The Spurious Grocer Philosophy
Mises's English-language writings are clear and direct, but he was not a gifted prose stylist like Schumpeter, Hazlitt, or Rothbard (or, for that matter, Keynes, who used sonorous phrasing to conceal murky thinking). Still, some characteristic Misesian expressions — "exploding the fallacy," for instance — stick in the memory.
One of my favorites is from the 1953 addendum to The Theory of Money and Credit. In "The Principle of Sound Money," Mises contrasts the competent economist's view of depression and unemployment with the layman's:
Business is bad, says the grocer, because my customers or prospective customers do not have enough money to expand their purchases. So far he is right. But when he adds that what is needed to render his business more prosperous is to increase the quantity of money in circulation, he is mistaken. What he really has in mind is an increase of the amount of money in the pockets of his customers and prospective customers while the amount of money in the hands of other people remains unchanged. He asks for a specific kind of [monetary] inflation; namely, an inflation in which the additional new money first flows into the cash holdings of a definite group of people, his customers, and thus permits him to reap inflation gains. Of course, everybody who advocates inflation does it because he infers that he will belong to those who are favored by the fact that the prices of the commodities and services they sell will rise at an earlier date and to a higher point than the prices of those commodities and services they buy. Nobody advocates an inflation in which he would be on the losing side.
This spurious grocer philosophy was once and for all exploded by Adam Smith and Jean-Baptiste Say. In our day it has been revived by Lord Keynes.
Keynesian economics, despite its obvious failure in theory and practice, is a kind of beast that won't die. Careful, painstaking analysis and refutation is always needed, but sometimes a little ridicule helps stir the pot. Krugman likes to talk about the "Hangover Theory," so let's respond by reminding readers what's wrong with the Spurious Grocer Philosophy.