Smith and Keynes Share a Birthday

by Don Boudreaux on June 5, 2011

in Adam Smith, Complexity & Emergence, Economics, State of Macro

In what is surely one of history’s great ironies, today is the birthday of both Adam Smith and John Maynard Keynes.

Smith launched the discipline of modern economics, freeing our thinking about economic matters largely from the misperceptions and prejudices of the ‘man in the street’ whose instincts prompt him to suppose that most economic problems are the result of too little money or too little demand – an instinct that, in Smith’s day, elevated mercantilism into the dominant mode of economic (non)thought.  This ‘man in the street’ gives little, if any, thought to the enormously detailed and constantly occurring and largely unseen adjustments that property owners (including owners of only labor services) must make so that the plans and actions of producers and consumers are sufficiently well-coordinated across space and time that prosperity becomes widespread and continually growing.  The ‘man in the street’ concentrates his worries on demand – e.g., Will consumers continue buying ‘enough’?  Won’t labor-saving technology (including advances in international trade) cause sustained unemployment?  What will be the jobs of the future if the familiar jobs of today are ‘destroyed’?

Keynes, regrettably, gave undeserved respect to these concerns of the ‘man in the street.’  The focus of Keynes and his followers was not on how the plans and actions of countless individuals can be reasonably well-enough coordinated, across space and time, so that scarce resources are ever-more-efficiently transformed into goods and services that satisfy consumers.  Overlooking – as does the ‘man in the street’ – the importance of the details of this vastly complicated process of on-going coordination, Keynes and his disciples glommed on to what the ‘man in the street’ immediately thinks of as the economic question: is there enough demand to buy stuff?  If yes, problem solved; if not, big problem – or, really, not so big if the state frees itself from the prejudices of those damned classical economists (such as Smith) and, adopting the idiot-savant genius of the ‘man in the street,’ augments inadequate private demand with demand that it creates either through money creation or, usually more effectively for Keynesians, through debt-funded fiscal spending.

Smith had no such delusion that economies grow simply because people demand more stuff.  The abilities and drive of butchers, brewers, bakers, and other entrepreneurs to earn ever-better livings by ever-better satisfying consumers (as opposed to by securing monopoly privileges from government) is what makes economies grow.  Competitively determined prices are important in guiding suppliers to meet consumer demands (and in guiding consumers on how to get the most satisfaction possible from their expenditures).  Taxes, regulations, monopoly privileges, and (yes, even for Smith) inadequately supplied amounts and qualities of public goods obstruct the ability of markets to coordinate savings, investment, production, and consumption in ways that keep economies growing.  Smith – and, to this day, Smithian economists – concentrate their attention on supply.  The problem isn’t to get people to want to consume more of what they want; it’s to get people to produce more of what people want to consume.

John Maynard Keynes, more than any other person, diverted economics from its task of understanding how order emerges unplanned from the self-interested and knowledge-limited choices and actions of countless individuals.  Far more than Marx, the consequence of Keynes on economics has been lamentable.

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Stephan June 5, 2011 at 11:56 am

Well, I want to wish both a Happy Birthday. And I’m sure Maynard will have a bright smile on his face and offer a toast to whoever is available up there reading your comment. It is really an achievement to upset crazy economists being dead for such a long time. This is what I call a true revolutionary! Cheers, Maynard!

Paul Walker June 5, 2011 at 11:58 am

Actually there is no irony here. We don’t know Smith’s date of birth. June 5 is most likely the date of his baptism.

Don Boudreaux June 5, 2011 at 12:10 pm

Not quite. Smith was born a sickly infant and, many historians believe, was likely baptized immediately rather than, as was the custom for more-healthy newborn babies, a few weeks later.

Here’s Nicholas Phillipson, on pages 16-17, of his 2010 biography of Smith entitled Adam Smith: “Smith was by all accounts a sickly child, and it may be that the slight confusion about his birth day arises from his having been baptized on the day of his birth – a common enough practice in the case of infants not expected to survive.”

Paul Walker June 5, 2011 at 12:33 pm

Other authors on Smith disagree. I think if you check “The Life of Adam Smith” by Ian Simpson Ross and “Adam Smith: A Moral Philosopher and His Political Economy” by Gavin Kennedy both argue for the date of birth and baptism being different. Unfortunately I’m going from memory as my copies of these book are at home and I’m not.

Andrew_M_Garland June 5, 2011 at 4:02 pm

Whatever Smith’s actual birthday, Smithian economists (and we all) should designate June 5th as the day to celebrate it, so that it falls on Keynes’s birthday.

Keynes’s birthday will always come up in the mainstream news, and Smith should be there in the story as a counterpoint.

Gavin Kennedy June 6, 2011 at 12:25 pm

It’s not often that I disagree with Don Boureaux but in the case of Adam Smith’s birthday I offer a caution. The only factual evidence we have is the date of Smith’s baptism, not a specific confirmation of his berth date. The observation that he was a ‘sickly child’ does not warrant a firm association of that accepted fact with speculation that he was baptised in the expectation that he might die. Until he was born his mother would not know of his possible ‘sickly’ state; she only had one child, Smith, and his father had died 6 months earlier. True, his son from his first marriage was ‘sickly’ but that may just as well have been a factor in his then wife’s health (she died a few years earlier. I wouldn’t go to the stake on this issue, but I think a degree of caution is required.

Jonathan M. F. Catalán June 5, 2011 at 12:14 pm

This seems like an extremely unfair treatment of Keynes, and an exaggerated praise of Adam Smith. Smith laid the foundations for classical economic thought, but I think it is a stretch to further suggest that Smith was a market coordination economist. I do not think that Smith even had the theoretical tools to be privy to the more advanced theories of market coordination — economization, pricing process, et cetera. A lot of these essential concepts were not developed until the late 19th Century, and others not until the mid-20th Century (the pricing process, for instance, was not really developed until the 1930s and 1940s).

