Quotation of the Day…

by Don Boudreaux on October 10, 2011

in Books, Economics, State of Macro

is from Henry Simons’s brief and scathing review, in July 22, 1936 issue of The Christian Century, of Keynes’s General Theory:

Mr. Keynes submits his treatise as a frontal attack upon traditional economic theory.  Orthodox economists are rather defenselessly exposed to the charge of making bad applications of their relative-price analysis – of applying carelessly an analysis which abstracts from monetary disturbances in the discussion of practical questions for which monetary problems are crucially important….  But the author attacks, not the bad applications of traditional theory, but the theory itself – with results which will impress only the incompetent.

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Observer October 10, 2011 at 8:34 am

Paul Davidson, here:

Keynes’s general theory is rigorous and consistent – and once one recognizes that the future is uncertain in terms of a nonergodic stochastic process, then one can understand that to self-interest of each individual is to protect themselves from an uncertain future where bankruptcy can occur if one cannot meet ones’s money contractual obligations in a capitalist system.

Thus money contracts (inflows and outflows) are used by individuals to protect themselves from adverse unmanageable net cash flows. The purpose of liquid assets[7] traded on organized and orderly financial markets is to provide a security blanket against one’s inability to meet a contractual obligation outflow.

Thus when the market for mortgage backed derivatives that were advertised to be “as good as cash” i.e., perfectly liquid (and triple A rated) collapsed, the loss of so much liquidity caused panic (a reflexivity response) in other markets for assets that had been previously thought to be very liquid. Asset holders in many markets tried to make “fast exits” and the result was a financial collapse and crisis.

In sum, Keynes’s liquidity theory of the operation of financial markets is a rigorous, logically deductive system that appears to be applicable to the real world in which we live and should replace the artificial world model of Lucas and other mainstream economists.


Randy October 10, 2011 at 9:07 am

I read the General Theory. Rigorous is not the word that comes to mind (though it is consistant politically). And even were it rigorous, it isn’t put into application by rigorous people, but rather, by politicians. So it doesn’t work. It just results in significant debt that must be paid by the non-politicians. So I would introduce Keynes to James – if it doesn’t work, it isn’t true.

Anotherphil October 10, 2011 at 1:26 pm

Obserbot confuses tedious and relentless for rigorous and consistent.

It is something of an obsession of the left to assume that more opaque a work is, the more profound it is -it feeds their intellectual vanity. Unfortunately, it makes them susceptible to the specious and disingenuous tracts of arrogant, pretentious charlatans like Keynes.

Randy October 10, 2011 at 2:03 pm

I was reading through the great books for awhile and a trend I noticed, beginning with the greeks, and picking up again with the scholastics, was what seemed to be a deliberate attempt to obfuscate. I realized, though, that it was possible to work quickly through many of the books by reading the first few pages carefully to discover the error, and skipping the rest knowing that it would be nothing but chapter upon chapter of obfuscation piled over the orginal error. And it seems to me that many of our leftist friends are modern scholastics… of course some of them are just idiots.

The Other Eric October 10, 2011 at 10:00 am

You suggest Keynes is rigorous and even logical, yet you write that orgy of of a run-on sentence that ends: “…money contractual obligations in a capitalist system.” Your Koolaide must be tasty indeed. You are truly intoxicated with exuberance of your own verbosity.

Anyone so in love with polysyllabic textual engagement practices would surely love Keynes (and ignore his several and serious contradictions).

By way of an example: The loss of liquidity caused losses, not panic. Your story of causation is widely held but wrong when looking at history (market trend data) and sentiment (survey data). The “panic” began before the first actual failures and the market trading volume and declines in values indicate the market “knew” the bubble was going to burst four and half months before the floor fell out.

There are realities of transactional information systems and structures in financial markets that Keynes doesn’t address because he couldn’t in 1906 or 1931. His constrained academic and colonial background kept him at the 40,000 foot level of abstraction. His theories, often described by others with details he does not supply, describe long dead market systems responding to historical events that will never be reproduced. There are still people seeking to translate his tortured prose today, but then again there are many who see causation in strings of holy words, the patterns of distant stars, and the mumbling of central bankers.

I’ve read Keynes General Theory and several of the articles and responses he wrote. (Honestly his best writing was his obituary of Marshall.)

Keynes created a rigorous, logical system? That simply isn’t true.

