Quotation of the Day…

by Don Boudreaux on November 30, 2011

in Complexity & Emergence, Hayek, State of Macro

… is from page 401 of Axel Leijonhufvud’s magnificent 1968 treatise On Keynesian Economics and the Economics of Keynes:

If one must retrace some steps of past developments in order to get on the right track – and that is probably advisable – my own preference is to go back to Hayek.  Hayek’s Gestalt-conception of what happens during business cycles, it has been generally agreed, was much less sound than Keynes’.  As an unhappy consequence, his far superior work on the fundamentals of the problem has not received the attention it deserves.

Leijonhufvud then, in a footnote, singles out for “especial” attention Hayek’s articles “Economics and Knowledge” and “The Use of Knowledge in Society.”

I share the widespread view that Leijonhufvud’s Armen-Alchian-and-Robert-Clower-inspired interpretation of Keynes is way off base – an interpretation that Gottfried Haberler, for example, quite rightly described as being “entirely unconvincing.”  I suspect that it is Leijonhufvud’s interpretation of Keynes as having had a far better grasp of microanalytics than Keynes actually had that prompts Leijonhufvud (seemingly) to buy into the prevalent assessment that Hayek’s “Gestalt-conception of what happens during business cycles … was much less sound than Keynes’.”

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ralph November 30, 2011 at 10:15 am

Proposals advanced by many professionals are ideas that represent the best that they know now. Hayek and Keynes both changed some of their ideas after their initial presentations and possibly more than once. It would therefore seem to me that we shoud be aware of such possibilities and do some thinking on our own and at least make sure that we know the latest thinking. We may even learn that the final speed of light could change.
To read the Fedalists papers could give one more ideas and explanations of the constitution and we note that some of the Supreme Court Justices have further interpretations. Economics is not an exact “science” and resembles ever changing ideas.

Nikolai Luzhin, Eastern Promises November 30, 2011 at 10:27 am

well tell us Don or Russ, is Say’s law a law or a fiction?

It really is that simple, isn’t?

And since we all know it is fiction (we don’t have a barter economy and thus people must hoard cash out of fear of a future with no social safety net), the only answer is that Keynes is correct.

At the end of the day it is all about aggregate demand. Always has been and always will be.

Randy November 30, 2011 at 10:42 am

At the end of the day only politicians give a crap about aggregate demand. And even then only to the extent that it can be used as propaganda to rationalize increased spending – that is, have you ever heard of a politician saying “aggregate demand is way up, guess we should decrease political spending”? ‘Cause I haven’t.

The Other Eric November 30, 2011 at 12:42 pm

Nik, your lip-moving reading of the Cliff Notes version of economics aside, let me refute you.

Keynes is incorrect because his theoretical assumptions have led to predictions. None of those predictions have turned out to be true.

And then there’s your lie. Very few US consumers are hoarding cash. You are just wrong, but I’ll assume, from your previous trolling, that you just wanted to lie.

In the US the social safety net has grown from almost nothing in 1917 to something like $28k per year, per American today– and that average obviously obscures the fact that many in the US do not use the many and varied programs, raising actual delivered aid amounts, per recipient. And what has this rising, not missing, social support done for our nation? Has it eliminated want? Eliminated hunger? Provided you with greater intellectual capacity?

Nikolai Luzhin, Eastern Promises November 30, 2011 at 8:38 pm

Dear Other Eric

tisk tisk tisk

macro economics is as simple as I stated the subject. There either is or there is not a Say’s law. Since there is no Say’s law, we are either a Keynesian or know nothing. Seems you have self-classified yourself into irrelevancy as KN.

Now, you assert that Keynes theoretical assumptions have led to predictions. None of those predictions have turned out to be true. I don’t know who made the predictions or on what basis so putting up a complete defense is not possible.

However, this much I can say. It seems to me that to properly test Keynes at least three conditions would have to be meet.

First, one would have to have a very accurate picture of the scope and extent of the damage which one is attempting to repair. This last time around I believe it is pretty well agreed that the estimates—no one thought them accurate to justify any word stronger as to certainty and I thought what was stated or implied was too certain—we badly off and that conditions were much worse than stated.

Second, the program would have to be Keynesian. We all ought to be able to agree that Obama’s stimulus wasn’t Keynesian, it was political.

Third, you have to eliminate a lot of variables which have never been controlled, things like states that continued to reduce spending, total opposition by the GOP, a near take down of the economy over the debt extension this summer, the steady march toward the failure of the Euro because the currency union is not strong enough politically, wars, pestilence, and ever earth quakes and tsunamis.

Now, notwithstanding all of this, the stimulus still worked. It may not have worked as CR said it would or you seem to have personally hoped, but it is hard for me to see how you can hold Keynes responsible for her silliness in over promising.

As for consumers hoarding cash, I read the charts differently. Before on can hoard on has to first de-leveage, which appears apace, at least according to Krugman, yesterday. Here is the link


In sum, Keynes had no hunt in the political fight you seem to want to pick over our inadequate social safety net.

One last observation. Keynes, more than anyone, was into confidence. Obama did things that did not build confidence, so how you can fault Keynes is beyond me.

The Other Eric December 1, 2011 at 2:57 pm

I’m done with any responding to you– you obviously haven’t read Keynes, you don’t have a background in economic research, or understand how economic research is pursued and published.

You are empty, and your writing here is some sort of odd hobby without merit or rigor.

Invisible Backhand November 30, 2011 at 11:07 am

Let’s not forget this magnificent LSD trip from the dynamic duo:

LEIJONHUFVUD: I wonder how you would sum up your recent work, the position that you’ve arrived at now. I tried to think of it the other night when I knew I was coming here, and it seems to me that beyond the concrete issues, such as the denationalization of money, and beyond your proposals for constitutional reform, you are really addressing yourself to intellectuals in general, and that your basic plea is for intellectuals to respect unintelligible products of cultural evolution.

HAYEK: Exactly.

Invisible Backhand November 30, 2011 at 3:53 pm

And let’s not forget that I’m the only fair-minded, just, and knowledgeable person here. I know that because I feel it, and because I said so.

NIKOLAI: I wonder how you would sum up your recent work, the position that you’ve arrived at now. I tried to think of it the other night after I came down from my habitual heroin nod, and it seems to me that beyond concrete issues, such as the complete, top-down planning of every aspect of an individual’s life by their ‘betters’ — experts from academia chosen by leftist politicians who need to remain in power by promising special interest groups free goodies redistributed from other groups of unspecial interest — you actually have nothing to offer except trolling and making irrelevant comments on subjects about which you know nothing. Would that be an accurate summary?


Ryan Vann November 30, 2011 at 12:13 pm

Leijonhufvud, sounds like an excellent brand name for a Scotch

Jon Murphy November 30, 2011 at 12:17 pm

I was thinking a vodka, myself. Maybe we should go into business together? The Leijonhufvud Distillery: Makers of fine Scotch and Vodkas!

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