Smith aside, I think the treatment of Keynes is unfair. You characterize Keynes as a simpleton, who was interested in answering complex economic questions through “street wisdom”, or unrefined economic knowledge. You make it seem as if Keynes was completely unaware of the economic tradition before him.

To the chagrin of the Keynesians who may read this comment and agree with what I have said so far, I do think that Keynes was mostly wrong and I do think that his understanding of the economic problem was lacking. I also think that Keynes was not a great theoretical innovator and it seems as if his list of influences was really too narrow to afford him a more learned understanding of the progress in the science before him. With that being said, Keynes was no ignoramus.

Keynes’ basic objection to the capitalist system was that there were forces of discoordination that the market could not handle without being pushed by the state. The principal force of discoordination was the disconnect Keynes perceived between savings and consumption, in large part because he was not wholly privy to Hayek’s work in the area (and, even if he was, that does not mean he had to agree with Hayek — many intelligent economists did not). In turn, this had adverse effects on the labor market that could not be solved by a simple fall in wages (see Roger Garrison’s Time and Money).

Nor did Keynes’ economics only appeal to those ignorant of market coordination. This post conveniently ignores the coordination Keynesian economists, such as Axel Leijonhufvud. Keynes’ economics even influenced those who were relatively ‘Austrian’, such as G.L.S. Shackle and Ludwig Lachmann (and Lachmann, in my opinion, was completely an Austrian), because they recognized that Keynes’ theories were essentially about discoordination in the coordination process.

That Keynes did not fully understand the coordination processes and all the minutiae related to it is one thing to claim (and something I may agree with), but to suggest that he was completely ignorant of it is something else entirely (and wrong). We have to remember, though, that when Keynes wrote The General Theory there was no complete theory of market coordination. Furthermore, whatever coordination theory existed was mostly in German, and Hayek’s English work was relatively narrow and very difficult to understand (which can be seen by Kaldor’s, Hick’s and Sraffa’s interpretations — the former two being considered quasi-Hayekian). Furthermore, Keynes’ main influence — Marshall — was not completely privy to all the work outside of Walras (although they say that the first edition of Marshall’s Principles was more Mengerian than subsequent editions, and we know that Fisher’s original theory of interest was somewhat close to that of the Austrians). With what Keynes was aware of, furthermore, he did not necessarily agree with — The General Theory being a refutation of Wicksell’s theory of interest, for example.

My point is that there is more to Keynes and his economics than this post leads to believe. While I disagree with probably most of what Keynes has to offer, I nevertheless recognize that he is an economist worth of respect. No less, Keynes was no idiot who managed to sweep the economics profession because of how well his theories fit with statism or how ignorant his followers were. Keynes swept the profession because his theories were persuasive.

Don Boudreaux June 5, 2011 at 12:18 pm

I’m sorry, but I do believe that on matters of economics Keynes was indeed a simpleton. I offer here but one quotation, from page 220 of The General Theory, as evidence of Keynes’s simple-mindedness on matters of economics: “I should guess that a properly run community equipped with modern technical resources, of which the population is not increasing rapidly, ought to be able to bring down the marginal efficiency of capital in equilibrium approximately to zero within a single generation.”

Keynes here argues that capital can be made non-scarce (and, as he puts it in the preceding paragraph, that one key to making it non-scarce is “that State action enters in as a balancing factor to provide that the growth of capital equipment shall be such as to approach saturation-point….”). These are the words of an economic simpleton – a simpleton about the nature of capital, about the nature of scarcity and human wants, and about the nature of the state and “State action.”

Kevin H June 5, 2011 at 12:28 pm

Many find reasoned argument more persuasive than arrogance. You should give it a try,

Don Boudreaux June 5, 2011 at 12:33 pm

Is it arrogance for me to point out that Keynes believed that capital can be made non-scarce? Is it unreasonable to suggest that this belief that Keynes held is that of a simpleton?

vikingvista June 5, 2011 at 1:52 pm

No, but that is the kind of hollow retort you have to expect from someone whose god you’ve rationally dissected.

Jonathan M. F. Catalán June 5, 2011 at 12:34 pm


The issue is not whether Keynes was right or wrong. We both agree that, for the most part, Keynes’ theories are wrong. For instance, I think we can both agree that Keynes’ theory of marginal efficiency of capital is flawed on the basis that it ignores all the insight on the nature of capital and the production process developed between 1970 and 1930.

The problem with quoting only parts of the The General Theory, however, is that it misleads those who haven’t read the book into thinking that Keynes’ beliefs were arbitrary or unsupported. Keynes developed a theoretical framework behind his conclusions. This was his main contributions to economics, not his conclusions regarding post-scarcity or what have you. The theoretical framework is what the economics profession adopted, because they understood that one shouldn’t throw out the baby with the bath water.

Don Boudreaux June 5, 2011 at 12:40 pm

You are impressed that Keynes persuaded the economics profession to adopt (many of) his views. I’m not. Economists have long believed, and continue to espouse, a great deal of nonsense. And having read – very carefully – The General Theory, I find in it no sensible theoretical framework.

Jonathan M. F. Catalán June 5, 2011 at 12:47 pm

Like I said, this is not whether Keynes was right or wrong. It’s about whether or not there is more to Keynes’ economics than simple-minded theoretical assumptions. You accused Keynes of seeing economics from the same perspective as the worker. Keynes was a trained economist, and as such he was aware of a theoretical tradition before him. In fact, The General Theory was written as a correction to this tradition.

