficult to explain how Keynes managed to bring about the revolution. But although I had forecast the unprecedented influence of that book, I find myself unconfident when I try to explain to my own satisfaction the almost irresistible pressures to academic conformity which built up after 1936. Austin Robinson was, I believe, more right than he fully realized when, in his obituary article on Keynes, he compared to “the atmosphere of the revivalist meeting.... “the accelerating conversion of economists to the Keynesian creed. It was, he wrote, “a most illuminating example of the process and psychology of conversion ... not only in Cambridge or in England but all over the world....”3
In some measure this almost fantastic phenomenon probably stemmed from the personal attributes of Keynes himself. Harrod and Robinson have convincingly portrayed him as a grand person-gentle, generous, gay, a bon viveur, witty, magnetic, venturesome, scholarly and-among his friends-loyal, kindly, and modest. He was also ambitious, impatient for influence, acquisitive (from a longing for elegant living and those noble things to which wealth gives access), ruthless and casuistic. These are dangerous qualities in an economist, especially in one who, by reason of background, personal charm and knowledge of the world, moved in influential circles.
I have come to think of him as a strange combination of philosopher, economist, and adventurer. One can discern in his writings as a whole, I believe, a concern with what may be termed “intellectual tactics,” almost reminding one of his success as a gambler and poker player.1 In his campaign among economists and in his public life he was watching and calculating reactions and devising his career strategy accordingly.
As a thinker, he was original, scintillating and facile rather than profound or dedicated.2 His temperament and his burning urge to change the course of events militated against profundity. He skated brilliantly and dangerously on the surface, failing to plumb the depths. Of exceptional intellect, yet essentially a man of action, he was capable of mastering rapidly those arguments and teachings which did not clash with his settled convictions. But he treated economists who differed from him radically almost with contempt. He read their contributions hastily-if at all-and with little effort at sympathetic understanding. In his eagerness to bend policy in the direction he favored, he seems to have hidden from himself his failure really to understand what he called “classical” teaching.3 To refute that teaching he was led to dialectical tricks, recklessly imputing to the “classical” writers opinions which they could never be shown, by actual quotation, to have held.4 His references to the teachings of the “classical” or “orthodox” economists in his tract, The End of Laissez-Faire, and in the General Theory, are almost invariably flagrant misrepresentations.1 The propensity to attribute to a school of thought one is attacking opinions which any member of that school would indignantly deny is hardly a quality of the detached scholar. Yet Keynes seems to have delighted in a challenging perverseness. He seemed to revel in destroying respect for the patient achievement of sustained intellectual travail by those he felt, more or less intuitively, were somehow wrong. No man could have done more to weaken the authority of his eminent contemporaries and predecessors-to leave an impression that he was debunking them.
Supremely confident, conscious of his reputation and rhetorical skill, he appears to have been self-critical only when his previous speculations had tended to lead him away from instead of towards conclusions to which he was intuitively attached. When he discarded concepts and apparatus which he had earlier introduced, it was because he had found more convincing ways, although sometimes quite different and inconsistent ways, of stating a case which, in its essence, he had not modified. Austin Robinson thinks of him as “remarkably consistent in his strategic objectives, but extraordinarily fertile in tactical proposals for achieving them.”2 I should say rather that while his convictions about policy seem indeed to have been unshakeable, he constantly changed the arguments, assumptions, terminology and formulae which could be used to justify those convictions. In other words, his fundamental ideas were subject to change only in respect of the particular concepts, formulae or jargon in which he dressed them.
Keynes' biographer, Harrod, says that one gets the feeling, from earlier works, that “he was tentatively and no doubt hurriedly searching for arguments to support a conviction, which was itself more solidly based than the supports which he outlined. It was in fact what we have come to call a ‘hunch.’”3 I share this feeling that Keynes was “searching for arguments to support a conviction.” But I have it about the whole body of his economic writings. His “hunch” throughout was that control of expenditure, via monetary and fiscal policy, could solve the problems of maladjustment expressed in unemployment. And he seems originally to have believed that this could be done without the disastrous sociological consequences of a gradual depreciation of the currency. His intellectual speculations consisted, I think, of a groping around-with great ingenuity-for ways of thinking which appeared to support his “hunch,” selecting and eagerly clutching those which appeared to do so, and inhibiting those which did not. The process was unconscious. I do not impugn his honesty as a scholar.
Harrod tells us also that Keynes “had completed the outline of the public policy which has since been specifically associated with his name” as early as 1924, and that he put forward his proposals then, “before being in a position to give a full theoretical justification of them.” This was, continues Harrod, no doubt “because he deemed it urgently needful for Britain to act with speed. It must not be inferred”.... that his recommendations.... “were thrown out at random.... Did he in some primitive sense already know the theoretical conclusions that he was later to articulate?.... Is it possible for the mind to jump from the data which are the premises of an argument to the practical conclusions, without being conscious oneself of the theoretical conclusions, which are none the less the logical link between the premises and the practical conclusions?”1 Is not the answer that Keynes' “primitive sense” worked to frustrate, not to promote constructive thinking?
