Warren, a patron of Cafe Hayek, e-mailed me over the weekend to ask what, in my opinion, are “the silliest ideas ever held by serious economists.” I take his question to refer to modern economists – that is, post-1871 and the marginal revolution. And I take “held by serious economists” to mean “held by a significant number of serious economists.” Finally, I take “silliest” to refer to something worse than mistaken. The labor theory of value, for example, is mistaken, but it’s not silly (at least not if — like Adam Smith, David Ricardo, and other classical economists — you’ve not been exposed to marginalism). Likewise, the Keynesian notion that more consumer spending is key to creating jobs is mistaken but not silly.
Warren’s question is interesting. I have five candidates for really silly ideas held by serious economists, offered here in no particular order.
1. The belief of many Keynesians (including John Maynard Keynes himself) that modern capitalism suffers a paucity of attractive investment opportunities.
2. The belief — especially prominent among a number of antitrust scholars in the 1970s and 1980s — that innovation is a means of monopolistic predation that should be policed by antitrust authorities. (I wrote on this topic of “nonprice predation” many years ago in Regulation.)
3. The fear that economic growth causes inflation.
4. The theory of Perfect Competition — and the equally static theory of Monopolistic Competition.
5. The Phillips Curve notion of an inherent tradeoff between unemployment and inflation.
Dishonorable Mention: the notion that government debt isn’t a problem to the extent that it’s held domestically — to the extent that “we owe it to ourselves.” Jim Buchanan’s 1958 book, Public Principles of Public Debt, exposed the foolishness of this idea.