Keynes’ theories were complex. They deserve complex refutations. They do not deserve to be categorized as ‘simple’ or ‘unimpressive’. The only people who are going to agree with such, ironically, simple and unimpressive criticisms are those who are completely ignorant of the depth of Keynes’ work (a.k.a. “the choir”).

Joseph K June 5, 2011 at 1:21 pm

I admit that I’m commenting as someone’s who’s not intimately familiar with Keynes’ work, but I would suggest that what is going on is rather that Keynes developed a very sophisticate theoretical framework in order to rationalize relatively simplistic assumptions. I personally couldn’t say if this is the case with Keynes, but I do know this is the case with many philosophers in history. For example, it’s extremely impressive the theoretical innovation that Kant developed in his attempt to refute Hume. Kant read Hume, thought to himself “Hume’s got to be wrong,” and then figured out a very complex way of proving of it. Kant reasoned backwards: starting with his conclusions and figuring out the assumptions and logic that would lead to them; and because his conclusions were extremely difficult to justify it forced him to be quite brilliant and creative and create a system which (though riddled with nonsensical logic and dubious assumptions) has actually impressed philosophers more than Hume’s more basic insights.

Jonathan M. F. Catalán June 5, 2011 at 3:35 pm


I may be inclined to agree with you a little, but we have to remember that Keynes was not always a Keynesian. Keynes admits this himself (he was a Marshallian). He came to the conclusions of The General Theory after some time of being an economist. The book was not written to prove some life-long vision he had (although, his views on post-scarcity date to before The General Theory).

Gene Callahan June 6, 2011 at 7:48 pm

“I admit that I’m commenting as someone’s who’s not intimately familiar with Keynes’ work…”

So, don’t go and formulate uneducated hypotheses about it! There are people who have spent there whole life studying Keynes… let them comment on his work.

Gene Callahan June 6, 2011 at 8:40 pm

“Kant reasoned backwards: starting with his conclusions and figuring out the assumptions and logic that would lead to them…”

Well, given Hume’s conclusions were obviously wrong, that’s a fine place to start!

kyle8 June 5, 2011 at 7:27 pm

I think that Keynes was a good writer and a good salesman. Not a very good economist. However, maybe he was a smart guy.

The big problem is that his theory has given rise to a not very sophisticated political following, which includes a whole lot of people who took one or two econ courses in college and think they understand it all.

What his theory has become, over time, is little more than saying that a nation has the ability to tax, spend, and borrow it’s way to prosperity. I call as my first example, the recent Stimulus bill and the way it was sold in Washington.

DG Lesvic June 5, 2011 at 11:57 pm

You too got it just right.

Andrew_M_Garland June 5, 2011 at 4:17 pm

From the above, Keynes proposed that capital can be made non-scarce, that is, there could be enough capital (mcahines) for human wants within say 20 years, under proper government management.

Marx propose the same thing. The capitalists would build wonderful machines. Then the proletariat could take over the machines (the means of production) and live great lives by pushing the buttons.

It seems that both Keynes and Marx had no understanding of technology, and the same understanding.

It is amusing to consider what Keynes actually proposed and how he acted in private.

Keynes, Digger of Holes

Nemoknada June 6, 2011 at 8:12 am

“Marx propose the same thing. ”

Out in the rest of the internet, there’s this Law about how many exchanges it takes before someone likens someone to Hitler. Here at the CH, the nec plus ultra of economic bogeyman is Herr Marx, and so the rule applies instead to him.

Since Keynes lived after Marx, and did not embrace Marx, it seems fair to say that only simpleton – to use the word correctly for a change – would say that Keynes “said the same thing” as Marx. “Management” meant one thing to Keynes and another to Marx, duh.

Oh, BTW, post scarcity is coming. We already have it in capital – or did: ask Angelo Mozillo how hard it was to get capital to build a house in 2006 – and we will have in stuff soon enough – think 3D printers.

DG Lesvic June 5, 2011 at 11:51 pm

Right on! Perfect!

DG Lesvic June 5, 2011 at 11:55 pm

I directed that to Don’s description of Keynes as a simpleton.

In general he was surely a brilliant man but as an economist a simpleton.

Daniel Kuehn June 6, 2011 at 11:08 am

If bringing the marginal efficiency of capital to zero is the same thing as making capital non-scarce this is news to me.

Publish it, Don. Make this case to your peers.

Write a note and send it in somewhere arguing why you think a zero marginal efficiency of capital means non-scarce capital. I’d be interested in hearing their response.

Daniel Kuehn June 6, 2011 at 11:10 am

Not in a letter to the editor.

Current June 10, 2011 at 5:58 am

I’ve written an article about the argument between Daniel and Don here. It’s on the Cobden Centre website.

DG Lesvic June 5, 2011 at 1:49 pm

Congratulations on a brilliant, wonderful summary.

vikingvista June 5, 2011 at 1:55 pm

Simply beautiful. Thank you for this splendid accompaniment to my Sunday morning coffee. One of your best.

PrometheeFeu June 5, 2011 at 2:27 pm


I must admit to being somewhat disappointed by your treatment of Keynes. He was most likely mistaken, but he did have some useful insights that cannot be overlooked. For instance, his focus on animal spirits while excessive was not entirely unwarranted. More importantly, one of the things I (and I am sure many others) have appreciated most about this blog has been the respectful tone with which intellectual opponents are treated. You are far from having sunk to the depths of Brad De Long or Paul Krugman, but still, this is not the right direction.

