Quotation of the Day…

by Don Boudreaux on May 23, 2012

in Economics, Myths and Fallacies, Scientism, Seen and Unseen, State of Macro

… is from page 179 of the latest book from Robert Higgs, Delusions of Power.  Here, Bob is critical of “vulgar Keynesianism” – the specifics and language of which he, earlier in the same essay, rightly blames Paul Samuelson’s Principles for inflicting upon the populace.  (There’s little question that “vulgar Keynesianism” – and even the core content of academic Keynesianism – dates back to times far before Keynes.  [Heck, as J. Ronnie Davis showed, much of it was in the air even at Chicago pre-Keynes!]  The economically uninformed business-person’s focus on aggregate demand as the driving force in an economy – the man-in-the-street’s simplistic notion that ‘if only people would spend more, all would be better’ – is the rocky soil in which Keynesianism, vulgar or otherwise, is rooted.  [Updated]  As Bob explains, Keynesianism isn’t economics; it’s a rejection of economics.); (original emphasis):

In fact, “the economy” does not produce an undifferentiated mass we call “output.”  Instead, the millions of producers who bring forth “aggregate supply” provide an almost infinite variety of specific goods and services that differ in countless ways.  Moreover, an immense amount of what goes on in a market economy consists of dealings among producers who supply no “final” goods and services at all, but instead supply raw materials, components, intermediate products, and services to one another.  Because these producers are connected in an intricate pattern of relations, which must assume certain proportions if the entire arrangement is to work effectively, critical consequences turn on what in particular gets produced, when, where, and how.

These extraordinarily complex micro-relationships are what we are really referring to when we speak of “the economy.”  It is definitely not a single, simple process for producing a uniform, aggregate glop.  Moreover, when we speak of “economic action,” we are referring to the choices that millions of diverse participants make in selecting one course of action and setting aside a possible alternative.  Without choice, constrained by scarcity, no true economic action takes place.  Thus, vulgar Keynesianism, which purports to be an economic model or at least a coherent framework of economic analysis, actually excludes the very possibility of genuine economic action, substituting for it a simple, mechanical conception, the intellectual equivalent of a baby toy.

An earlier version of the essay from which this quotation is pulled is here.

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