Observer October 10, 2011 at 10:32 am

take it up with the author of the piece

I am an observer—we report–you decide.

The realities you mention are not “realities.” There is no such thing as an efficient market, etc. All life is human psychology, beyond the ability of economics to model, beyond certain sound, fundamental propositions.

But don’t take my word. Read the other essays at the site with Davidson

Mesa Econoguy October 10, 2011 at 1:07 pm

You seem to be a rather poor example of your moniker, leftist.

Anotherphil October 10, 2011 at 1:27 pm

You are hardly objective.

yet another Dave October 10, 2011 at 12:17 pm

So Paul Davidson, and presumably you, are among those impressed folks Henry Simon so accurately described.

Daniel Kuehn October 10, 2011 at 9:01 am

Clearly a lot of non-incompetent people have been impressed with Keynes. I don’t think anyone can challenge this. You’ve noted my competence in the past, Don (differentiating me from other critical commenters) and I’m impressed by Keynes – so there’s one example. There are thousands of other examples out there. In other words, Simon presents a spectacularly wrong reading of Keynes even by your own judgement of those impressed by Keynes. So why are you quoting him?

Don Boudreaux October 10, 2011 at 9:06 am

I quote Simons because (1) I share his assessment of The General Theory, and (2) given Simons’s prominence, his evaluation of Keynes’s glorification of crack-pot theories is especially telling.

Doc Merlin October 12, 2011 at 1:23 am

I don’t think it matters. We still teach our undergrads those crackpot theories as if they were true. And as long as those theories are taught, they will continue. This is in large part, because the more accurate mainstream theories, are considered too difficult for freshmen to understand.

Observer October 10, 2011 at 9:45 am


The opposition is dishonest and reflects Boudreaux underlying political goal: a return to America on the day after Dred Scott

The Cause, The Cause, The Cause . . . That’s what swirls around in Don’s dreams

The Other Eric October 10, 2011 at 10:07 am

Observer, you are a liar.

There is nothing in Prof. Boudreaux’s career, life, or writings to suggest your delusions.

“The opposition?” You identify with a social-political ideology to such an extent that you think those who suggest alternative views are member of some opposing group or class?

Observer, please allow a correction. You are an idiot and a liar.

Observer October 10, 2011 at 10:19 am

Mencken follower = The Cause

There is nothing in Prof. Boudreaux’s career, life, or writings to suggest he has anything but delusions.

Don dreams of owning slaves, under the following twisted logic:

“The Union soldiers in that battle [Gettysburg] actually fought against self-determination; it was the Confederates who fought for the right of their people to govern themselves. What was the practical effect of the battle of Gettysburg? What else than the destruction of the old sovereignty of the States, i.e., of the people of the States? The Confederates went into battle free; they came out with their freedom subject to the supervision and veto of the rest of the country—and for nearly twenty years that veto was so effective that they enjoyed scarcely more liberty, in the political sense, than so many convicts in the penitentiary.” — Journalist H.L. Mencken, From “Five Men at Random,” “Prejudices: Third Series,” 1922, pp. 171-76: First printed, in part, in the “Smart Set,” May, 1920, p. 141

Richard W. Fulmer October 10, 2011 at 10:37 am

The reasons for which the South fought are subject to debate. While, like you, I believe that it fought primarily to perserve slavery, there is evidence that they fought for other reasons: for example, their opposition to high tariffs (Lincoln supported them). Reasonable people can discuss the causes of the Civil War and the motives of the combantants without approving of slavery. In any case, none of this has anything to do with Keynes. Again, your attempt to smear Don on a completely unrelated issue brings discredit to you and your arguments.

Sam Grove October 10, 2011 at 12:59 pm

Southern succession may have been about slavery (and northern political dominance, but the war was waged over succession.

Darren October 10, 2011 at 1:11 pm

One fact was that only 10 percent of the southern population owned slaves. This suggests to me that at a minimum a very large minority in the south fought primarily for state sovereignty. 1783 to 1861 is only 78 years. The idea of a single unified nation where every state and citizen bowed to the authority of the central government had not yet fully taken hold.

Anotherphil October 10, 2011 at 1:34 pm

War almost never has a clear and singular cause. The first casualty of war is the truth, and that includes the truth of the cause.