DG Lesvic June 6, 2011 at 12:02 am

Don owes his intellectual opponents the opportunity to express their views. He doesn’t owe them one ounce of respect.

You may pretend that you respect someone like Keynes.

I don’t and I won’t.

PrometheeFeu June 6, 2011 at 11:21 am

Don does not owe his intellectual opponents anything. But to foster a more effective and interesting debate one should always show respect to one’s opponents if anything out of scientific humility. I find the Austrian macroeconomic story to be quite persuasive, but it may yet turn out to be wrong. Keynesian are not flat-earthers who believe something against overwhelming evidence. Much of the evidence in macroeconomics is quite ambiguous and some can be legitimately interpreted as supporting Keynesian positions. Some version of Keynesianism may well turn out to be right even if Don you and I doubt it very much. There is no shame in treating one’s opponents with respect.

muirgeo June 5, 2011 at 2:37 pm

A factual look at reality shows Keynes to be winning the debate with supply side ideology looking as the position of simple mindedness as well as boom bust depression economic outcomes.

Huge corporate earnings but stagnant wages and unemployment tell all. There is no trickle down when the conditions suggest there it should be storming… good thing some one invented the regime uncertainty meme to buy a little more time for the billionaires. We have followed the lazy fair economist recommendations with “free trade”, decreased taxes, decreased unionization, decreased regulation, decreased minimum wage ect… and here we are in a structurally bankrupt depressed economy. But these facts do not phase the supply sider… they arrogantly go on calling Keyens the simpleton.

Again conditions will not improve until we decrease our trade deficit, increase wages, reward productivity over speculation, increase taxes on extreme wealth and end the finacialization of our economy. UNTIL we see the conditions that create increased demand.

I can guarantee you pushes in the wrong directions or for that matter doing nothing as recommended by the libertarians will only make things worse. Time will show how foolish their position is requiring them to make up other excuses or explanations why things are failing.

Austerity measures are failing all around and regime uncertainty is a bankrupt simple minded idea as well.

We’ve done this experiment before and the results were clear. We are only repeating the experiment because those of money and wealth and influence have been able to declare war on economics and reality and set for a legion of Economic Vassals to do their bidding to brainwash the public with their propaganda. Indeed THESE economist have caused far more damage and death and destruction than any following of the prescriptions of Marx or Keynes might cause.

The only good thing about these inefficient economic methods that the current political class pushes is that they are so inefficient we have not run into real resource problems near as fast as we would were we to truly set up more shared prosperity and much greater economic efficiency.

DontPanic June 5, 2011 at 3:10 pm

Hi- your lack of data makes it clear that you’re a man in the street. A true economist would be dissatisfied with a theory that hinges upon an ad hominem. I’d type a true response, but your comment is too vague. Can you factually answer the following?

1) Why reward production over speculation? A market economy exists to solve the knowledge problem. Speculators are especially talented at solving the knowledge problem. For capitalism, what’s more valuable than allocating capital?

2) How would you increase wages? Is it unfair to purchase labor at the point where its marginal cost equals marginal productivity?

3) Define “Structurally bankrupt depressed economy”. Your comment makes me suspect that you’re an “alternatively” trained economist, but perhaps you’re just stringing together vocabulary.

4) Define the “trade deficit”. Are you concerned with the merchandise account balance, or the capital account balance?

muirgeo June 5, 2011 at 4:11 pm

1) Unbelievably ignorant question and claim. The financial global markets have crashed because we allowed speculators to create financial products to their liking. Giving the opportunity to show how unfettered markets could allocated capital and diminish risk they had an ….whats the term…. EPIC FAIL…. But apparently you missed that.

Right now speculators who don’t even hold or use oil products are able to monopolize 70% or more of all inventories and increase the price YOU pay at the pump completely devoid of market mechanisms…jeez I have to wonder what you think as you pay the billionaires an extra $5 bucks on each of your fill ups.

2) Increase wages by decreasing the retirement age, decrease the work week, increase the minimum wage, increase taxes on excessive wealth, decrease the incentives to off shore production, balance out trade, increase government funding for needed infrastructure, put more money into education….

3) A structurally bankrupt economy is one that has NO ability to increase wages, employment or productivity because it has shipped all its production overseas and finacialized the economy.

4) A trade deficit results when spend more than you produce and then sell off your assets to make up the difference. Our economy is specifically set up for this as it funnels huge amounts from the productive class to the leisure hedge fund class.

I’m so sick of people justifying this f’d up economy as something merit bases or “free” market. It’s totally rigged and kleptocratic. The way to get rich is specifically to subvert any price mechanism and ALL these jackasses who make a living doing so will tell you what supporters of free markets they are.

Their only market advantage is their lack of morals and their unbridled ape like greed.

CapitalistJackass June 5, 2011 at 5:09 pm

You entire argument is based on your own subjective valuation of what’s happening, and not based in any sort of fact or understanding of economic incentives.

You say “Their only market advantage is their lack of morals and their unbridled ape like greed” as though a different system of political economy would suddenly cure the world of greed – or rational self-interest.

1) “The financial global markets have crashed because we allowed speculators to create financial products to their liking.” Any specific examples? Can you give ONE example that doesn’t originate from state intervention or control. Specifics, please.

The oil speculators are a good example of how interventionism has distorted prices. The US subsidizes various parts of the oil industry which generally brings down the price. The speculators are indicating that the price should be higher for various reasons. As DontPanic noted, this is solving the knowledge problem.

2) “Increase wages by decreasing the retirement age, decrease the work week, increase the minimum wage, increase taxes on excessive wealth, decrease the incentives to off shore production, balance out trade, increase government funding for needed infrastructure, put more money into education….”

