… is from page 8 of L. Albert Hahn’s 1949 collection The Economics of Illusion; specifically, it’s from the final paragraph of that collection’s opening essay, “Cycles in Monetary Theory and Policy”:
As far as government interference itself is concerned, one should never forget that serious economic disturbances are the consequences of basic maladjustments. The effect of correcting or not correcting such maladjustments is infinitely greater than any artificial creation of demand by government in an economy that, in most sectors, is still free. Therefore an economic policy that concentrates on artificially filling up an investment or spending gap rather than on fostering adjustments – and thus creating demand in a natural way – is doomed to fail in any severe crisis.
Inadequate demand is easily seen; it’s the experience of every struggling business person. And every struggling business person is correct in his or her own self-assessment: if demand for whatever it is he specializes in selling rises sufficiently, then he, his business, and his workers and other suppliers would indeed thrive.
In contrast, microeconomic maladjustments across both space and time – what Arnold Kling might call unsustainable patterns of specialization and trade – are not seen by anyone (save by careful economic theorists). Only one of several consequences (falling demand) of these maladjustments is noticed at the individual level. And that consequence is then too easily identified as a cause – in much modern macroeconomics (particularly Keynesianism) as the cause – of sluggish economic activity.
The lamentable prescription is to treat the consequence – remedy the pain directly – treat the symptom. Such symptom-salving has obvious political advantages, chiefly because most people untutored in economics are naturally mercantilists and vulgar Keynesians: their economics is based upon that which is only most obvious – and inadequate demand is a most obvious source of problems for businesses and workers. So the underlying, deeper cause goes unnoticed and, hence, untreated – even, likely, worsened by the facile policy of treating only the symptom of inadequate demand by directly pumping up “aggregate demand.”
L. Albert Hahn (1889-1968) was a German banker and economist who has the distinction (as he himself recognized) of having endorsed, as a young man, Keynesian notions even before Keynes himself did so, and, later, rejected Keynesianism as being deeply flawed. In 1990 George Selgin and I published a paper on Hahn in History of Political Economy, entitled “L. Albert Hahn: A Precursor of Keynesianism and the Monetarist Counterrevolution.”