For instance, the desirability of stimulating and controlling internal investment, with public works and limitations on foreign investment, etc., formed an important part of his contribution to the influential 1928 “Liberal Yellow Book.” Even in the midst of 1928 (which some would regard as a boom year in Britain), he was continuously advocating capital expenditure on public account (to rectify the chronic unemployment which, under the paradoxical situation created, had persisted in spite of phenomena which suggested prosperity). As early as 1924, he had advocated a public works policy, and in 1928, when Lloyd George and his advisors thought that public works would be a good plank for the coming election, he gave them his full influential support.
Again, his Treatise on Money (1930) was an attempt to find methods of eliminating cyclical fluctuations under conditions of price stability. It was an essay in intended refutation of the “classical” view that, for the prevention of depression under currency convertibility, it is essential to prevent the boom. In the General Theory, however, he quietly abandoned any suggestion that his proposals were consistent with long-run price stability, which could be broadly assumed in the Treatise. In doing so, he misdirected attention from all the issues which arise when monetary or fiscal steps taken in the interests of stability of employment have to be limited by the necessity to honor convertibility obligations.
The word “genius” has often been applied to Keynes. But his genius was compounded, I judge, of forensic and diplomatic powers, rhetoric, wit, close range logic, flair for publicity, vitality and charm of manner. He virtually hypnotized most economists who came into close contact with him. In conversation the critical abilities of those who had dealings with him seem often to have evaporated.1 He could move people by talk where he could never have moved them by the printed word. He won the devotion, indeed idolatry, of his disciples. When I think of the extraordinary effect he had upon some who were once my intellectual friends, I am inclined to feel that I also should have succumbed had I known him personally.
And he was a master of prose. When he was thinking clearly no writer could express himself more aptly, more lucidly, or more gracefully. He was capable of expressing great nobility of ideas, often with almost poetic eloquence. But in his theoretical analyses, in the prose passages which link together his passages of mechanical or mathematical exposition, there is much obscurity; and in Keynes' case, verbal obscurity nearly always meant intellectual confusion. The passages in the Treatise on Money and the General Theory which caused so many headaches to his readers are just those passages in which, I have maintained, his thinking went seriously astray-cryptic sentences or paragraphs which cannot be explained but only explained away. In the intervening passages, in which his hypotheses are largely conclusions invalidly reached, his exposition is as easy to follow as anything which has ever been written in economics.
Even those who regard The General Theory as a work of genius sometimes agree (Samuelson's words) that it “is a badly-written book, poorly organized.... arrogant, bad-tempered, polemical.... It abounds in mares' nests and confusions.”1
“Arrogant,” “bad-tempered,” “polemical”-these words do not overstate the tone of Keynes' attack on economists whose authority he wished to destroy. To “blast the classical foundations” (as T. Wilson, once put it),2 he set up (in the words of F. H. Knight) “the sort of caricatures which are typically set up as straw men for purpose of attack in controversial writing,” his writing at times being “more like the language of the soap box reformer than an economist writing for economists.”3 And his methods of ridicule and misrepresentation have at times been borrowed by his followers. Moreover, the neo-Keynesians are certainly following his example in constantly changing the grounds on which they support given policy-implications.4
During the decade following the General Theory, most of the conventional economists who discussed this work seemed to suspend their normal critical approach-almost as though they were afraid of its author. It had been known for some years that his magnum opus was on its way, and I am certain that no work on economics was ever so rapidly or eagerly purchased on its publication. Having obtained the book, economists generally endeavored patiently to find every possible new insight, every new concept, or every new and workable apparatus in his contribution. This was in spite of its distressing obscurities, its slovenly plan, its apparent resuscitation of long discarded fallacies and the indignation it aroused by its misrepresentations. If Keynes' readers could find any point of detail on which favourable comment was possible, they usually went out of their way to praise it. Even his strongest critics tended on occasion to give him unmerited credit for novelty.
Harrod refers to a “rabble of detractors” of Keynes and contends that they have falsely accused him of inconsistency.1 I wish Harrod had named the rabble. Those economists who had the intellectual courage to resist the strong pressures to conformity have never, I believe, been accused of having misrepresented Keynes' arguments when they have tried to show that they are untenable. And I do not think that any economist of the old school would ever have disparaged another for changes of intellectual conviction. The only kinds of inconsistency with which I can recall Keynes having been explicitly charged, are those which concern (a) definitions,2 and (b) changes in argument to support unchanged conclusions which disciples like Robinson and Harrod himself, have admitted (see above, pp. [Editor: illegible words]..