What? Do you even know what the secondary effect of all these things are? How would any of this help increase wages?

3) Again…. What are you even talking about? Who increases wages or employment? Does the government do it, or private enterprise? Shipping production overseas is not necessarily a bad thing, but one must understand specialization and comparative advantage, and I don’t think you do.

4) How are “huge amounts” being funneled to the “leisure hedge fund class.” Can you explain that, instead of making some vague general “man on the street” assumptions?

I’m so sick of people justifying this f’d up lack of understanding of the economy as something statist intervention can fix. It’s totally rigged, and not anything like a “free” market. The way to get rich is specifically to produce goods and services that are demanded better and more efficiently than competitors, and “use” the price mechanism as a coordinator. And ALL these jackasses who attempt to control free markets with interventions and regulations will try to tell you what supporters of free markets they are.

Their only market advantage is their lack of understanding and their unbridled ape-like ignorance.

kyle8 June 5, 2011 at 7:31 pm

You guys are making a mistake in engaging Muirgeo, He sticks to his simple narrative no matter what evidence you can muster.

Joseph Fetz June 5, 2011 at 9:10 pm

Haha! This should get interesting. Capital, work on that incentive/subective part, it will tear him to pieces. I guess that M is forgetting were that incentive is actually coming from…


Jonathan M. F. Catalán June 5, 2011 at 3:38 pm

What’s important isn’t rising nominal wages, but rising real wages. The way that firms earn their income is by producing, which is the only means of raising real wages. Any income earned outside of this coordination process should be considered illegitimate, but this is a product of government and it’s redistribution policies we know as ‘corporate welfare’.

DontPanic June 5, 2011 at 3:48 pm

So according to your argument, the increase in economic efficieny from speculation is undesirable? It certainly increases real wages, but I don’t agree with your claim that it’s “illegitimate”.

Jonathan M. F. Catalán June 5, 2011 at 3:55 pm

Since when is speculation synonymous with corporate welfare?

muirgeo June 5, 2011 at 4:31 pm

Don’t be a lumper…. some speculation is legitimate and good. What these unbridled markets have produced is a Casino economy.

Come people we need serious discussion and a little less dogmatism.

Jonathan M. F. Catalán June 5, 2011 at 5:57 pm

A lot of the ‘bad’ speculation you have in mind wasn’t a product of speculation, but of speculation with new money in a booming economy. It was speculation based on distorted market signals. The problem wasn’t speculation per sé, it was the causes of these distortions.

muirgeo June 5, 2011 at 4:29 pm

“The way that firms earn their income is by producing, which is the only means of raising real wages.” jonathan

That’s so wrong. The financial sector has went from 15% of profits to 40% of all corporate profits. It had little to do with being productive and was in net very damaging to our economy. The REAL producers were robbed by this scheme if they weren’t traded for foreign laborers.

Jonathan M. F. Catalán June 5, 2011 at 5:59 pm

In a world beset by the fundamental scarcity of human labor, that some jobs moved overseas isn’t really a problem. The problem is all the artificial handicaps that prevent a more flexible re-structuring of the economy, and all the welfare handouts government affords large businesses. Don’t blame business, blame these handicaps.

Stephan June 5, 2011 at 4:16 pm

muirgeo, Me thinks you waste a lot of energy. Facts don’t matter for a simpleton like Don Boudreaux. He wants to have his fight with JMK. So be it. Who cares? No respectable economist comes up with footnotes referring to Don Boudreaux. If some crazies think it is worth while to spend their money on Don Boudreaux education I’m also fine with their decision.

muirgeo June 5, 2011 at 4:41 pm

Yeah their positions are clearly so silly and unsupported by reality that I don’t take the philosophical or factual debate too serious. They really don’t give a crap about the facts. Market fundamentalism has had multiple clear epic failures documented throughout history. We sit in the middle of one and they blithely appear deaf dumb and blind to it. But in fact these people are the Gaurds or Vassals for the wealthy elites who need these bull crap economic theories promoted through our learning institutions, through our media, through their so called “think tanks’ and via any other method of propaganda they can find. They need their propaganda to pervade the national mind set so as to protect their fortures and positions of power. And with all their excess wealth and power they realize the rate of return on propaganda and lobbying politicians is way better then anything they could earn in a legitimate market. So now they are masters of propaganda… even their titled think-tankologist and professors in towers believe the non sense they spew.

Stephan June 6, 2011 at 5:29 pm

Agreed. But I won’t go into details. Only a waste of time. Some people like DG Lesvic and Don Boudreaux need a reality check. They seem to live in an alternative universe? Rothbard???

DG Lesvic June 6, 2011 at 12:07 am

Your “respectable” economists don’t engage Hayek, Mises, Rothbard, or any real economist, for they’re scared to death of them.

tarran June 5, 2011 at 3:15 pm

I strongly encourage anyone who is impressed with Keynes’ General Theory to read Hazlitt (of Economics in One Lesson fame) The failure of the new economics

Now though I have analyzed Keynes’s General Theory in the following pages theorem by theorem, chapter by chapter, and sometimes even sentence by sentence, to what to some readers may appear a tedious length, I have been unable to find in it a single important doctrine that is both true and original. What is original in the book is not true; and what is true is not original. In fact, as we shall find, even much that is fallacious in the book is not original, but
can be found in a score of previous writers.
Frankly, when I began this task I did not think I would arrive at so sweeping a conclusion. My first thought was that I might do a short work, analyzing Keynes’s chief doctrines so that the reader who wished a critical analysis would be able to find one in a brief and readable form. But when I actually embarked upon a line-by-line analysis, my experience was strangely like the one John Stuart Mill describes in his Autobiography regarding his analysis of Sir
William Hamilton: “As I advanced in my task, the damage to Sir W. Hamilton’s reputation became greater than I at first expected, through the almost incredible multitude of inconsistencies which showed themselves on comparing different passages with one another.” So I have found in Keynes’s General Theory an incredible number of fallacies, inconsistencies, vaguenesses, shifting definitions and usages of words, and plain errors of fact. My desire for thoroughness
in pointing these out has carried the length of this book much beyond what I originally intended.