Richard W. Fulmer October 10, 2011 at 10:21 am

Your attempt to associate people with whom you disagree with a deplorable and racist Supreme Court decision brings no credit to you and adds no weight to your argument. The Dred Scott decision obviously has nothing to do with either Keynes or his theory. Your resort to a despicable ad hominem attack indicates that you are unable to reply with either fact or logic.

Observer October 10, 2011 at 10:53 am


My attacks are not despicable ad hominem attacks

you have before someone who dreams of Mencken and The Cause. He writes such.. He wants to be on a desert island with one book, of Mencken. I take him at his word.

Mencken hated Lincoln, The Nation, everything about Modernity. This isn’t some parlor intellectual game with Don, albeit that is how he tries to play. This is his core: he is a racist, worships racist, and dreams of a place among the elite in an America on the day after Dred Scott. This “liberation” crap is just Code—he cannot come out and openly advocate slavery so he gets as near to the line as he can. He puts up someone else’s words as a quote about the masses being intellectually challenged, etc. To whom is he referring?

Don’t take my word for it. Ask him. Ask him what he thinks of Lincoln. Ask him what he thinks of the Proclamation, which was the most important and powerful (and unconstitutional act) ever act ever by a President but was absolutely essential to Modernity. He will tell you, if he is honest, that he hates Lincoln, hates the Proclamation, and hates Modernity.

Cameron October 10, 2011 at 11:30 am

Observer, I’m a pretty simple guy, and this is terribly confusing for me. As far as I understand it, libertarianism is about as diametrically opposed to slavery as is possible. Help me reconcile this understanding (or misunderstanding) with your accusation that Don is secretly trying to trick me into becoming a racist bigot? What am I missing here?

Seth October 10, 2011 at 2:01 pm

“My attacks are not despicable ad hominem attacks”

Do you know what an ad hominem is or are you just disputing the word ‘despicable’?

Observer October 10, 2011 at 11:03 am

Dred Scott/Keynes

the common thread is Modernity.

Dred Scott was the high water mark in the America war against Modernity. Being a champion of Modernity, Keynes is self-evidently an enemy of the reactionary forces opposed to Modernity. The opposition to Keynes isn’t on the merits. It most basic. It opposition to everything the man stands for. Someone mentioned Keynes on Marshall. People on the other side hate Keynes for the same reasons that hate Roosevelt and Marshall and Truman

Price B October 10, 2011 at 11:41 am

I agree- Bordeaux must be a racist. All of his support for unrestricted immigration is actually because he wants MORE slaves. That’s all classical liberals want too- Von Mises, Hayek, Friedman? Super-Racists. Every. Last. One.


Or, how about this rigorous, logical, and compelling argument? Any decent intellectual can appreciate a good idea and reject a bad idea FROM THE SAME PERSON. So it is entirely possible to believe that “Lincoln did some good things AND some bad things.”

Daniel Kuehn October 10, 2011 at 10:25 am

I think there’s a lot that’s illogical with Don’s fixation on Keynes, but I’m not quite sure what Dred Scott has to do with it.

Observer October 10, 2011 at 10:43 am

the man tells you what’s on his mind

he lives in a dream world of HL Mencken and The Cause

such a mind, which totally rejects modernity, can never accept one of the principal architects of modernity, Keynes—they are blood enemies


Daniel Kuehn October 10, 2011 at 10:49 am

Ya I’m still missing the slavery connection.

Sam Grove October 10, 2011 at 1:02 pm

You are painting Don with a dirty brush in order to discredit him.

Is Lincoln among your saints?
He did nothing bad?

Richard W. Fulmer October 11, 2011 at 8:30 am

Let’s see. Observer likes Keynes. “Keynes” rhymes with “chains.” Chains are symbolic of slavery. Therefore, Observer likes slavery. Simple

somercet October 25, 2011 at 4:05 am

And this Observer is why my future blog will never have comments. Vicious, filthy Internet trolls descend on them; why should I give them space?