And other Keynesians have referred, also in emotive language, and without mentioning names, to those who have dared to criticize their leader. E.g., Seymour Harris suggested about twenty years ago that the reaction against Keynesianism then discernible consisted of “unfriendly interpretations and destructive criticisms.”3 He wrote of “Keynes' baiters.”4 I am about to examine this change. But surely, if the term “baiter” can be appropriately used of any economist it must be applied to Keynes himself. Austin Robinson describes him as “the great iconoclast.”5 And Harrod also, refers to “a streak of iconoclasm. To tease, to flout, finally perhaps to overthrow, venerable authorities-that was a sport which had great appeal for him.”1 Harrod excuses Keynes' “barbed utterances,”2 his “mischievous pleasure.... in criticizing revered names,” on the grounds that “this was done of set purpose. It was his deliberate reaction to the frustrations he had felt, and was still feeling, as the result of the persistent tendency to ignore what was novel in his contribution. He felt that he would get nowhere if he did not raise the dust....”3
But were Keynes' “novelties” ignored? Even before The General Theory no economist at any time had ever had his contributions examined with greater care and sympathy,4 and a more obvious desire to find acceptable developments in them. After a survey of the general tone of the critical literature, I am very doubtful whether Seymour Harris' charge of “unfriendly” interpretations and “destructive” criticisms can be substantiated. At any rate, the only criticisms which made any impression on my own thinking stand in the sharpest contrast to Keynes' own references to the “classical” school, in that they were sober, lenient, tactful and respectful analyses.5 Keynes' critics never hit back with his own weapons. On the contrary, they apparently strove to give every possible grain of credit to his viewpoint and that of his followers. If the exposure of error is to be regarded as “unfriendly” or “destructive,” academic discussion can hardly proceed.
On the other hand, Keynes' disciples loaded him with almost idolatrous praise. They excused the slipshod exposition of the book which is supposed to have revolutionized economic science on such dubious grounds as: “His instinct was ... to get his present thinking into the hands of readers before the policies that he was seeking to influence were crystallized. He was a phamphleteer rather than a procrastinating pedant.”1 And they explained away his extravagances with a tolerance which would never have been extended to a writer with a lesser reputation. We were told that his misrepresentation and ridiculing of orthodoxy-described by Tarshis as emphasizing “his break from the earlier doctrines, ... must be regarded as a tactic of persuasion rather than as an objective statement of the relation between his own work and conventional doctrine.”2 The offensive parts of his work are described as its “satiric aspect,” an aspect which enhances the “entertainment value” of the General Theory,3 —his “showmanship,”4 mere “sport” on his part,5 his deliberate attempt to “raise the dust.”6 We are asked not to reject his “theory” because we are forced to reject his “personal opinions,” i.e., his obiter dicta.7
There was no need for Harrod to apologize for Keynes' “criticism” of revered names, or even for the “mischievous pleasure” it afforded him, had it merely been criticism. But Keynes'“deliberate reaction,” his ridiculing of disinterested scholars in order to “raise the dust” was his method of dealing with those whose writings he felt instinctively (rather than by force of reason backed by careful study) were untenable. Harrod tells us how Keynes could make the most reckless, preposterous and unjust assertions.1 Yet he is almost naive in his excuses. He describes Keynes' impetuosity and his tendency to speak beyond his book as “minor failings.”2 They are major failings in a person on whose responsibility and insight the intelligentsia are prepared to place the greatest reliance. Harrod says that Keynes, in the latter part of The General Theory, “may have allowed himself to be carried too far by the exhilaration due to emancipation from old fetters.”3 That Keynes was exhilarated is understandable. He had found arguments to support policies which he knew4 were bound to be extraordinarily popular and influential, and his small trusted group of brilliant young advisors had been unable to see serious flaws or unable to convince him of the flaws. No wonder he was exhilarated! But Keynes' attempt to “shake up” the economists, somehow led a whole generation of students of economics to despise rather than examine the great tradition which constituted “classical” economic science (as Keynes used the word “classical”).5
In his editorial introduction to a recent evaluation published about six years ago (by nine leading economists) of Keynes' General Theory, Robert Lekachman remarks quite casually, “everybody is a Keynesian now.”6 Well, the Keynesians have been claiming this, from time to time, ever since it began to be obvious that the very roots of Keynes' teachings were being cogently challenged, and in spite of the clearly observable retreat to which I referred at the outset.1 Lekachman should have added the words, “although they are no longer prepared or able to defend Keynes' revolutionary propositions from devastating criticisms.” For since 1946, Keynes' followers appear to have been spasmodically relinquishing reliance on the theoretical structure of The General Theory while mostly clinging to its terminology, to its form and to its policy-implications.
To some extent the theoretical retreat has been forced by the expression of spontaneous philosophic scepticism from within what has appeared to be the Keynesian camp. In part it has been induced by the need to answer obviously non-Keynesian objections. But in my judgement the main pressure has come through the march of events as they have seemed to contradict the Keynesian thesis. The convictions of the “classical” economists in the 1920's and early 1930's that recourse to the “cheap money” that Keynes had been advocating as a means of restoring activity was a reform in the wrong direction-their warnings that it would lead to the gradual depreciation of the measuring rod of value, the emergence of a proliferation of centrally imposed controls, and the magnification of State power-although fiercely denied at first by Keynes' disciples,2 have been justified subsequently in every detail.
