[This article is a selection
from Where Keynes Went Wrong]:
Paul Samuelson, professor of
economics at MIT after World War II and author of a best-selling economics
textbook, was one of Keynes’s most ardent American disciples. Here is what he
has to say about the latter’s General Theory:
It is a badly
written book, poorly organized. . . . It is arrogant, bad-tempered, polemical,
and not overly generous in its acknowledgements. It abounds in mare’s nests
and confusion….
In reading this,
one recalls Keynes’s infatuation with paradox. Samuelson, the ardent disciple,
is telling us that the master’s book is good because it is bad.
We do not, however, have to take
Samuelson’s word about the bad writing, poor organization, and general
confusion of The General Theory. Following
publication in 1936, many leading economists pointed to the same problems,
although some of them hesitated to criticize or quarrel with Keynes and thus
chose their words carefully. Frank H. Knight, a leading American economist,
complained that it was “inordinately difficult to tell what the author means. .
. . The direct contention of the work [also] seems to me quite
unsubstantiated.”
Joseph Schumpeter
noted Keynes’s “technique of skirting problems by artificial definitions which,
tied up with highly specialized assumptions, produce paradoxical-looking tautologies.
. . .” British economist Hubert Henderson privately stated that: “I have
allowed myself to be inhibited for many years . . . by a desire not to quarrel
in public with Maynard . . . . But. . . I regard Maynard’s books as a farrago
of confused sophistication.”
French economist
Etienne Mantoux added that the whole thing simply appeared to be
“rationalization of a policy … long known to be . . . dear to him.
In The General Theory itself,
Keynes has a good word to say about clarity, consistency, and logic.He is quick
to pounce on what he considers the errors of others. But he then leads us down
a rabbit hole of convolution, needless and misleading jargon, mis-statement,
confusion, contradiction, unfactuality, and general illogic.
It is not that
Keynes is entirely opaque. It is quite feasible to make out what he seems to be
saying, but it is worth taking a moment to focus on the
particular rhetorical devices and obfuscations that Keynes employed.
Device One: Obscurity Where Keynes Went Wron...Hunter
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A typical sentence from The General Theory:
We have full
employment when output has risen to a level at which the marginal return from a
representative unit of the factors of production has fallen to the minimum
figure at which a quantity of the factors sufficient to produce this output is
available.
This means, in
essence, that we have not reached full employment until all factors of
production are fully employed. We will recall that, per Keynes, only at this
point do we have to worry about inflation.
Keynes took exception when other
economists wrote in this convoluted way. For example, in a 1931 letter to the
editor of The New Statesman and Nation, he
charged Lionel Robbins with the same sin, even though Robbins was, on the
whole, a very clear writer:
Professor Robbins
wants “increased elasticity of local wage costs” . . . which means in plain
English, I suppose, a reduction of average wages.
Given this stab at Robbins, can we at
least assume that Keynes will avoid the term “elasticity” in The General Theory? No, not at all, he uses (and
misuses) it repeatedly.
Device Two: Misuse of Technical
Language
In the example above, Lionel Robbins
was at least using standard economist’s jargon. Keynes liked to make up his own
jargon, or worse, use standard jargon in a non standard way. This led to a
scolding by economist Frank H. Knight in the review of The General Theory that we have already cited:
“Familiar terms and modes of expression seem to be shunned on principle.”
The only
legitimate reason to use technical language is to make a sentence clearer, if
not to the average reader, at least to the professional reader. Keynes
habitually uses technical language to confuse, and as we shall shortly see,
this may have been a deliberate strategy.
Device Three: Shifting
Definitions
Keynes tells us in The General Theory that economists have not
clearly defined the jargonish term “marginal efficiency of capital” (which
roughly means return on capital). He then proceeds throughout the book to
use the term in many different ways, at least seven by Henry Hazlitt’s count.
Another slippery word in The General Theory is
wages, which can mean an hourly rate or total employee pay or something else.
Keynes does not seem to notice the difference, which leads him into serious
logical errors.
Once again, Keynes
criticized the same lapse in others. In a book review early in his career, he
took an author to task for
us[ing] the [same]
expression some thirty times in some apparently eight different senses.
Device Four: Misuse of Common
Terms
In some cases,
Keynes stretches the meaning of a commonly used word beyond recognition without
explicitly redefining it. For example, he tells us that for every
commodity there is an implicit rate of interest, a wheat rate of interest, a
copper rate of interest, a steel plant rate of interest, and so on. This
confuses commodity options and futures pricing with interest rates, a clear
case of mixing apples and bananas. We have already seen that Keynes uses the
word equilibrium to describe what is actually disequilibrium.
