Table Of ContentDissent on Keynes
Dissent on Keynes
A Critical Appraisal of Keynesian Economics
Edited by Mark Skousen
Published under the auspices of the Ludwig von Mises Institute
DID) A IH/fl^lD) New York
Westport, Connecticut
London
Copyright Acknowledgments
The editor and publisher wish to thank the following for permission to include material in this
volume:
Extracts from Edmund S. Phelps, Microeconomic Foundations of Employment and Inflation
Theory, copyright 1970, by permission of W. W. Norton Company; A. W. Phillips, "The
Relation between Unemployment and the Rate of Change of Money Wage Rates in the United
Kingdom, 1861-1957," Economica 25: 283-89 (1958), by permission of Basil Blackwell, Ltd.;
John Maynard Keynes, The General Theory of Employment, Interest and Money, copyright 1973,
by permission of Macmillan, London and Basingstoke for the Royal Economic Society, and
Cambridge University Press (North American rights); Ludwig von Mises, Human Action, third
edition, copyright 1966, by permission of Regnery Gateway; Paul A. Samuelson and William D.
Nordhaus, Economics, copyright 1970, 1989, by permission of McGraw-Hill, Inc.; Franco
Modigliani, "Life Cycle, Individual Thrift, and the Wealth of Nations," American Economic-
Review (June 1986), Nobel Lecture, © copyright The Nobel Foundation.
Library of Congress Cataloging-in-Publication Data
Dissent on Keynes : a critical appraisal of Keynesian economics /
edited by Mark Skousen.
p. cm.
"Published under the auspices of the Ludwig von Mises Institute."
Includes bibliographical references and index.
ISBN 0-275-93778-X (alk. paper)
1. Keynesian economics. I. Skousen, Mark. II. Ludwig von Mises Institute.
HB99.7.D57 1992
330.15'6—dc20 91-27161
British Library Cataloguing in Publication Data is available.
Copyright © 1992 by the Ludwig von Mises Institute
All rights reserved. No portion of this book may be
reproduced, by any process or technique, without the
express written consent of the publisher.
Library of Congress Catalog Card Number: 91-27161
ISBN: 0-275-93778-X
First published in 1992
Praeger Publishers, One Madison Avenue, New York, NY 10010
An imprint of Greenwood Publishing Group, Inc.
Printed in the United States of America
The paper used in this book complies with the Permanent
Paper Standard issued by the National Information Standards
Organization (Z39.48—1984).
10 9 8 7 6 5 4 3 21
To Larry T. Wimmer,
who raised my first doubts about
Keynesian economics
Contents
Introduction 1
Chapter 1. This Trumpet Gives an Uncertain Sound: The Free-
Market Response to Keynesian Economics 9
Mark Skousen
Chapter 2. Fiscal Stimulus: An Unwise Policy for Recovery 35
John B. Egger
Chapter 3. The Fallacy of the Phillips Curve 51
Jeffrey M. Herbener
Chapter 4. The Myths of the Multiplier and the Accelerator 73
Jeffrey M. Herbener
Chapter 5. Keynes and the Anti-Saving Mentality 89
Mark Skousen
Chapter 6. Keynesian Policy and Development Economics 103
Bruce R. Bartlett
Chapter 7. The Fork in the Keynesian Road: Post-Keynesians and
Neo-Keynesians 117
Don Bellante
Chapter 8. Is Milton Friedman a Keynesian? 131
Roger W. Garrison
Chapter 9. Keynes's First Principles 149
David Gordon
viii Contents
Chapter 10. Keynes as a Speculator: A Critique of Keynesian
Investment Theory 161
Mark Skousen
Chapter 11. Keynes, the Man 171
Murray N. Rothbard
Chapter 12. The Misesian Case against Keynes 199
Hans-Hermann Hoppe
References 225
Index 245
About the Contributors 255
Introduction
One of the most curious and unhappy circumstances of the postwar period has
been the failure of free-market economists to launch a major and effective assault
on Keynesian economics. Despite occasional pronouncements that "Keynes is
dead" (Lucas 1982; Biven 1989), there remains a strongly held belief among
professional economists and government officials that the basic tenets of Keynes-
ianism are "irreversible" (Samuelson 11971] 1986: 867). This claim is supported
by a recent survey of references to various schools of thought as cited in the top
ten economics textbooks for 1990:
References to Economics Schools in Top Ten Textbooks
School Index
Frequency
Keynes and Keynesianism 442
Friedman and Monetarism 252
Marx and Marxism 131
Rational Expectations 119
Laffer and Supply-Side 95
Austrianism 67
Galbraith and Institutionalism 53
Note: The table above is based on the combined references to specific theories
and their expounders found in the name and subject indexes. The top ten text-
books, selected according to a survey of publishers at the 1990 annual meeting
of the American Economic Association, are McConnell and Brue; Baumol and
2 Dissent on Keynes
Blinder; Lipsey, Steiner, and Purvis; Ruffin and Gregory; Miller; Samuelson
and Nordhaus; Dolan and Lindsey; Byrns and Stone; Qwartney and Stroup; and
Bronfenbrenner, Sichel, and Gardner. Keynesian influence may be even greater
than the chart above indicates, since elements of Keynesian macroeconomic
modeling may be integrated into other schools. For more information, see my
book Economics on Trial (Skousen 1991).
The various branches of free-market economics (monetarist, rational expec-
tations, supply-side, and Austrian) have made laudable attempts at dislodging
the "new economics." Inroads have been made and early versions of crude
Keynesianism have been persuasively refuted (e.g., the concept of the liquidity
trap, that money does not matter, and that inflation and unemployment cannot
coexist). But, in the words of G. K. Shaw, modern Keynesian theory "not only
resisted the challenge but also underwent a fundamental metamorphosis, emerg-
ing ever more convincing and ever more resilient" (1988: 5). The remaining
Keynesian precepts have achieved a certain kind of "permanent revolution," as
Mark Blaug calls it, in the minds of most economists.
WHAT'S LEFT?
What forms the basis of this permanent revolution? Let me suggest four
enduring theses.
1. Free-market capitalism is seen as not self-equilibrating and, thus, as flawed.
Keynesians allege that the economy can remain indefinitely in equilibrium at
less than full employment. Because the free market cannot guarantee full em-
ployment of labor and resources, it is therefore considered inherently unstable.
Say's law, interpreted by Keynesians to mean that "supply creates its own
demand," is rejected as a universal principle.
2. According to Keynesian thinking, saving is a virtue only when the economy
is at "full employment"; in times of unemployed resources, saving more can
make a recession worse. Uninvested savings may "leak" out of the system,
causing a reduction in final aggregate demand. Most economists appear to accept
the "paradox of thrift" in the short run—the belief that efforts to save more
will cause income to fall and will eventually reduce savings—when the economy
is in recession.
3. Autonomous government spending and increases in the money supply can,
through the multiplier and accelerator effects, increase aggregate demand and
expand national income and employment sufficiently to reach permanent "full
employment."
4. During a recession or depression, the federal government should operate a
budget deficit and/or cut taxes; similarly, public-works programs and monetary
inflation are superior to cutting wages as a remedy for a recession or depression.
The economics profession is also enamored with Keynesian terminology and
its aggregate approach to analyzing macroeconomic issues. Almost all major
schools—Keynesian, monetarist, new classical, and Marxist—rely on large
Description:Keynesian economics is not dead but is alive and kicking in the U.S. and elsewhere. However, Keynesian economics has caused the U.S. and other countries under its influence to suffer inflation, economic instability, excessive debt, overconsumption, and underinvestment on a serious scale. Meanwhile,
