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Vulgar Keynesianism

Posted By Don Boudreaux On March 17, 2009 @ 2:53 pm In Economics | Comments Disabled

Among the important points Bob Higgs makes here [1] is the one that I make here [2], but Bob does so much more effectively than I can ever hope to do.  Here’s an especially important passage from Bob’s essay:

In fact, “the economy” does not produce an undifferentiated mass we call “output.”  Instead, the millions of producers who bring forth “aggregate supply” provide an almost infinite variety of specific goods and services that differ in countless ways.  Moreover, an immense amount of what goes on in a market economy consists of dealings among producers who supply no “final” goods and services at all, but instead supply raw materials, components, intermediate products, and services to one another.  Because these producers are connected in an intricate pattern of relations, which must assume certain proportions if the entire arrangement is to work effectively, critical consequences turn on what in particular gets produced, when, where, and how.

These extraordinarily complex micro-relationships are what we are really referring to when we speak of “the economy.”  It is definitely not a single, simple process for producing a uniform, aggregate glop.  Moreover, when we speak of “economic action,” we are referring to the choices that millions of diverse participants make in selecting one course of action and setting aside a possible alternative.  Without choice, constrained by scarcity, no true economic action takes place.  Thus, vulgar Keynesianism, which purports to be an economic model or at least a coherent framework of economic analysis, actually excludes the very possibility of genuine economic action, substituting for it a simple, mechanical conception, the intellectual equivalent of a baby toy.

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[1] Among the important points Bob Higgs makes here: http://www.independent.org/newsroom/article.asp?id=2448

[2] I make here: http://cafehayek.com/2009/03/hayek-and-keynes.html


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