I must say that the more I read the general, all-around works of the “Chicago school” of economics, the less I am impressed.

In The General Theory, Keynes set forth a unique politico-economic sociology, dividing the population of each country into several rigidly separated economic classes, each with its own behavioral laws and characteristics, each carrying its own implicit moral evaluation. First, there is the mass of consumers: dumb, robotic, their behavior fixed and totally determined by external forces. In Keynes’s assertion, the main force is a rigid proportion of their total income, namely, their determined “consumption function.”

Particularly suffering from historical neglect is the most famous of the French laissez-faire economists, Claude Frédéric Bastiat (1801–50), to whom the two-volume Dictionnaire d’Économie Politique (1852) was respectfully and affectionately dedicated. Bastiat was indeed a lucid and superb writer, whose brilliant and witty essays and fables to this day are remarkable and devastating demolitions of protectionism and of all forms of government subsidy and control. He was a truly scintillating advocate of an untrammelled free market.

Mercantilism as the Economic Aspect of Absolutism

By the beginning of the seventeenth century, royal absolutism had emerged victorious all over Europe. But a king (or, in the case of the Italian city-states, some lesser prince or ruler) cannot rule all by himself. He must rule through a hierarchical bureaucracy. And so the rule of absolutism was created through a series of alliances between the king, his nobles (who were mainly large feudal or post-feudal landlords), and various segments of large-scale merchants or traders.

It’s official! Long after everyone in America knew that we were in a severe recession, the private but semi-official and incredibly venerated National Bureau of Economic Research has finally made its long-awaited pronouncement: we’ve been in a recession ever since last summer. Well! Here is an instructive example of the reason why the economics profession, once revered as a seer and scientific guide to wealth and prosperity, has been sinking rapidly in the esteem of the American public. It couldn’t have happened to a more deserving group.

It was a scene familiar to any nostalgia buff: all-night lines waiting for the banks (first in Ohio, then in Maryland) to open; pompous but mendacious assurances by the bankers that all is well and that the people should go home; a stubborn insistence by depositors to get their money out; and the consequent closing of the banks by government, while at the same time the banks were permitted to stay in existence and collect the debts due them by their borrowers.

This is an aspect of thinking which has been called “thinking the unthinkable,” deflation having had an extremely bad press everywhere. I want to reconsider the concept of deflation even though it is now un­thinkable. After all, five to ten years ago the concept of default in New York was also unthinkable, and yet it has at least partially happened and hopefully will continue to intensify in the future.

The concept of the supply of money plays a vitally important role, in differing ways, in both the Austrian and the Chicago schools of economics. Yet, neither school has defined the concept in a full or satisfactory manner; as a result, we are never sure to which of the numerous alternative definitions of the money supply either school is referring.