Quotation of the Day…

by Don Boudreaux on October 29, 2011

in Uncategorized

… is from page 192 of Hayek’s 1978 collection, New Studies in Philosophy, Politics, Economics, and the History of Ideas; specifically, it’s from a 1972 essay entitled “The Campaign Against Keynesian Inflation”:

What we are experiencing are simply the economic consequences of Lord Keynes.  It was on the advice and even urging of his pupils that governments everywhere have financed increasing parts of their expenditure by creating money on a scale which every reputable economist before Keynes would have predicted would cause precisely the sort of inflation we have got.  They did this in the erroneous belief that this was both a necessary and a lastingly effective method of securing full employment.

The seductive doctrince that a government deficit, as long as unemployment existed, was not only innocuous but even meritorious was of course most welcome by politicians.

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W.E. Heasley October 29, 2011 at 8:20 am

The seductive doctrince that a government deficit, as long as unemployment existed, was not only innocuous but even meritorious was of course most welcome by politicians. – F.A Hayek

“Keynes was exceedingly effective in persuading a broad group—economists, policymakers, government officials, and interested citizens—of the two concepts implicit in his letter to Hayek: first, the public interest concept of government; second, the benevolent dictatorship concept that all will be well if only good men are in power. Clearly, Keynes’s agreement with “virtually the whole” of the Road to Serfdom did not extend to the chapter titled “Why the Worst Get on Top.”

Keynes believed that economists (and others) could best contribute to the improvement of society by investigating how to manipulate the levers actually or potentially under control of the political authorities so as to achieve desirable ends, and then persuading benevolent civil servants and elected officials to follow their advice. The role of voters is to elect persons with the right moral values to office and then let them run the country“. – Milton Friedman

Daniel Kuehn October 29, 2011 at 8:39 am

Hayek mocks Keynes regularly, accusing him of not being familiar with continental economists. But this makes you wonder how familiar Hayek really was with the Keynesians of the time and of the prior several decades. I sort of doubt he ever taught Keynes, and he hadn’t really professionally engaged it (i.e. – on an analytic level) except for swipes like this which seemed to be getting more common for him by this period.

Russ recently restated the point about Samuelson’s pessimism for the post-war period. I did some reading on other peoples’ views and it turns out Keynes himself, Nick Kaldor, Lawrence Klein (somebody has told me about him – haven’t found the source yet myself), Alvin Hansen (in the same volume that Samuelson is always quoted from!) as well as major Keynesian institutions like the CED and Brookings were all optimistic about post-war growth… and what did Kaldor and Hansen (and likely others) say was the single most important thing to worry about in the post-war period?

Reducing inflation.

Because Hayek has all these youtube videos up and we don’t have youtube videos of Kaldor or Hansen or Klein or any of the rest of them we’ve all just been lulled into taking Hayek’s word on points that have simply become accepted – things like Keynes having dinner with Hayek and saying that he was worried his followers wouldn’t be concerned about inflation. After spending some time in the library with the material I’m ready to call “BS” on that unsubstantiated claim. Almost all of the Keynesians in the mid-forties (Samuelson is the one notable exception I’ve found so far) were talking about controlling inflation in the post-war period. The basic Keynesian models (if Hayek even knew them) all clearly highlight the dangers of inflation that kick in without output or employment benefits.

We should stop endorsing stuff with so many holes in it. There’s so much fantastic stuff that Hayek writes – we don’t need to reach for what he wrote when he was cranky about Keynes. If you want to talk about the 1970s let’s talk about OPEC and Nixon.

Invisible Backhand October 29, 2011 at 11:10 am

Winner, Best Comment of the Week

Methinks1776 October 29, 2011 at 11:13 am

Ha ha ha! If only you understood any of it.

vikingvista October 29, 2011 at 12:58 pm

I give you credit for traveling to the stacks to pursue this issue. Not being my field, I can’t justify traveling further than the Jstor. But knowing the skepticism of your audience, don’t you think honoring that effort with some supporting quotes and references would have more impact?

Daniel Kuehn October 29, 2011 at 5:03 pm

Ya – they can start with Hansen’s chapter that immediately precedes the Samuelson chapter that always gets quoted.

Nobody that quotes Samuelson from the source has an excuse not to see that. And if you’re going to quote Samuelson quote him more broadly. He himself laments that he’s the only one that’s worried and that everyone else is optimistic.