For instance, in October, 1933, Roosevelt inaugurated a monetary policy which can be said to have embodied the policy recommendations of Keynes' Treatise, which had appeared three years previously. The aim, declared Roosevelt, was to “maintain a dollar which will not change its purchasing power during the succeeding generation.”1 And events continue to mock at Keynesian teachings. During 1958 cheap money and rapidly rising prices in the United States were accompanied by worsening unemployment. Thereafter, almost uninhibited reliance on every conceivable form of Keynesian apparatus, brought no success in eliminating the chronic unemployment of more than five and a half per cent of the labor force until the more rapid inflation inaugurated in 1965 and subsequently maintained. Unemployment in the U.S. had then been maintained at above this figure for nearly seven years. Yet, commented P. W. McCracken in 1964, “one can find no period in the so-called ‘boom-bust’ days, before we exercised our business-cycle taming talents, when unemployment was this high for such a long span.”2 Under Keynesian experience, “the tolerable level” of unemployment has indeed (in Lekachman's words) shown “a secular tendency to rise.”3
The failure seems to have been abject; and without a more rapid drift towards totalitarian government, it is unlikely, I suggest, that Keynesian policy will again achieve the appearance of success in the western world; for it will be necessary for government to suppress reactions to the expectation of inflation over an ever-expanding area of the economy. The suppression of such reactions ought by this time to have been clearly recognised as the ultimate raison d'être of each Keynesian “persuasion” or “control.” Let the reader ask himself whether every “success” achieved by cheap money in the past has not been due to the mass of people not expecting it, or not expecting its duration or the speed with which it has occurred; or being prevented, by authority, from behaving rationally in the light of their predictions.
It may well be that if Keynes had never lived, contemporary history-of thought and action-would hardly have differed. If he had not provided a supposed justification for the various media through which inflation can be engineered, with the whole range of “central controls” needed to make the chronic, creeping, crawling rise of prices politically acceptable, some other prophet could conceivably have provided supposedly scientific authority, with a different jargon and formulae. To retain office, governments had to compete with policies which were both plausible and not unacceptable to the more powerful pressure groups, such as labor and organized agriculture. Keynesianism has proved to be a stratagem which enabled governments to do this without early disaster. “A great change in outlook was required ...,” says T. Wilson. It was Keynes' “rhetoric and new mystique which carried the day.”1
So severely have Keynes' doctrines been treated, however, that some economists, although seemingly reluctant to renounce the Keynesian approach, have nevertheless been suggesting during the last decade that all these controversies belong to the past. We are now “well into the post Keynesian era,”2 they are apt to say. Yet others (speaking rather from the non-Keynesian camp) sometimes declare that “we are all Keynesians now.” The truth is, I think, that most economists feel themselves forced to talk and teach in what has become the modern economic language in order to retain respect and get a hearing, in spite of the unsatisfactory concepts and misleading terminology to which they are, I have tried to show, thereby committed. Through a powerful urge to follow well-worn trails in post-war academic discussion, economists have found themselves trapped in a dense Keynesian undergrowth. They mostly realize now that they have for too long followed a leader who was himself lost; but many appear to be resigned to their fate-unwilling to make the effort of hacking their way out of the conceptual jungle in which they are entangled.
The aversion to confessions of past error is understandable enough, especially when the first to confess may suffer in status and prospects. But some perhaps tell themselves that after all, however fallacious Keynesian theory may be, the policies it implies are, for political reasons, wiser than “classical” policies. Even so, if that is an economist's conviction, it is still his duty to explain why “classical” remedies must be held to be defective from the angle of political acceptability.1
We can consider the position of H. G. Johnson, who, like so many former Keynesians, appears to admit that the vital originality of the General Theory-the unemployment equilibrium thesis-is untenable. He does not argue that Keynes' economics is defensible but that his “polemical instinct was surely right....”; for, says Johnson, “neo-classical ways of thinking were then” (i.e., in 1936) “a major obstacle to sensible anti-depression policy.”2 In other words (I hope this interpretation is not unfair), in spite of the fundamental fallacy on which, he agrees, Keynes' thought was based, it did serve a beneficial purpose; for the authority of “classical” anti-depression thought, which Johnson holds had not been “sensible,” was dealt a deadly and necessary blow.