Jonathan M. F. Catalán June 5, 2011 at 3:31 pm

Hazlitt’s book is very good. I think the only two economists, at that time, who could have written a convincing critique of Keynes were Hayek and Mises. Unfortunately, neither of them did. When they finally did critique Keynesian economics they did so in the same sweeping manner as Boudreaux, assuming that those who read their work already agreed with the underlying arguments being made.

In this sense, Hazlitt’s books is probably one of the most complete criticism’s of Keynes’ The General Theory. Also, I would suggest the book Hazlitt edited, The Critics of Keynesian Economics.

Murray Rothbard’s copy of The General Theory, now held at the Mises Library in Auburn, is also replete of notes, offering hints of arguments against the entirety of Keynes’ magnum opus. It would be nice if one day Rothbard’s copy was scanned and made into a PDF.

kyle8 June 5, 2011 at 7:35 pm

That I would love to read.

Joseph Fetz June 5, 2011 at 9:06 pm

Trust me, I would love to read that, as well. Jonathan is lucky in that he has had the opportunity to look through Rothbard’s library…

Jonathan M. F. Catalán June 5, 2011 at 9:11 pm

I actually haven’t. I remember Jeremiah Dyke, a guy who periodically blogs on, posting a few pictures of Rothbard’s copy.

Joseph Fetz June 16, 2011 at 2:59 pm

Hmm. I could have sworn that I read somewhere that you had seen Rothbard’s library, but maybe you were talking about a photograph (my memory escapes me). Considering how much that man read, I can only imagine that it was quite immense, it is amazing that he found time for a wife (or, she was extremely patient).

In either case, I apologize for the false attribute.

Vance Armor June 5, 2011 at 3:31 pm

Modern economics began with the Spanish Scholastics in the sixteenth century, as von Mises observed. Adam Smith probably did more harm than good to the development of economic thought. We would not have had Karl Marx without Smith, in my opinion. The labor theory of value, bootstrapped from Locke, was a long two hundred year error, an error that a greater economist, Anders Chydenius in the 1760s, did not adopt. Smith was a great spontaneous order theorist, however, and he does deserve great credit for that.

kyle8 June 5, 2011 at 7:37 pm

Of course you would have had Marx and Engels. Regardless of Smith or not, they were after change and power, they would simply have used criticisms of whatever was the prevailing economic thought of the time.

Jonathan M. F. Catalán June 5, 2011 at 9:19 pm

For what it’s worth, Rothbard’s (and Salim Rashid’s) interpretation of Smith has come under careful scrutiny.

Vance Armor June 5, 2011 at 3:43 pm

The Failure of the New Economics was the best book on Keynesian economics ever penned. Hazlitt is the great unsung hero of twentieth century economic literature.

Vance Armor June 5, 2011 at 4:00 pm

Here is a gem of Hazlitt from The Failure of the New Economics:

“Given the propensity to consume,” [Keynes] begins, “and the rate of new investment, there will be only one level of employment consistent with equilibrium.” The independent clause in this sentence wouldbe completely true without the dependent phrases. There is only one level of employment consistent with full equilibrium and that is full employment. That is true by definition. If there is unemployment, there must be disequilibrium somewhere.

When Keynes writes, “The effective demand associated with full employment is a special case, only realized when the propensity to consume and the inducement to invest stand in a particular relationship to one another” (citing p. 28 of the General Theory) he is either resorting to inexcusable mystification or he is writing nonsense. With equilibrium there is always full employment.

We could, of course, write the foregoing sentence from Keynes like this: “Full employment is a special case, only realized when consumption and investment are together sufficient to provide full employment.” That would be true by the very definition of our terms. We would only put the statement in that form as a joke, as if one were to say, “A week is a special case, only realized when it contains just seven days, no more and no less, in succession.”

Equilibrium, in short, exists only when the conditions of equilibrium are fulfilled. One of those conditions is full employment, and full employment always exists where there is equilibrium.

End of quotation from H. Hazlitt, The Failure of the New Economics, pp. 51-52 Van Nordstrom 1959.

It doesn’t get any better than this!!

Vance Armor June 5, 2011 at 4:05 pm

The beauty of Hazlitt’s critique, which is lost on so many people, I think, is that Keynes was a master of confusing the Universal and the Existential. Problems in economics are very much problems in logic and epistemology, and Keynes was a master at confusing the philosophical underpinnings of economics so that the existential case was reversed with the universal case, and vice versa, to reach a particular result — and that particular result was an economic ideology that gave him particular influence with the policy planners. In his heart, Keynes was a British imperialist and English chauvinist. He wanted to be on the “in” with the central planners.

Sam Grove June 5, 2011 at 4:21 pm

I don’t know much about Keynes, but I observe that at least one Keynesian seems to think “insufficient aggregate demand” is a sufficient explanation of recessions.

I find that explanation insufficient.

vikingvista June 5, 2011 at 4:24 pm

I’d even put “explanation” in quotes.

Daniel Kuehn June 5, 2011 at 4:52 pm


The coincidence that our two greatest economists and two greatest champions of liberalism share a birthday is damn near providential.

tarran June 5, 2011 at 11:21 pm


I never new that Liberalism meant government control of the economy!