Gore Vidal loves Mencken; him, too?? Shocking! Oh, no, wait, you’re a retard. I would never return America to the antebellum, but many other aspects of that America are still good and true, and nostalgia “is one hell of a drug.” :-D

Rob October 10, 2011 at 10:07 am

But here’s what does not make sense. If we agree that Keynes was wrong, what explains his wide spread acceptance in the discipline? In other words, how are we not to conclude that via a system of free transactions, Keynes has been continually put to the test in the market of free ideas and come out quite well? If we challenge this position, don’t we do fundamental violence to the concepts which we claim to champion in opposition to Keynes?

indianajim October 10, 2011 at 10:25 am

1) The “system of free transactions” you assert does not exist; the government plays a large and ever increasing role in subsidizing purveyors of government-friendly propaganda.
2) Secondly, tests of macro-theories are particularly difficult; winnowing theories in macro can reasonably be expected to take time.
3) Ergo, no “violence” is done to non-socialist economics by challenging Keynes’s central planning wet dreams.

Rob October 10, 2011 at 10:56 am

You seem to have misunderstood my point. I was suggesting that we do violence to any market based theory by continually suggesting, as you do, that Keynes gained provenience via some conspiracy. If we respect market outcomes, don’t we have to respect Keynes for thriving in the market place of ideas?

Randy October 10, 2011 at 11:34 am

Keynes did not thrive in a free market of ideas. He thrived because he absolutely exceled at producing an idea that politicians are willing to pay for. So, is the political organization a “conspiracy”? Well, yes, it is. A large scale conspiracy to exploit a population.

indianajim October 10, 2011 at 11:43 am

No misunderstanding on my part. In addition to what I said before also there is, as Thomas Kuhn explained in a famous book (The Structure of Scientific Revolutions), paradigm changes are resisted in science due to entrenched interests and what Russ Roberts often talks about as “confirmation bias”.

Seth October 10, 2011 at 1:46 pm

Just like public education?

Observer October 10, 2011 at 10:28 am


Glad you realize the more than a paradox in which you find yourself.

Keynes never wrote anything extraordinary or unusual or out of bounds.

In fact, I drive people nuts because I follow Keynes common sense observation that is good times we should raise taxes, run a surplus, and pay off debt. (Wouldn’t it be nice if we held 3 or 4 trillions in Chinese and European Bonds, right now?). I believe that the current raising taxes debt is a farce—I think Obama should be presenting budgets that raise enough taxes to pay off debt (talk about a truth, you cannot handle the truth moment)

What people who are against Keynes doesn’t like, because they think they are smart enough to be a slave owner, is that Keynes provides tools that can help the middle and lower classes, especially at times like now. This is contrary to their world view, which is that government’s purpose is to make the rich richer and more powerful.

In sum, opposition to Keynes is not intellectual, it is political, and unless your are honest enough to admit that to yourself . . .

indianajim October 10, 2011 at 10:51 am

“…because they think they are smart enough to be a slave owner…”

In the words of Herman Cain: “That dog won’t hunt!”

Sam Grove October 10, 2011 at 1:04 pm

What people who are against Keynes doesn’t like, because they think they are smart enough to be a slave owner, is that Keynes provides tools that can help the middle and lower classes, especially at times like now. This is contrary to their world view, which is that government’s purpose is to make the rich richer and more powerful.

Whatever motivates you to make such a vile interpretation is particularly ugly.

somercet October 25, 2011 at 4:06 am

Why would we bankrupt ourselves to purchase Chinese debt? No sense.

Daniel Kuehn October 10, 2011 at 10:29 am

The “marketplace of ideas” metaphor is just a metaphor. There is no market mechanism, and since presumably what we’re looking for is not things of subjective value only – but ideas with objective value (whatever that is) – we wouldn’t even WANT a real market mechanism when it comes to ideas.

All that having been said – who says we agree Keynes was wrong?

g-dub October 10, 2011 at 11:08 am

But here’s what does not make sense. If we agree that Keynes was wrong, what explains his wide spread acceptance in the discipline?

He wrote a blank check to government. It is all a giant cascade from there.

g-dub October 10, 2011 at 11:09 am

And it puts statist economists in the position of High Priests.

yet another Dave October 10, 2011 at 7:47 pm

Clearly a lot of non-incompetent people have been impressed with Keynes.


Greg G October 10, 2011 at 10:13 pm

Among those impressed by Keynes was Hayek, who called him “an intuitive genius but not a great economist.” Unlike most on this blog, Hayek also recognized that Keynes never advocated unending fiscal deficits which is the way Keynesianism is usually misunderstood today by its’ foes and its’ purported supporters. Keynes himself was partially responsible for this misunderstanding “The General Theory” would have been better titled “The Special Theory On How to Get Out of a Depression.”