Device Five: Reversing Cause
and Effect
Keynes says that
entrepreneurs calculate how much revenue they will earn from x employees. But
they do not. They calculate how many employees they can afford from x
revenue. Keynes says that prices are low if production is low. In
actuality, it is the reverse: production is low if prices are low. Keynes seems
to like these reversals, perhaps because they dress up the ordinary with a
gloss of novelty, even of profundity. But it is really no more than a parlor
trick, and just piles error on error.
Device Six: False Determinism
Keynesian economist Alvin H. Hansen,
whose book A Guide to Keynes attempted to
de-mystify the master, tells us that “Keynes’s most notable contribution was
his consumption function.” The so-called marginal propensity to consume
(consumption function) tells us that people tend to save more as their income
rises. Stated as such, it is a commonplace, certainly nothing new. But Keynes
calls it a “fundamental psychological law,” which it certainly is not. We
can neither predict with certainty that people will always save more as their
income rises, nor can we work out a forecastable schedule of increased saving,
as Keynes assumed.
In the Keynesian
model, the marginal propensity to consume is also treated as an independent
variable. (It is supposed to determine other variables, not be determined by
them.) This is clearly false. As Benjamin Anderson, economist and early Keynes
critic, pointed out, “The so-called independent Keynesian variables (1. The
marginal propensity to consume, 2. The schedule of the marginal efficiency of
capital, and, 3. The rate of interest) are all influenced by each other. They
are interdependent, not independent. Keynes even forgets himself and admits at
one point that #2 is influenced by #1.”
Device Seven: Slipping Back and
Forth between Mutually Inconsistent Categories
Keynes uses the
word “wages” to mean either a wage rate or total wages. He is also prone to
move back and forth between physical commodities and services and money prices
for commodities and services, another case of mixing up apples and bananas.
Device Eight: Unsupported
Assertion
In the entirety of The General Theory, there are only two references to
statistical studies, one of which Keynes partly dismisses as improbable:
Mr. Kuznet’s
method must surely lead to too low an estimate.
Even when he
discusses a subject that especially lends itself to statistical analysis, such
as a suggested relationship between agricultural harvests and the business
cycle, he simply takes a position without bothering to search for
relevant data.
Device Nine: Misstatement
Keynes
mischaracterizes the purpose of corporate sinking funds. How could he make such
an elementary error? Probably because he had said the same thing many times
when speaking on his feet, and, being busy, did not take sufficient time to
check his written work.
Sometimes Keynes
seems too busy even to think. He says that if a lender lends money to a
business owner, this doubles the risk of a business owner using his own money,
which doubled risk is reflected in the interest rate. This makes no sense,
as Henry Hazlitt noted. Risk is not doubled when a lender enters the picture.
The lender and the business owner share what is still the same risk of failure.
Device Ten: Macro or
Aggregative Economics
Keynes is usually
credited with “inventing” macroeconomics, which looks at economy-wide flows
rather than the micro-economics of specific firms or industries. This is not
entirely accurate. Other economists adopted an economy-wide perspective,
although they often extrapolated from the firm or industry to the economy as a
whole, which Keynes wrongly criticized. Ironically, Keynes attacked Say’s Law
which is, itself, an example of macroeconomics. It is certainly fair to say
that Keynes developed his own type of macroeconomics, which his followers
developed into the macroeconomics of today. It is also true that a
macroeconomic viewpoint makes it easier for a skilled casuist to mislead and
confuse, and that Keynes fully exploited this opening.
Device Eleven: Misuse of Math
Keynes refers to
sales in one of his equations, but it is expected sales, not actual sales.
Expectations by definition are not verifiable and thus do not belong in an
equation.
As Henry Hazlitt
has pointed out,
A mathematical statement, to be
scientifically useful, must, like a verbal statement, at least be verifiable, even when it is not verified. If I say, for
example (and am not merely joking), that John’s love of Alice varies in an
exact and determinable relationship with Mary’s love of John, I ought to be
able to prove that this is so. I do not prove my statement—in fact, I do not
make it a whit more plausible or “scientific”—if I write, solemnly,
·
let X equal Mary’s love of John,
·
and Y equal John’s love of Alice,
·
then Y = f (X)
—and go on
triumphantly from there. Yet this is the kind of assertion constantly being
made by mathematical economists, and especially by Keynes.