Let me guess, Sun Tzu was one of the foremost proponents of pacifism.

maximus June 6, 2011 at 3:47 am

I think danny boy is trying to be a smart ass!!!

Vance Armor June 5, 2011 at 5:09 pm

I would not call Keynes a champion of liberalism. Keynes went so far, but only in the introduction to the 1st edition of the General Theory, as to admit that his theory would find a better reception in dictatorships. Keynes put his wet finger to the wind. Keynes is the classic example of the intellectual as opportunist. He only wanted to know which way the winds were blowing so as to be among the elite. When the Road to Serfdom was published, he wrote an effusive review. Hayek believed that in the months preceding Keynes death that Keynes was moving in a free market direction.

Daniel Kuehn June 5, 2011 at 9:18 pm

re: “Keynes went so far, but only in the introduction to the 1st edition of the General Theory, as to admit that his theory would find a better reception in dictatorships.

Gil June 6, 2011 at 12:53 am

Is Dictatorship bad considering Libertarians believe Democracy to be one of the worst forms of government? Doubly so considering Hoppe believe Monarchies to be superior and Singapore is a fairly free-market Dictatorship

DF Sayers June 5, 2011 at 7:14 pm

Smith was right of course: he recognized that it was labor that drives the economy. The absurdities of Say’s “perfect demand” and Keynes’ “demand works regardless of accumulation of capital” were not reflected in Smith’s ideas.

It’s worth noting that Smith is far closer to Karl Marx in his value calculation, to the point that he recognizes the problems of the accumulation of capital, graft and company power. They both recognized that labor created value, and the ownership of capital transferred the surplus portion of that value to capital owners. They both developed penetrating analyses of morals and economics which are useful today.

But in his policy proposals and general alignment, he was far more likes Keynes, regardless of his proximity to Marx. The fact is that they were both staunch supporters of capitalism – though I would say Smith was far more critical of capital. It’s not clear to me why a narrow subset of policies that have enjoyed a lot of publicity lately should be used to determine the character of economists who were far more prolific and substantial than the contemporary “market extremism” debate is.

Paul Walker June 6, 2011 at 1:04 am

There is a second issue with the Keynes/Smith birthdays coinciding claim. The date 5 June is the date from the Old Sytle Julian calendar. Scotland continued to use the Julian Calendar until 1752. It was only then that the Gregorian calendar was commonly used. But Keynes’s birth date is, of course, recorded using the Gregorian calendar and Smith’s birth date under this calendar would be 16 June. So again the birthdays would not coincide.

Vance Armor June 6, 2011 at 1:05 am

Dan Kuehn — I like the work you did analyzing Keynes’ German edition. It was my understanding — and please correct me if I am mistaken — that the 1st English language edition had some of the language that was more or less pro-fascist and it was pulled by the publisher, then Keynes authorized a 2nd English language edition that sold far more to the general public.

I am probably very mistaken because I have not researched this or looked into it all for several decades. I am just going on memory.

Even by whitewashing you give Keynes, he was still trying to reach his German audience, and in a way that would appeal to their lords and masters, or at least not offend them — in the late 1930s.

Daniel Kuehn June 6, 2011 at 6:07 am

1. I’m not interested in whitewashing at all. Keynes held some very objectionable views, for example he was very interested in eugenics. I have no interest in whitewashing him even if I admire him for other things. It’s like Jefferson – I admire him a lot but I’m not going to claim he thought something he didn’t actually think w.r.t. to slavery. I didn’t whitewash anything – what I said about the German foreword is my best understanding of what Keynes thought.

2. You may not be mistaken on the first edition, but if something like that was written in the first edition it would be news to me, and it would be a little surprising to me honestly. Keynes was obviously more of an interventionist than most people are today – and it’s probably fair to say he was more of an interventionist than I am. It would not be surprising if he alluded to “experiments” elsewhere and even if he had Italy or Germany in mind. It would surprise me a lot if he said anything more than that. He despised totalitarians of the right and the left from the very beginning in each of those regimes and he made his thoughts known in no uncertain terms. The most that can be said of him is that he hoped for the best – he hoped that the regimes he despised would transform into something more positive for the Russians, the Italians, and the Germans. But he was criticizing them openly ever since Lenin and Mussolini took power very early on, and he was certainly critical of Hitler.

If you know anything more on it, I’d definitely be interested.

Vance Armor June 6, 2011 at 1:06 am

Dan –

You have the potential to become the Walter Kaufmann of John Maynard Keynes. Kaufmann scrubbed all the naughtiness of Friedrich Nietzsche and made him palatable to the English-speaking public. You are doing the same for Keynes. Congratulations on your new role.

Daniel Kuehn June 6, 2011 at 6:08 am

The English-speaking public on both sides of the Atlantic found Keynes quite palatable even in his own time.

Vance Armor June 6, 2011 at 3:13 am

Keynes was the master of the argument that a child’s jumping on a pogo stick denies the reality of gravity.

DG Lesvic June 6, 2011 at 4:05 am

Simply characterizing Keynes as a simpleton was being charitable. All anti-market “economics” is anti-economic Madman Economics.

Saying that there was no scarcity and no need to economize, but rather to consume and even squander, was economics on its head, its antithesis, not economics but anti-economics.

The theory that the market is mad and running of cliffs without public officials to restrain it, that ordinary men in the market are irresponsible children who must be saved from themselves by the liberal “adults,” Communist Big Brothers, or Fascist fathers who know best, is that there is Man and Superman. And while those who think they’re the supermen are mad enough, the maddest are those who believe them.