But exactly how can it be held that the policy implications of “classical” thought were not “sensible?” After all, they were never put to the test. Does Johnson perhaps mean that, although “classical” remedies could undoubtedly have restored prosperity in the thirties, it was hopeless to expect an electorate (and hence politicians) either to understand or to adopt those remedies? Certainly economists who regard pre-Keynesian teachings as not being “sensible,” may be thinking simply of the admitted difficulty or the supposed impossibility of winning political consent for the reforms to which those teachings were pointing. That being so, they may believe Keynes' polemics to have helped persuade the community to be “sensible,” in the sense (i) of acquiescing in inflation whenever unemployment or recession is threatening, as a crude means of confiscating the real gains from money wage-rates forced above the full employment value, or (ii) of acquiescing in authoritarian “incomes policies,” “controls,” “ceilings,” “persuasions” and “guide-lines” intended to curb the traditional tendency of labor unions to reduce the flow of uninflated wages, so as to render inflationary co-ordination less essential. If that is the case, the neo-Keynesians should make it clear beyond doubt.1
It is possible, however, that “classical” remedies are held not to have been “sensible” because of some radical weakness (which Keynes himself did not discern) in the abstract reasoning which inspired them. That is a quite different point. Pre-Keynesian anti-depression teachings are to the effect that unemployment (as a short-term phenomenon) and depression are due to a contraction of the flow of wages and other income through some disco-ordination of the pricing system. The most important case of this disco-ordination is thought to be caused by wage-rates (and hence final prices) being fixed too high in relation to income or inconsistently with price expectations. Labor unions and, in some countries, a form of subsidized unemployment “insurance,” are usually diagnosed as the major factors which encourage the pricing of the flow of productive services inconsistently with full or optimal use of men and other resources. More generally, “classical” thought implies that the avoidance of depression is to be most wisely achieved through (a) the avoidance of inflation which, under any system in which the money unit has some defined value (or some politically expedient value), will have to be corrected by deflationary rectifying action and (given rigidities in the wage and price system) a decline in activity; and (b) the deliberate planning of institutions conducive to market-selected price and wage-rate adjustments in response to economic change, in order to maintain or enhance the flow of uninflated wages and income. But once the persistent ignoring of “classical” precepts has precipitated chaos, and insurmountable political obstacles obviously block the way to non-inflationary recovery, only a pedant would oppose inflation.1
Now there may be one or more serious flaws in the theory which I have so briefly stated. If so, I know of no serious exposition which sets out to indicate the flaws, apart from the Keynesian unemployment equilibrium thesis, which appears now to have been discarded. Yet the neo-Keynesians seem prepared neither to provide new (non-Keynesian) criticisms of the “classical” case nor overtly to return to it.
The chief tragedy of what, I believe, will ultimately come to be regarded as the Keynesian episode in the history of academic economics, is that it has hindered the development or refinement of theory during an epoch in which institutional changes have been demanding a sharpening of the tools of analysis. What seems to have been happening since 1936 is that “fundamental economics” (which had been concerned with the devising of tools for studying the causes of observable economic phenomena) has been branching-not improperly-into “operational economics,” that is, towards formulations of economic analysis suitable for application in already-adopted governmental economic policy, making abstraction of the rationality of that policy. But the emergence of “operational economics” has degenerated all too easily-via Keynesian influences-into “economic apologetics.” By that, I mean the devising of concepts and theoretical constructions which can be used to justify policies which have the virtue (or the reverse) of being politically acceptable. Future historians of economic thought will, I predict, give Keynes chief responsibility for having inaugurated-I do not suggest intentionally-the flood of economic apologetics in which neo-Keynesian economics has become submerged.
I should be the last to decry the development of the State's sphere in the acquisition and interpretation of the data relevant to the guidance of its own co-ordinative activities and those of private entrepreneurs.1 This is the valid role of “operational economics.” Much of the effort expended in the collection of the information utilized in national accounting is of value not only to the administrators of the credit system (especially if they are contractually bound to maintain a money unit of some defined value), but to all decision-makers in whose calculations the future money valuation of income is important.
The fulfillment of this task requires a supply of economist-technicians, and not unnaturally the faculties of economics of the major universities of the western world have been under pressure to become schools for the training of such “economists” or “economist-statisticians.” But are the students who receive this training being taught to perceive clearly the co-ordinative role of the pricing system? Or are they being indoctrinated with the view that it is their task to help use the data collected to correct, through the “control of expenditure,” an inherent tendency to equilibrium with unemployment in a free market system, or to offset discoordinations caused through the pricing of labor (or other sources of output) having been exempted from the sanctions of social (i.e., market) discipline?
The defensible scope of central direction and leadership (“indicative planning”) in a free market economy cannot be perceived, nor can the techniques employed be made fruitful, as long as Keynesian notions are allowed to cloud the issues. But it seems to me that today, in almost all the universities everywhere, we find the inculcation and perpetuation of the Keynesian approach, together with the exclusion of competing ideas.
I attempted to arouse interest in this situation in 1964. I wrote: “It was about 25 to 30 years ago that most of the younger sceptics who expressed misgivings about the ‘new economics’ began to be eliminated from academic life. There was no inquisition, no discernible or intentional suspension of academic freedom; but young non-conformists could seldom expect promotion. They appeared rather like young physicists who were arrogant enough to challenge the basic validity of revolutionary developments which they did not properly understand. To suggest that Keynes was all wrong was like questioning the soundness of Einstein or Bohr. The older economists could declare their doubts without serious loss of prestige, but any dissatisfaction on the part of the younger men seemed to be evidence of intellectual limitations.”1
The position today is that a relatively small group of economists, scattered through the universities, adhere pertinaciously-not dogmatically-to the time-honoured traditions of “classical” economics. But even they tend mostly to use Keynesian terminology to the detriment (I believe) of their own and their students' thinking. Moreover, the majority of the teachers of economics of the contemporary generation seem never really to have learned, or to have forgotten, what the pre-1930 economists were explaining. For the younger economists now to question the currently fashionable approach demands not only a rare insight but intellectual courage, and I have an uneasy feeling that, for those of junior status, it may demand also a willingness to sacrifice professional prospects in the interests of scientific integrity. I do not of course imply that there are no outlets for the expression of dissenting thought. But there is no longer, I believe, anything resembling equality of opportunity in the communication of ideas in academic circles generally.