Given the Alice in Wonderland quality of The General Theory, it should not surprise us that
Keynes interrupts his own misuse of math to tell us that he (apparently) agrees
with Hazlitt:
To say that Queen
Victoria was a better queen but not a happier woman than Queen Elizabeth [is] a
proposition not without meaning and not without interest, but unsuitable as
material for the differential calculus. Our precision will be a mock precision
if we try to use such partly vague and nonquantitative concepts as the basis of
a quantitative analysis.28
He also warns of
symbolic pseudo-mathematical
methods . . . of economic analysis.
After some of his
own algebra he adds that:
I do not myself
attach much value to manipulations of this kind.
It is quite typical of Keynes now to
attack, now to disarm, now to shout, now to whisper, now to qualify his
mathematical claims, now to ignore, even blatantly ignore, the same
qualifications. On occasion, Keynes was even capable of a crude bluff. Writing
a private letter to Montagu Norman, Governor of the Bank of England, he said
that his theories (the same theories that would later appear in The General Theory) were a
mathematical
certainty, [not] open to dispute.
Keynes certainly
knew better. Some of his disciples did not. Economist Wilhelm Röpke noted in
1952 that
The [Keynesian]
revolutionaries [take a stance of] . . . vehement self-assertion and barely
veiled contempt, such as are habitual to the “enlightened” in dealing with
those who remain in the dark. They seem to regard themselves as all the more
superior in that they can point with obvious pride to the difficulty of their
literature and to the use of mathematics, which lifts the “new economics”
almost to the lofty heights of physics.
One could go on, almost indefinitely,
citing Keynes’s obscurities, convolutions, inconsistencies, factual or logical
lapses,and so on, but it is time to ask the obvious question: why did he
write The General Theory this way? Keynes could be
orderly, organized, consistent, relevant, clear, complete, and factual, in
addition to being playful and witty, when he wanted to be. This is apparent
from the earlier books and many of the shorter pieces. There are some snippets
from The General Theory that also reflect these
characteristics. So why is most of The General Theory so
different?
There are many possible answers.
Historian Paul Johnson has said, unrelated to Keynes, that “In financial
matters, the object of complexity is all too often to conceal the truth, to
deceive.” The French economist Étienne Mantoux, reviewing The General Theory shortly after publication,
quoted an earlier English economist, Samuel Bailey, from 1825: “An author’s
reputation for the profundity of his ideas often gains by a small admixture of
the unintelligible.”
This may be part
of the explanation, that Keynes intended to deceive or impress. But we must
bear in mind that Keynes was a salesman. He was trying to sell a particular
type of economic policy, and he was prepared to utilize any rhetorical device,
from crystal clarity and wit all the way to complete unintelligibility, in
order to make the sale.
Why would
unintelligibility help to make the sale? Not just because it can be used to
impress. Equally important, it can be used to intimidate. Keynes liked to make
people feel, as his very intelligent friend Bob Brand said, like “the bottom
boy in the class.”
Keynes probably
developed obscurity as one of his speaking styles. He obscured, confused, and
scrambled the mental “chessboard,” because he felt confident that he could
always keep the position of the “chess pieces” in mind, and combine them as he
saw fit for an attack in any direction, whereas his opponents could not. This
is a very impressive skill indeed, especially when one is speaking
extemporaneously. No wonder that Sir Josiah Stamp, a very respected economist
who often partnered with Keynes on BBC broadcasts, said on the air that “I can
never answer you when you are [verbally] theorizing.”
Whether this was a deliberate style
on Keynes’s part, or just a habit, we cannot know. But it was natural for him to
fall into the same scrambling, intimidating style when writing The General Theory. The problem is that it does
not work as well in print as in conversation or debate. When confined to print,
it can be examined, and all the myriad flaws, the errors of fact or reasoning,
the rhetorical tricks, the pseudo originality, may be revealed.
A few prominent economists, notably
Ludwig von Mises, Friedrich Hayek, Wilhelm Röpke, Jacques Rueff, and Henry
Hazlitt, among others, saw through it completely. Others perceived that
something was wrong, but hesitated to say so out of fear of Keynes’s position
and powers of retaliation. Regrettably, no major economist published an
immediate book-length refutation, so that the influence of The General Theory spread and spread,
notwithstanding its all too apparent flaws.
Today many people — economists,
financiers, investors, business owners, and managers — say that Keynes is
their intellectual hero. Have they actually read The General Theory? Have they read more than the few clear
and witty passages so widely quoted?
Note: The views
expressed on Mises.org are
not necessarily those of the Mises Institute.
Hunter Lewis is cofounder of AgainstCronyCapitalism.org. He is
co-founder and former CEO of Cambridge Associates LLC and the author of nine
books, including Where Keynes Went Wrong. He has served on boards and
committees of 15 not-for-profit organizations, including environmental,
teaching, research, and cultural organizations, as well as the World Bank.