A reader objected to my recent portrayal of Keynes as a crank, as a man who never really studied economics or took it very seriously. Note that I never denied Keynes’s intellect, his great skill as a rhetorician, or his personal charm. But Keynesian economics is, in a sense, non-economics or even anti-economics, in that it ignores or contradicts many basic lessons about the allocation of scarce resources among competing ends. Mario Rizzo feels the same way:
Keynesianism is not concerned with the allocation of resources and related niceties. One can see this is the policy prescriptions of the stimulators. Just get people back to work. If a market is depressed: Prop it up. Labor, other resource-owners and entrepreneurs need to stop worrying about searching for the appropriate use of resources. Bankers have to stop fretting about to whom they should lend. They should abandon their ultra-restraint. Those who are holding money should invest; they should buy bonds. No need to worry about inflation because the potential output of “stuff” (however it is allocated across industries) is above the actual less-than-full-employment output.
Where did my microeconomics go?
Keynes and his followers proudly trumpeted his framework as a re-do of standard economics (what he called “classical,” though Keynes was not well versed in the history of economic thought). Standard economics is OK during periods of “full employment” (another aggregate concept, of course), but not in the “general” case, in which case the Keynesian magic comes into play. Credit expansion, according to Keynes, performs the “miracle . . . of turning a stone into bread.” As Mises noted, “Great Britain has indeed traveled a long way to this statement from Hume’s and Mill’s views on miracles.”