The economists of the great universities ought, I suggest, to be asking themselves whether, in their field, academic freedom is really being effectively preserved. Are they certain, for instance, that junior staff who might feel some sympathy with ideas such as I have expressed in my book on Keynesianism or even with Leijonhufvud's analysis (which is less iconoclastic than mine) could openly confess to that sympathy without damaging their academic prospects? In some cases they might well answer affirmatively. There are a few universities in which such confidence would be fully justified. But discussions with economists who share my fears convince me that, in Britain and the United States at any rate, the set-up is seldom conducive to the expression of unorthodox (i.e., non-Keynesian) ideas. Even senior economists have confessed to me that they are subject to powerful pressures to conform to fashion. Some say that they feel under an obligation to train their most promising students along lines which are likely to make them acceptable as teachers in other universities, or as public servants in administrations dominated by Keynesian convictions. Others feel that any existing consensus of opinion carries its own authority. A young British economist with whom I was discussing some of my ideas a few years ago made no attempt to answer any of the points I was making. He simply asked, “How many economists would agree with you today?” Others still are intimidated by the power-holding establishment. In 1964, I asked a distinguished middle-aged American economist who seemed to appreciate my misgivings on many issues, whether he would not express his views in writing. He answered, “I dare not. I should probably be black-listed.” And about the same time I asked a brilliant youngish economist in Britain, who, I had good reason to believe, would have been inclined to accept the heresies I have been propounding, why he did not himself openly challenge the Keynesians. He replied, “I am scared. They are much too powerful.”
Furthermore, the editors of the more important journals are, on the whole, pillars of the dominant orthodoxy. It is understandable that they should tend to reject contributions which directly challenge the currently fashionable analysis. Young economists have confessed to me that they have felt it essential, in submitting contributions to certain leading journals, carefully to exclude or rewrite passages which might suggest non-conformity. There are reasonable grounds for uneasiness here. But it is in the content of undergraduate and graduate teaching that the widespread exclusion of competing modes of thought appears to me to be having the most grave consequences.
The modern emphasis on macro-economics, the validity of which depends—as few writers in the field seem to realize—upon its reconciliation with micro-economics, aggravates the situation. For macro-economics, which is particularly amenable to mathematical enunciation, is now being taught at an early stage in the typical curriculum; and the young student tends, I fear, to spend more time grappling with mathematics than with economics, the difficulties of which are not mathematical. His attention is diverted from rigorous thought about the phenomena of scarcity and price, and the stabilizing and co-ordinative role of the price system, to the study of complex truisms. When he graduates, he may have learned very little of basic economic science. If he tries to resolve in his mind the apparent conceptual confusions which most macro-economists elaborate,1 he is likely to prejudice his academic record. Students with a lively and critical intelligence have admitted to me that they have felt it expedient (in the struggle for good symbols) to echo current texts and teachings mechanically, inhibiting all concern with their validity.
Despite my conviction that an economic creed has become entrenched within most of the universities, a Keynesian priesthood determined to retain its hold, I have no doubt that the majority of economists in all the universities are sincerely convinced that the greatest possible opportunity for the free expression of divergent ideas by those whom they regard as competent critics has been preserved. But critiques of Keynesian concepts which have appeared during the last decade do render purposeless an enormous collection of apparatus, constructed through the expenditure of formidable, scholarly effort since 1936. This alone must have created powerful motives for resistance to the expression of competing teachings which threaten to precipitate widespread obsolescence in academic capital.1
But the genuineness of the ever-present resistance to heresy does not weaken the force of my charge. And are not the dangers to academic freedom to which I have referred magnified when university economists are hoping for influence as advisers of governments? Even if we assume that there is no question of bias due to pecuniary interest, a more elusive problem remains. Governments tend notoriously to disregard economists whose advice they believe it would be politically inexpedient to follow; and in the endeavour to exercise at least some guidance on the course of events, economists may all too easily be led to a compromise which ultimately weakens the force of disinterested and expert teachings.2
A barrier to the communication of ideas needs to be broken. This might happen through initiatives from among the economists themselves; through deliberate action on the part of the governing bodies of universities anxious to avoid the slur of indoctrination; or through growing pressure from independent-minded graduate or undergraduate sceptics who recognize and resent an indoctrination which has remained too long without potent challenge.1
[∗]This essay is a revision of a contribution (for which I had permission to republish) which appeared in Japanese in Toyo Keizai, Tokyo, in 1966.
Hutt, Keynesian Revisions, South African Journal of Economics, June, 1965.
