The New Orthodoxy

June 21, 1965

Because a paperback edition is now available of John Maynard Keynes’ General Theory of Employment, Interest, and Money, first published in 1936, The New York Times invited John Kenneth Galbraith to write a front-page essay for its May 16 Book Review on the “revolution” that Keynes brought about in economic thought. Galbraith came through with a dozen columns.

It is a typical Galbraith performance. It hails “the Keynesian revolution” as “one of the great modern accomplishments in social design,” and reveals for the first time that “it brought Marxism in the advanced countries to a total halt.” Those who believe from reading their daily papers that there has been an unparalleled spread rather than a halt in socialistic thinking and policy in the last 29 years are apparently the victims of a persistent illusion.

Though Galbraith talks of the “fascinating obscurity” and “unique un-readability” of Keynes’s General Theory, he proceeds to interpret its message with the utmost confidence. He assures us that Keynes’s unintelligibility is a handicap, not to his disciples, but only to his critics. In fact, he scoffs at the very idea that there could be or has been any intelligent criticism of the General Theory: “Those who objected to Keynes were also invariably [my italics] handicapped by the fact that they hadn’t (and couldn’t) read the book.”

REFUTATIONS

I am very happy to assure the reader, nevertheless, that there have been some intelligent refutations of Keynesian doctrine. It would be immodest for me to refer to my own Failure of the “New Economics” (1959). But I can mention with much better grace the anthology I compiled in 1960, The Critics of Keynesian Economics, containing answers by more than twenty eminent economists. And I can point with complete disinterest to the brilliant demolition by Prof. W.H. Hutt, Keynesianism—Retrospect and Prospect, which appeared in 1963.

Keynes initiated no “revolution” whatever in economics. What is original in his book is not true, and what is true is not original. Keynes merely developed a complicated rationale and a novel vocabulary to resurrect seventeenth-century mercantilism and the age-old nostrum of inflation.

Galbraith admits as much. The essence of the Keynesian remedy, he tells us, is to assure sufficient “aggregate purchasing power” at all times by “incurring a deficit.” He even deplores the “double-talk” of those who say we can have both Keynesian policies and balanced budgets.

PRINTING MONEY

Galbraith’s candor stops only in failure to make clear (or even to understand?) that the increases in “purchasing power” brought about by deficits are merely increases in the number of paper dollars. But this must mean that each dollar will soon have a correspondingly lower purchasing power. If real purchasing power could be increased simply by printing more money, India and Africa would have nothing to worry about.

Galbraith does make one indisputable statement: “Keynesian policies are the new orthodoxy.” They are practiced today by nearly every government.

What has been the result? There has been an almost continuous worldwide inflation. In the last ten years alone the German mark has lost 19 percent of its purchasing power, the British pound 26 percent, the Italian lira 27 percent, the French franc 36 percent and leading South American currencies from 92 to 95 percent.

In the United States we have had 29 deficits in the last 35 years. The dollar has lost 43 percent of its purchasing power even since 1945. Statistical studies show no correlation over the last 35 years between deficits and percentage of unemployment.

Meanwhile, Keynesian deficits, inflation and cheap-money policies have brought about a chronic deficit in the U.S. balance of payments. Government officials blame this not on their own policies but on American private business. Refusing to abandon those policies, the government imposes “guidelines” on wages and prices, and controls on tourists and investors. It is government addiction to Keynesian policies that made Federal Reserve chairman Martin’s brave warning of June 1 so necessary.