… is from page 423 of Frank Graham’s December 1944 article in the Economic Journal (Vol. 54, pp. 422-429) entitled “Keynes vs. Hayek on a Commodity Reserve Currency“:
Lord Keynes, however, is, I think, not right in saying that ‘the error of the gold standard lay in submitting national wage-policies to outside dictation.’ The original gold standard did not submit wage-policies to dictation, by governing authority anywhere, but made them the resultant of impersonal forces issuing out of the disposition, and potentiality, of individuals to follow what they conceived to be their own interest. This system, as Professor Hayek points out, had many virtues, and we should be badly advised if we throw away its virtues along with its imperfections.
Graham, of course, is correct. The point on which he here criticizes Keynes is yet further evidence that Keynes’s disregard of microeconomics – Keynes’s obsession with aggregates, an obsession that numbs one’s analytical senses to the need to understand how unplanned order emerges spontaneously from the countless actions of individuals and to the relevant, detailed ways in which that order can be compromised by various snags and imperfections in the microeconomic firmament – rendered Keynes a poor economist.