I do not, of course, accept mere disparagement and misrepresentation (of which there has been plenty) as reply or criticism. Subsequent to the publication of my book, J. H. Botha published a courteous criticism of an earlier contribution of mine—to Hazlitt's symposium, The Critics of Keynesian Economics. This created the only opportunity I have yet had of hearing and answering explicit Keynesian objections to my argument. Botha's article was published in the S.A.J.E., 1963, and my reply in the S.A.J.E., 1964.
On Keynesian Economics ..., O.U.P. (1968).
Other causes of the phenomenon are discussed in my recently published book, Politically Impossible ...? (Institute of Economic Affairs, London, 1971).
Hutt, Economists and the Public (1936), pp. 245-7.
A similar judgment has been passed by Haberler, who suggests that “the General Theory would have been much less influential ... had it built on existing foundations and had it done justice to earlier writers; had its author refrained from setting up a caricature of the ‘classical economists’ as a strawman to be knocked down; in other words, had Keynes written a scholarly, well-balanced treatise instead of providing an ad hoc, makeshift theory serving as underpinning for a combination of policy tract, a passionate call for economic reforms, and an impassioned indictment of orthodoxy.” (Haberler, in Lekachman (Ed.) Keynes' General Theory, Reports of Three Decades, p. 294).
This discussion was based on work done very much earlier.
Robinson, in Lekachman, op. cit., p. 93.
Harrod, Life of J. M. Keynes, p. 462.
Robinson, Economic Journal, 1947, p. 41.
As early as his 24th year he was gambling for large stakes in the casinos of Europe. He was keen on poker. His financial speculations began in 1919. In his private financial dealings and in his role of trustee of institutions, he was persistently taking risks—gambles which would never have come off if he had not correctly judged that governments would, in fact, follow the policies he was advocating.
In referring to his lack of profundity, I am according full weight to the rare insight and critical power which eminent reviewers reported in his Treatise on Probability.
Harrod (op. cit., p. 453) confesses that it seemed to him that Keynes was “in some confusion about what the classical position really was; that he had not fully thought it through.”
Perhaps the most indefensible misrepresentation was his quotation of J. S. Mill in his attempt to refute Say's Law, where (as B. M. Anderson, Emil Korner, Patinkin and others have pointed out), he ended the quotation just where its continuance would have led to a wholly different view of Mill's contention. (See Hutt, Keynesianism, p. 390.)
See Hutt, Keynesianism, pp. 19, 36, 344n.
Robinson, Economic Journal, 1947, p. 45.
Harrod, op. cit., p. 467.
Harrod, op. cit., pp. 350–1.
Austin Robinson refers to the remark of a momentary opponent: “Keynes can persuade me of anything, however wrong-headed I believe it to be.” (Robinson, op. cit., p. 67).
Samuelson, Econometrica, 1946, p. 190.
Wilson, Fluctuations in Income and Employment, p. 19.
Knight, Canadian Journal of Economics and Political Science, 1937, pp. 101, 119.
For clear instances, see my article, Keynesian Revisions (referred to on p. 13, and pp. 18–20, above.
Harrod, op. cit., p. 467.
The most strongly worded attack I can remember on this issue came from Pigou.
Harris, The New Economics, p. 3.
Ibid., p. 7.
Robinson, in Lekachman, op. cit., p. 87.
Harrod, op. cit., p. 88.
Ibid., p. 367.
Ibid., p. 451.
To illustrate by my own case. As I have said above, I devoted more time to Keynes Treatise on Money than to any other book I ever studied prior to The General Theory. I felt compelled to do so because of the extraordinary respect and attention which this work seemed to be receiving from economists whose opinions I respected. What other economist has ever had his writings subjected—during the decade in which he had written—to such detailed and painstaking analysis as is found in Marget's Theory of Prices?
E.g., those of Machlup, Haberler, Viner, McCord Wright and Modigliani. I do not think that Pigou's angry article (Economica, 1936) or Knight's hard-hitting review (Canadian Journal of Economics and Political Science, 1937) can be regarded as exceptions. Every harsh word of the latter was justifiable.
Robinson, in Lekachman, op. cit., p. 94.
Tarshis, A Consideration of the Economic and Monetary Theories of J. M. Keynes, A.E.R., P. & P., 1948, p. 261.
Hicks, Mr. Keynes and the Classics Econometrica, 1937, p. 147.
Williams, An Appraisal of Keynesian Economics, A.E.R., P. & P. 1948, p. 289.
Harrod, op. cit., p. 88.
Ibid., p. 451.
Williams, op. cit., p. 276.
E.g., to the effect that Cambridge “was the only place where they knew anything about economics. The London School of Economics ... was pushed aside ... They knew nothing at all of economics on the Continent.” (Harrod's words (op.cit., p. 319) Harrod confesses that Keynes' whole exposition “was so drenched in friendly feeling” towards himself “that it was impossible to be critical” (op. cit., p. 319).
Ibid., p. 373.
Ibid., p. 460.
See p. 16, above.