WhiskeyJim June 6, 2011 at 9:17 am

It is this general argument that justifies the tone of Don’s post, despite comments implying he is too hard on the ‘brilliant’ Keynes.

For those of us who could never imagine attempting to ‘manage’ an economy, Keynes appears irrational at best. That otherwise intelligent humans actually aspire to create such implied positions and then occupy them, goes beyond hubris.

Let us begin with the Fed and the Presidency as defined in the last 100 years. Like Eugenics, and the growing popularity of the idea that all people naturally aspire to democratic freedom, we see that the attraction to silly and harmful ideas is a very common tendency throughout history, and must be avoided with all energy.

One might say I am faith based when I assert that the most foundational and first refutation of Keynes should have been moral; based on the precepts of a self-actualizing humanity. His logical fallacies are all uncovered from that beginning, as are virtually all wayward philosophy, sociology, and psychology that lead to the bankruptcy of economies and cultures.

That scholars can not yet readily identify such harmful and yes, silly arguments, means we will always drastically under-perform given current knowledge.

DG Lesvic June 6, 2011 at 2:32 pm

By the way, the “liberal” Keynes was a proponent of eugenics, the gateway to genocide.

See my favorite recent book, Political Economy, Public Policy and Monetary Economics: Ludwig von Mises and the Austrian Tradition, by Richard M. Ebeling, P 241

Antonio Mendes June 6, 2011 at 5:45 am

What a rubish conclusion. Marx-inspired policies kept half of humanity in slavery for over 75 years, while Keynes-inspired policies saved millions from prolonged unemployment by smoothing the business cycle. The first laboring in Gulag-type concentration camps and the second at the cost of higher inflation. How can you compare both?

Unfortunately, it is fanatical arguments like this that give libertarians a bad reputation as a bunch of loony extremists.

WhiskeyJim June 6, 2011 at 9:30 am

while Keynes-inspired policies saved millions from prolonged unemployment by smoothing the business cycle

It surprises me that someone of your education and experience makes such a sweeping statement, for at the least given your implied Keynesian premise, you must also acknowledge that those same policies have also bankrupted all of western Europe and will cause a decline that makes Greece look like a walk in the park.

That is not to say that it must be a rational perception that Keynesian policies ‘smooth a business cycle.’ There can be substantial disagreement on what those terms even mean, much less if doing so is warranted or desirable or helpful.

Respectfully, certainly a man of your intelligence must be able to at least appreciate the argument that the bureaucracies that result have caused as much harm as they have attempted to avoid, the instruments dull and imprecise, the men in power human and error prone, while the stakes could not be higher and the cost of error gargantuan.

Gene Callahan June 6, 2011 at 10:40 am

“It surprises me that someone of your education and experience makes such a sweeping statement, for at the least given your implied Keynesian premise, you must also acknowledge that those same policies have also bankrupted all of western Europe and will cause a decline that makes Greece look like a walk in the park.”

You’re being silly. Keynes never advocated continually running deficits.

WhiskeyJim June 6, 2011 at 6:18 pm

I submit a great portion of the critique of theories is their practical execution.

DG Lesvic June 6, 2011 at 6:12 am


Inflation doesn’t “smooth” the business cycle.

It creates it.

Yam Slemho June 6, 2011 at 6:34 am

Has the ability and drive of butchers, brewers, and bakers really contributed so much to economic growth that they warrant specific mention as entrepreneurs, I wonder? Prior to the industrial revolution, what sort of technical innovations were these professions making, and over what sort of time scale?


Vance Armor June 6, 2011 at 9:01 am

Antonio Mendes — I believe that when all is said and done the accounting of the number of deaths due in large part to Keynesian interventionism and the political imperialism it has engendered may actually exceed the 96 million deaths directly attributable to Marxism, according to the Black Book of Communism. Murray Rothbard remarked that there is one good thing about a Marxist — he is not a Keynesian.

Antonio Mendes June 7, 2011 at 6:05 am

Do you mean that the millions killed by the Nazis were killed because the Nazis pursued Keynesian policies? That is nonsense. Otherwise why would the British Prime Minister ask Keynes to prepare a text to counter the German economic propaganda? Nazis, like any other politicians, simply hijacked whatever economic policies served their short term interest. I suggest you read the memoirs of the German leading central banker at the time – Hjalmar Schacht “Confessions of the Old Wizard”.
Incidentally, today the Marxists are also trying to hide their failures by embracing some of Keynes ideas. Not Keynes fault, is it?

Vance Armor June 6, 2011 at 9:03 am

Dan Kuehn –

Thanks. If anything turns up, I’ll keep you posted.

Slappy McFee June 6, 2011 at 10:39 am

Can we all someday agree that “demand” is what governments and goons do? The rest of us have to bring a supply to exchange. Price is when supply and supply meet.

DG Lesvic June 6, 2011 at 2:16 pm

Slap Happy,

Of course you meant to say that price is when supply and demand meet.

Nonetheless that was the simplest and most brilliant statement I have ever seen on the subject.

Hail to Slappy McFee, but not to the mother who gave him that name, the greatest anti-Keynesian of them all.

Vance Armor June 7, 2011 at 12:36 pm

Antonio Mendes — Keynesianism is especially dangerous because it comports well with imperial states, such as Germany’s National Socialist War Machine and America’s Progressive Empire. Marxism, in the long run, is not as dangerous as Keynesianism because its economic impossibilities reveal themselves soon enough (though tragically not soon enough in many circumstances as the bloody twentieth century showed) to prohibit the kind of imperial slaughters that Keynesian regimes are capable of producing. The dangerousness of Keynesianism lies in its potentiality.

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