They'll Never Hear the End of It; J. Chamberlain

THEY'LL NEVER HEAR THE END OF IT FOR almost a full quarter of a century John Maynard Keynes's famous General Theory of Employment~ Inter est and Money has hung heavy over our heads. The "Bible" of people who have certainly never plowed their way through some of its more oppressive chapters, it has bemused the subject of economics with a whole new vo cabulary: "failure of demand," "marginal efficiency of capital," "propensity to consume," "liquidity prefer ence," "the multiplier," "aggregate demand," "euthan asia of the rentier." These terms rocket through our eco nomic literature, throwing off dense clouds of inky blackness. It is not that the terms cannot be defined; the trouble is, as Henry Hazlitt demonstrates with great clarity in his The Failure of the ((New Economics": An Analysis of the Keynesian Fallacies (Van Nostrand, 457 pp., $7.50), that the great Lord Keynes fought shy of giving them any Mr. Chamberlain, critic, journalist, and editor, has written a number of books and innumerable reviews as well as articles for newspapers and magazines. This is one of his regular monthly reviews for The Freeman.

78 THEy'LL NEVER HEAR THE END OF IT 79 precision. He let most of them do duty for a variety of things, some of them highly contradictory. But when he came to putting his words into the algebraic formulae that have become so fashionable in economics since the time of Stanley Jevons, he assumed they could be trans lated into precise entities. Like the Hexpert" who figured in the late Benjamin Stolberg's comic story, Keynes had a habit of never pausing on his way as he swept forward with inexorable logic from the initial error to the grand fallacy of the conclusion. To review in small space Mr. Hazlitt's demolition of the whole Keynesian structure is a physical impossibility. Mr. Hazlitt takes up the General Theory line by line and paragraph by paragraph, discovering scores of errors on almost every page. Not only does he kill Keynes; he cuts the corpse up into little pieces and stamps each little piece into the earth. The performance is awe-inspiring, masterly, irrefutable-and a little grisly. At times one almos t feels sorry for the victim. But, since Keynesian doctrines have created so much misery in the world, any sympathy is misplaced. Hazlitt's job had to be done.

As Hazlitt indicates, Keynes considered that Say's Law of Markets-the law or theory that production creates its own purchasing power-did not hold true, especially in a complex modern society. But, again as Hazlitt says, the Law is in itself merely a truism. If goods exchange for goods, it is obvious on the face of things that the crea tion of a good puts something into circulation that can be traded for something else. The creation of the good does not necessarily guarantee its creator a profit. But, 80 JOHN CHAMBERLAIN unless the good is burned or dumped into the sea or seized by the government or stored away in a cave to rot, it is and must be purchasing power. ((Failure of Demand" So what was Keynes talking about when he made "fail ure of demand" the keystone of the "new economics"? As Hazlitt makes plain, Keynes had to assume his conclu sions despite the evidence of his own senses. In parts of the General Theory, Keynes accepts the classical truth that savings and investment are two faces of the same coin. But, to arrive at his "failure of demand" postulate, Keynes had in other parts of the General Theory to as sume that savings did not flow into investment when "liquidity preference" was rampant. The limited amount of truth in the Keynesian formulations is that the time lags that are attendant upon the swings of the business cycle create momentary imbalances. But, when the eco nomic system is free, the imbalances give way to new swings toward equilibrium. With his bias toward author itarianism, Keynes did not like to watch people working their way out of temporary difficulties by use of their own wills, brains, and emotional drives. An aristocrat at heart, he wanted to assign the common people-Veblen's "underlying population" -their duties and tasks as well as their pleasures.

Again and again Hazlitt pauses amid his purely techni cal refutations of Keynes to observe the hand of the auto crat in the General Theory. Keynes proposed to correct THEy'LL NEVER HEAR THE END OF IT 81 the "failure of demand" by artificial stimulation of the "propensity to consume." Capital must be put to work by edict, even when it had no "marginal efficiency." De mand and consumption must be "multiplied" by "gov ernment investment" (a high-toned phrase for inflation or for tax-and-spend give-aways), until "aggregate de mand" had created "full employment." It would not matter if private ownership were snuffed out by the con tinuation of such policies-the "rentier" could be left quietly to die as his capital and its concomitant income disappeared. Keynes, says Hazlitt, is the Karl Marx of the twentieth century. His economics is demagogic-it gets its vast in fluence, its "dynamism," from its sly incitement to the mob to snuff out all creditors. In Keynes the money lender has replaced the capitalist as the villain.

The Keynesian appeal to demagogic passions chimes in with the contentions of certain labor leaders, that high wages are necessary to sustain "purchasing power" regardless of their relation to man-machine productivity. The Keynesian system makes no allowance for wage cuts in industries which have seen their markets shrink be~ cause of the cost-price squeeze on the customer. Although Keynes knew very well that almost all costs, in the last analysis, are labor costs, he never dared mention the possibility that a downward revision of wages in certain industries might result in an increase in the real purchas ing power of labor and in a forward movement toward the full employment of all available labor. Any such ad mission would have left Keynes without political influ82 JOHN CHAMBERLAIN ence on the Left. And it was such influence, rather than a reputation for scientific accuracy, that Keynes most prized.

A basic trouble with Keynes, says Hazlitt, is that he had reverted to "block" or "lump" thinking. Despite his assumed modernity, his habit of considering himself part of le dernier cri among the fashionable Bohemians of Bloomsbury, he was a man of the seventeenth century, a mercantilist, in all of his preconceptions. When he wrote of wages, he forgot that wage payments are individ ual before they are parts of an average or a "level." He could not conceive of a situation in which the wages in one industry might be too high at the same time that wages in another industry, or sector of the economy, might be too low or too mixed. Because of his accent on "aggregates," he thought of national purchasing power as a lump. Taking off from the Keynesian concept of "aggrega tive" economics, the political disciples of the Great Man have fallen into the error of supposing that anything which stimulates "aggregate demand" must add some thing of value to the Gross NationalProduct. Accordingly, the manipulators of the GNP and the "national income"

propose .to subsidize all sorts of moribund or marginal industries and regions on the theory that this constitutes economic progress. If the construction industry is in the doldrums, why, the way to a sumptuous "national in come" is to pour government money into cheap housing. If the farms of Appalachia or the Ozarks are struggling along at the same time that rich farmers in Nebraska THEY'LL NEVER HEAR THE END OF IT 83 aren't making quite what they would like to make, why, the way to a maximized GNP is to pour "lump" money into agriculture. It does not matter to Keynesian "block" thinkers that this is primarily a way of subsidizing backwardness and, at the same time, of choking off the possible emergence of new "ladder" industries, such as the automobile indus try once was. If there had been Keynesians around in Henry Ford's day, they would have poured "lump" money into the carriage business and they would have subsidized the blacksmiths. Quite probably they would have choked off much of the experimentation that has re sulted in the modern automobile and the modern high way system.

Hazlitt's book is a joyful paradox in that it successfully combines a number of ways of looking at Keynes and Keynesianism. It exposes Keynes's fallacies in broad stroke, as though Hazlitt were looking at a mountain range through a telescope. But it also exposes the falla cies microscopically. As a by-product of his inquest, Haz litt provides us with a beautiful series of essays on the uses, the abuses, and the limitations of mathematical eco nomics. The book is ponderous in its scope, but it is witty in its detail. Because of its technical nature it will proba bly never sell in the hundreds of thousands. But the Keynesians will never hear the end of it.