Craig October 29, 2011 at 7:11 pm

Hayek was quite clear that what we were experiencing was the result of the pupils of the good Lord — not the Lord, himself. Oh, my heavens, not the Lord, himself.

Chucklehead October 30, 2011 at 2:59 am

You have failed to address the veracity of the claim, but instead lament a attack for it’s own sake.

Anotherphil October 30, 2011 at 11:19 pm

This is the most coherent prose of an Econ Phd candidate?

Disasociated November 2, 2011 at 10:06 am

Craig is, of course, right. Hayek had great personal and (slightly less) professional and intellectual admiration for Keynes, but often worried what Keynesians that shared his flawed premise but not his character or intelect would eventually make of his work. He was proven right, particularly with respect to Samuelson, who´s Economics (1948) remains the best-selling economics textbook of all time and has solidified into a large chunk of academic orthodoxy. It was this Vulgar Keynesianism (Bob Higg´s term, as I trust you all know) that became conventional wisdom later on, thanks to the likes of Samuelson and Galbraith, and to which Nixon referred when he claimed “We´re all keynesians now”. ( he was wrong of course. No one was keynesian, there were just the vulgar pseudo-keynesians and their opponents)
Even today, you cant, for the life of you, actually get some stimulus that Keynes would approve of. You need not have any love for keynes to know that he would find Obama´s stimulus, for example as a complete failure, while having to concede none of his fundamental points. JM Keynes, while wrong on many points, was actually an intellectually curious and honest empirical thinker. Samuelson and his ilk, including those who call themselves Keynesians now, are as far from his actual point as Pat robertson and Jerry Falwell were from Christ´s.

Greg Ransom November 3, 2011 at 6:35 pm

Once again, Daniel is spreading false information about Hayek.

Very sad.

Hayek spent a year writing his review of Keynes’ _Treatise_. Perhaps no one knew that text better than Hayek.

Keynes sent Hayek a pre-publication copy of _The General Theory_, and there is ever indication that Hayek read the book.

LSE students participated in a weekly get together with Cambridge students in the 1930s — Hayek would have been privy to much of that conversation, which was dominated by discussions of “Keynesian” ideas — many of which originated with these members, and not with Keynes.

Greg Ransom November 3, 2011 at 6:37 pm

Hayek new the original mainstream “Keynesian” economics — written by Kaldor & Lerner & Hicks.

Becky Hargrove October 29, 2011 at 9:22 am

It helps to remember the direct historical and sociological contexts that each economist lived in , and for Hayek and Keynes, that context was even more pronounced than the differences of the present. However, Hayek can now be seen as the more prescient of the two owing to the ability he had to use what is sometimes known as a beginner’s mind. I like to think that he will be the one everyone really remembers, with the passage of time.

Becky Hargrove October 29, 2011 at 10:01 am

When people grow weary of politics because of all the nonsense that goes on, sometimes the lesser elements of opposing factions win out, as they did in Louisiana recently. I believe that Hayek’s ideas can serve as a bridge for the greater elements of ‘opposing’ factions who would come together for the defense of the individual, and in the process strengthen the economy.

muirgeo October 29, 2011 at 10:07 am

“What we are experiencing are simply the economic consequences of Lord Keynes. ”

I’ll take the “experiencing” of Lord Keynes over that of what we are experiencing from Lord Friedman any day.


Dan J October 31, 2011 at 2:49 am

These ‘messes’ are the direct result of govt meddling for political, financial self-interests, or ideologically driven agendas on how things ‘should be’. Govt ceases meddling, we have less problems. There is no such thing as equal outcomes.
Indeed, I too, believe Keynes advocated govt meddling in the market to attempt desired outcomes. And, only the a skewed prism can one think that their interferences have achieved success.
With the nutty leftists, the desired outcomes were ot achieved because of some variable, known as ‘men’, did not play along and altered their theory. So, they go back to the drawing board, rules and regulations on the variables, but not ceasing the elimination of moral hazard and the bigger role in their scheme, known as GSE’s (Fan/Fred). Fan/Fred go untouched so that they may reprise their scheme again with controls on the scapegoat (Wall Street).

Greg Webb October 31, 2011 at 1:20 pm

Hayek said, “The seductive doctrince that a government deficit, as long as unemployment existed, was not only innocuous but even meritorious was of course most welcome by politicians.”

Hayek was correct! It is silly to argue that government can spend huge amounts of money without consequences, or worse, can use those expenditures to help anyone other than their political cronies.

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