PREFACE TO THE SECOND EDITION

The present anthology was first published in 1960. As I point out in the first two pages of my original Introduction, it was a sort of byproduct of my book, The Failure of the “New Economics”: An Analysis of the Keynesian Fallacies (1959). Critics went through several printings, but has been out of print since 1973.

ACKNOWLEDGMENTS

I wish to express thanks to publishers of the following for permission to reprint the essays, articles, or excerpts in the anthology:

Quarterly Journal of Economics, vol. 51, 1936-1937; and May 1947.

The Canadian Journal of Economics and Political Science (Toronto), February, 1937.

Revue d’Économie Politique, November-December, 1937.

The Pure Theory of Capital, by F. A. Hayek, American edition, University of Chicago Press, 1941.

I. Introduction1

In the course of writing my book, The Failure of the “New Economics”: An Analysis of the Keynesian Fallacies, I naturally read a good deal not only of the works of Keynes and the Keynesians but of the writers who had criticized Keynes’s major theories, particularly the doctrines found in his General Theory of Employment, Interest and Money. In only one or two instances, such as Arthur Marget’s two formidable volumes on The Theory of Prices (1938 and 1942) and L.

II

JEAN BAPTISTE SAY, the originator of “Say’s Law” that supply creates its own demand, was born at Lyons, France, in 1767. He published his principal work, Traité d’Économie Politique, in 1803. The last edition which appeared during his lifetime was the fifth, in 1826. The excerpt which follows, containing the statement of “Say’s Law,” is the whole of Chapter XV of an English translation made from the fourth French edition. It is taken from the fifth American edition of A Treatise on Political Economy published in Philadelphia in 1832, the year of Say’s death.

III

In his effort to discredit Say’s Law, Keynes took as his target a passage from John Stuart Mill’s Principles of Political Economy (Book III, Chap. xiv. Sec. 2). This passage was taken out of context and was presented in truncated form. If Keynes had only gone on to quote the three following sentences of the same passage, he would have allowed Mill to give also his qualifications of balance and proportion–today called “equilibrium”—which he considered essential to the correct statement of Say’s Law.

IV

JACOB VINER was born in Montreal, Canada, in 1892. He studied at McGill University, and took his master’s and doctor’s degrees in economics at Harvard University. He has been professor of economics at Princeton University since 1946, as well as visiting professor at various universities here and abroad. He has served as a consulting expert to the U.S. Treasury and State Departments. In 1939 he was president of the American Economic Association. He is author of Studies in the Theory of International Trade (1937) and of numerous other works.

V

FRANK H. KNIGHT was born in Illinois in 1885. He has been professor of economics at the University of Chicago since 1928, and was president of the American Economic Association in 1950. His best known work is Risk, Uncertainty and Profit, 1921 (reprinted London, 1933). He is also the author of numerous other works, including The Ethics of Competition, and Other Essays, 1935, 1951; Freedom and Reform, 1947; The Economic Organization, 1951; On the History and Method of Economics, 1956.

VI

ÉTIENNE MANTOUX, son of the distinguished French Historian, Paul Mantoux, was born in Paris in 1913. After graduating from the University of Paris and the École des Science Politiques, he was attracted to economic studies and went to the London School of Economics (1935-36) on a research scholarship. His only book was The Carthaginian Peace—or The Economic Consequences of Mr. Keynes (1946), by far the fullest and ablest attack on the contentions of Keynes’s The Economic Consequences of the Peace. But Étienne Mantoux did not live to see its publication.

VII

F. A. HAYEK was born in Vienna in 1899. He acquired doctorates in law and economics at the University of Vienna and later taught economics there. In 1926 he became director of the Austrian Institute of Economic Research. In 1931 he was appointed Tooke professor of economic science and statistics at the University of London, where he remained until 1950, in which year he accepted the invitation to become professor of social and moral science at the University of Chicago—a position he still holds. Professor Hayek is the author of nearly a dozen books.

VIII

FRANCO MODIGLIANI was born in Rome, Italy. He became a Doctor in Jurisprudence at the University of Rome in 1939, and a Doctor in Social Science at the Graduate Faculty of Political and Social Science of the New School for Social Research, New York, in 1944. At the time of publication of the following article he was on the faculty of Bard College of Columbia University.