Dan H October 10, 2011 at 10:47 am

KEYNES: I cannot sell my home! What shall I do?
REALTOR: I think we should decrease the price.
KEYNES: Nonsense! It is obvious that there’s a liquidity trap! There’s not enough demand for my house!
REALTOR: Well, yeah there’s not enough demand at THIS price. We should drop the price down.
KEYNES: No, the banks need to loosen lending standards so that I can sell my house.
REALTOR: But then the price of the house you’re LOOKING to buy will go up, and you’re no better off.

Daniel Kuehn October 10, 2011 at 10:52 am

Don’t confuse relative prices with aggregates.

Of course this is what needs to be done at the micro level. The question is, what are the macro implications?

Observer October 10, 2011 at 10:55 am

Of course this is what needs to be done at the micro level. The question is, what are the macro implications?

This blog with never talk about this, which is the relevant question

Seth October 10, 2011 at 1:49 pm

If that’s the question, the answer is that we’ve been living the macro-level for past few years. Not many are fond of it.

Economic Freedom October 10, 2011 at 6:48 pm

The question is, what are the macro implications?

The question for whom? A central planner?

Since the house-seller has already been given the solution to his problem — lower the price — who cares about the macro implications? That’s completely irrelevant.

Greg Webb October 10, 2011 at 2:12 pm

Excellent, Dan H! There are only microeconomic solutions to macroeconomic problems. All the market (people) to function because that is the microeconomic solution. Stop government intervention because that creates macroeconomic problems.

vthfsc October 10, 2011 at 10:49 am

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kyle8 October 10, 2011 at 11:55 am

Keynes, impressing the incompetent since the 1930′s.

Mesa Econoguy October 10, 2011 at 1:34 pm

Impressing the economically illiterate since the 1920s.

Anotherphil October 10, 2011 at 1:37 pm


Add. the incompetent and the scheming.

David Clayton October 10, 2011 at 12:03 pm

Strange bedfellows in the criticism of Keynes. Simons? Here?

Sam Grove October 10, 2011 at 1:12 pm

Observer is a hit man for the regime.
Truth is not his concern here.
Taking down Cafe Hayek is his purpose.

Hence the vile dishonesty.

Mesa Econoguy October 10, 2011 at 1:35 pm

These peons are economically ignorant leftist stooges, and should be treated with contempt.

Michael October 10, 2011 at 1:45 pm

I agree that the guy is trollin’, but isn’t this a little melodramatic?

Sam Grove October 11, 2011 at 3:55 pm

Another frequent visitor admits that his main purpose is to discredit free market advocacy.

As they can’t do it honestly, they do it dishonestly.

Sam Grove October 11, 2011 at 3:58 pm

The regime controls trillions of dollars.

It would be foolish to assume that they would never do anything to undermine its critics.

House of Cards October 10, 2011 at 2:02 pm

I don’t think that Don is a racist anymore than you are. He loves a rich black man or woman as much as he does a rich white man or woman. No one can be too rich in his mind. If one person owns everything, and everyone else owns nothing, then you better be prepared to kiss some serious ass to survive.

It’s you are poor and try to organize democatically that is when he has a kinipshin fit. He despises the government and politicians and would prefer to be ruled by corporations, the wealthy, and the corporate controlled mass media. And even if he admires and derives inspriation from Mencken, that does not mean he subscribes to everything Menchken believed.

kyle8 October 11, 2011 at 7:12 am

well I for one would rather be ruled by corporations than by politicians.

Politicians in this country have in the past, enslaved, executed, imprisoned, conscripted, censored, experimented on, taxed and regulated the people.

Corporations on the other hand have produced goods and services I want and need.

They sure look more like the good guys to me.

Philo October 11, 2011 at 4:01 pm

The Simons review was amazingly prescient, especially considering its date.

But your comments section seems to have been hijacked, even without a contribution from Muirgeo!

verde the wveyn October 11, 2011 at 5:50 pm

So, DB’s favorite author is someone who has on occasion offended Observer’s delicate sensibilities, so that makes DB a bad person? That is insane. Mencken has on at least two occasions written scathing analysis of groups that I happen to be a member (Southerners & Cubans), but I got over it. Grow some skin and a pair while you are at it. The world has no shortage of wusses at this juncture of time.

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