RALEIGH – With many parts of North Carolina either experiencing or facing the likely prospect of the first major snow of the season, I’ll take this opportunity to recommend a book to snuggle up with: Henry Hazlitt’s The Failure of the ‘New Economics’: An Analysis of the Keynesian Fallacies.
No, I’m not offering the recommendation as a sedative. If you want to get under your warm bedcovers and take a nap, you might try reading the famous 1936 book that Hazlitt eviscerated in his work, John Maynard Keynes’ General Theory of Employment, Interest, and Money. In addition to hatching a noxious and mischievous school of economics, Keynes also succeeded in inflicting a literary horror on generations of unlucky students.
Hazlitt’s book, on the other hand, is a good read. It is clearly written, cleverly argued, and quite entertaining if you like the interplay of interesting and important ideas – which, of course, you do, since you read Carolina Journal.
Studying Keynes has never been a timelier task. In Washington and in Raleigh, politicians are justifying massive new expenditures of borrowed dollars on Keynesian grounds – that only government can pull the economy out of a severe recession by stimulating consumer demand and thus “priming the pump” of economic production.
Keynesianism never made sense in theory, much less in practice. But it remains popular in political circles because it is a doctrine that empowers elites to push and pull the levers of a mechanistic economy. It treats those elites, politicians and technocrats, as heroes. It vilifies investors and entrepreneurs. Indeed, Keynes writes that the government should displace private investors directly, by confiscating their wealth and spending it on public works and other forms of capital investment, which would result in “the euthanasia of the rentier and consequently the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital.”
This is all “demagogy and claptrap,” writes Henry Hazlitt, one of most prolific business journalists of his day and a hero in the post-WWII recovery of the freedom philosophy in America and around the world. In The Failure of the ‘New Economics’, he takes Keynes’s General Theory apart piece by piece, concept by concept, chapter by chapter, even sentence by sentence in some places.
With editorial skill honed by many years of experience at The Wall Street Journal, The New York Times, Newsweek, and The Nation (George Leef related his failing out with the magazine in a recent blog post), Hazlitt exposes Keynes’ convoluted and contradictory ideas, his muddled definitions, and his bad assertions of fact that run contrary to empirical evidence.
One of Hazlitt’s crucial insights is that the awful writing style of Keynes isn’t just an accidental defect but a key to unlocking what Keynes was trying to do. Rather than using clear-cut language to lay his ideas bare for public inspection, Keynes sought to hide his ideas under piles of thick, suffocating words:
One reason [Keynes] writes so badly is that he is constantly introducing technical terms that are not only unnecessary but inappropriate and misleading. Most of his worst terms are of his own coinage, but if someone else’s term is sufficient bad, he embraces it.
Keynes resorts to other manipulations and rhetoric fallacies, such as overstating an opponent’s case in order to discredit it and making appeals to false authority.
I can’t do justice to Hazlitt’s many compelling arguments against Keynesianism. That’s why I recommend that you read the book, either by acquiring a copy or pulling down this handy PDF from the Mises Institute. But I will relate my favorite passage of the book, in which Hazlitt critiques Keynes’ proposed solution to chronic unemployment, which is to inflate the currency rather than let real wages adjust to a level that will get the jobless back to work:
The hysterical supposition that any attempt to adjust wage rates to bring them into equilibrium with other prices would cause wages to “fall without limit” and go to zero is a bugaboo that could scare only mental children. It is just what it sounds like – howling nonsense.
[Keynes argues] that whenever there is unemployment, “the escape will be normally found in changing the monetary standard or the monetary system so as to raise the quantity of money, rather than in forcing down the wage-unit and thereby increasing the burden of debt.” In other words, unemployment should always be cured by further monetary inflation, never by adjusting wage-rates that have gotten out of line. The piano must be adjusted to the stool, not the stool to the piano.
Curl up and read Hazlitt. It’s an investment with a huge rate of return, and one that modern-day Keynesians can’t tax away from you.
Hood is president of the John Locke Foundation