The Critics of Keynesian Economics

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.

In the seventeen years since my anthology’s original appearance, there has been a profound change in the academic reputation of Keynes’s General Theory. It is no longer accepted as the new gospel. Professors of economics can openly declare themselves to be non-Keynesians and even anti-Keynesians, and still be treated with respect. In the serious press, the revolt has gone even further. Economic papers from the London Economist to The Wall Street Journal have published articles declaring that “Keynes Is Dead.”

Both as cause and result of this change of thought, over these seventeen years hundreds of articles have appeared pro and con on Keynesianism. And some of the criticisms have been first-rate. One or two authors already included in my earlier compilation, like Professors F. A. Hayek and W. H. Hutt, have themselves made additional contributions. Obviously if I were to compile a non-Keynesian anthology afresh, of the same length as the original one, and including articles or excerpts published since 1960 as well as previous to it, I would have to omit several already there to make room for new ones.

But my compilation would lose as well as gain something. It is true that in 1960 critics of the Keynesian nostrums could point to only twenty-four years of experience with their application; now they can examine more than forty. As a result they have discovered a formidable statistical case against the central Keynesian contention that deficit spending or monetary inflation eliminates or even substantially reduces unemployment. But owing to the multitude of conflicting factors at work in any economy, statistics by themselves can seldom prove any conclusion incontestably; they can at best raise a strong presumption. Our final reliance must be on analysis and deductive reasoning. And though the literature since 1960 has added admirable examples of these, I can think of no major valid criticism of Keynesian doctrine that had not already been put forward prior to 1960.

On the other hand, it would be a profound mistake to conclude that criticism of Keynesian doctrine has already done its work, and that there is no reason to restate, republish, or add to it. It is true that the prevailing drift of academic opinion has changed, and that Keynesian doctrine no longer goes unchallenged. But there are still plenty of Keynesian and other inflationists in the academic community, and they are among its most articulate, publicized and prolific members.

Most ominous of all, the vast majority of politicians and governments today are persistently applying the Keynesian remedies, even though they do not know that they are Keynesians. It is no mere coincidence that as I write these lines, the official estimate of the federal deficit in the current fiscal year—1977—is by far the highest in our history; yet there is overwhelming agreement in Congress and the Administration that this is not nearly enough to reduce current unemployment, and that the federal government must “stimulate” the economy by piling on still more billions of expenditures and cutting taxes. It is no mere coincidence, either, that for the first time in history practically every nation is on a paper basis and every nation is inflating.

The world is verifying what Keynes himself wrote with uncanny clairvoyance in the last paragraph of his General Theory: “Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist”—now ironically himself—”and the ideas which civil servants and politicians and even agitators apply to current events are not likely to be the newest.”

HENRY HAZLITT

April, 1977