The typical student of today seems to have been indoctrinated with the belief that the classical school somehow relied upon divinely-enacted guidance—“mythical automatic stabilizers” as one Keynesian has put it—to produce order out of laissez-faire chaos.
Lekachaman, op. cit., p. 10.
The retreat, which I have discussed in my Keynesianism, is indeed continued in the book which Lekachman has edited. The reader will find several passages in his Introduction which illustrate this, particularly on pp. 2, 4 and 9.
Keynes seems himself to have been warning, in the largely contradictory last chapter of the General Theory, of the dangers of his own policy recommendations. The same fears appear to be reflected in references, in his last E. J. article, to the “wholesome long-run doctrine” and “classical medicine” (the latter no fewer than four times). (Keynes, Economic Journal, 1946, p. 172).
In 1958, reminding the American people of the warnings issued by “experienced monetary economists” at the time, Spahr asked: “Do the Keynesians shout from the housetops that F.D.R. has been proved wrong and that we should therefore change our course? Not at all.... “(Quoted from Spahr, Monetary Notes, Economists National Committee on Monetary Policy, December, 1964).
McCracken, Unemployment in an Expanding Economy—The Long View, p. 8 (reprinted from the Michigan Business Review, July 1964). In respect of unemployment, the “bad old days” were by no means as black as they have been painted. For instance, in the United States, in two-thirds of the identifiable recessions from the 1890's to the 1930's, real income was higher in the recession year than it had been in the previous peak. (Ibid., p. 8) Moreover, in two of the recessions in which this was not the position (1894 and 1921) drastic co-ordinative price adjustments were laying the foundations for prolonged prosperity (in the 1921 recession, following an unprecedented but remarkably effective deflation to re-establish the integrity of the dollar); and of the other two cases, in 1908 and 1914, the first was the consequence of a financial panic and the second was due to disturbances of world trade caused by the outbreak of World War I.
Lekachman, op. cit., p. 2.
T. Wilson, Professor Robertson on Effective Demand, E.J., 1953, p. 570.
E.g., H. G. Johnson, The General Theory after Twenty-five Years, A.E.R., P. and P, May 1961, p. 26.
This is the main theme of my recently published book, Politically Impossible ...?, op. cit.
Johnson, op. cit., p. 3.
See Hutt, Politically Impossible ...?, Part V.
In my judgment, however, the political obstacles were not insurmountable in Britain in 1931. If Lord Passfield (Sidney Webb) had had the courage that year to state in the House of Lords what he and Beatrice Webb privately believed about the British trade unions, he may have brought down the government of which he was a member, but his action could well have saved the pound sterling. (See my article, Critics of the “Classical Tradition,” S.A. Jour. of Econ., June, 1964, p. 84).
In my Plan for Reconstruction (1943), I envisaged the establishment of an expanded statistical service to collect, analyze and disseminate data required for purposeful planning and co-ordination (whether by collective or entrepreneurial initiative). This suggestion was discussed further in my article, Plan for Economic Research in the Union (S.A.J.E., June 1944, reprinted as a pamphlet by the Association of Scientific Workers of S.A., 1944).
Hutt, Critics of the Classical Tradition, S.A.J.E., 1964. There may well have been occasional discriminations of a similar kind (equally difficult to substantiate) against the Keynesian type thinking during the days when classical thinking was dominant. (See p. 36, below, footnote 1).
See Hutt, Keynesianism, pp. 6–7, 25–29, 89, 166–7, 391–3.
In 1947, Seymour Harris (The New Economics, p. 3) contended that academic opposition to Keynes originated from “the vested interests of scholars in the older theory.” There is no doubt at all that the sheer burden of the readjustment of thought and the recasting of teachings hindered the more rapid adoption of an economics which now employs Keynesian concepts and models. But when economists cling, as they do today, to Keynesian apparatus (with its policy implications) when the manifest untenability of its central tenet (unemployment equilibrium) has been demonstrated, Harris' charge is reversed.
In my Politically Impossible ...?, I suggest that the remedy is for economists' assumptions about the vote-acquisition process always to be explicitly announced and evaluated.
In order to prevent possible misunderstanding, I must explicitly disclaim any suggestion that the teaching of the economic doctrines which I have tried to show are untenable should be suppressed! When I maintained for instance, in my Keynesianism, that the Multiplier and the Accelerator theorems should be expunged from the text books, I was not recommending any expurgation or censorship. I merely assumed that authors would soon be forced to abandon such notions if criticisms of them were fairly presented, side by side.
- Aquinas on fraudulent dealing
- Atkinson: Protection promotes War - Free Trade promotes Peace
- Bentham on Usury
- Boehm-Bawerk’s Theory of Capital
- Cobden’s Speeches on Free Trade
- Cobden: An Appreciation I
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- Early Republican Economic Policy
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- Hazlitt, The Future of Capitalism
- Heyne, Economics as a Way of Thinking
- Higgs on the Influence of the Physiocrats
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- Hutt, Reflections on the Keynsian Episode
- Ingram, History of the Early Austrian School of Economics
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- Lalor’s Cyclopedia - 19thC French Political Economy
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