Freeman

BOOK REVIEW

Professor Hutt on Keynesianism

JANUARY 01, 1964 by LUDWIG VON MISES

Dr. Mises is Visiting Professor of Economics at New York University and part-time adviser, consultant, and staff member of the Founda­tion for Economic Education.

The Keynesian doctrine as developed by 1935 in The General Theory of Employment, Interest, and Money, tries to prove the soundness of the two most popular but least tenable components of contemporary economic policies: inflationism and labor unionism. At the time of its publication the spectacular failure of these two methods of interfering with the market phenomena could no longer be concealed. Yet the governments and the political parties were firmly resolved not to abandon "deficit spending" and the support of labor union violence and in­timidation. Their official wisdom explained the progressive rise in prices—which they misnamed in­flation—as caused by machina­tions on the part of bad people, the profiteers, and unemployment as one of the unavoidable shortcom­ings of a "free," i.e., not regi­mented, economy.

But it became from day to day more obvious that it was not enough to find a lame excuse for the current policies. What the non­communist West seemed to need was a comprehensive doctrine that could be adopted as the economic philosophy of those governments that, while ostensibly proclaiming their anticommunism, step by step approached a system of all-round government control of business. The General Theory’s success was due to the fact that it tried to provide such a justification of the American New Deal and the de­valuation practices of the various European nations.

The enthusiastic praise that Keynes’ doctrine received on the part of the professors and authors propagating government omnipo­tence could for a while divert attention from the fact that from the beginning all discriminating economists rejected it and un­masked its inherent fallacies. Some of the most important of these critical essays were collected and republished by Henry Hazlitt under the title, The Critics of Key­nesian Economics. Hazlitt him­self has in a voluminous bril­liantly written study, The Failure of the "New Economics," clearly demonstrated the shortcomings, contradictions, and other failings of Keynesianism.

To Clear the Air

As an economic doctrine, Key­nesianism is now dead. But the serious errors and misunderstand­ings of fundamental issues of economics that made its emer­gence and its fleeting success pos­sible still prevail. There remain with us many empty slogans and illusory concepts that easily mis­lead those seeking a satisfactory interpretation of phenomena. It is necessary to clear away the debris of the Keynesian structure in order to open the way for a cor­rect grasp of the principles of the market and the functioning of price flexibility.

This is the task that the new book of Professor W. H. Hutt, Keynesianism—Retrospect and Prospect (Chicago: Regnery, 447 pp., $7.50), wants to accomplish. Hutt calls his work A Critical Re­statement of Basic Economic Principles. Such a restatement was badly needed indeed. The main failure of Keynes and all his disciples and admirers is to be seen in the fact that they simply do not know what prices are, how they originate, and what they bring about.

Prices come into existence by the eagerness of people to ex­change one commodity or service against another commodity or service. They are the outcome of various individuals’ readiness to buy or to sell. Every price is the outgrowth of a definite constella­tion of demand and supply. It could not be different from what it really was because there did not appear on the market any people ready to bid a higher or to ask a lower price. The structure of prices reflects the state of the ma­terial conditions determining peo­ple’s existence and the success of the endeavors made to satisfy the most urgent needs as far as these material conditions make it feas­ible.

Prices cannot be manipulated ad libitum by the social appara­tus of coercion and compulsion, the police power. All the govern­ment—or a labor union to which the government has virtually delegated its power of enforcing or­ders by violent action—can achieve is that coercion is substi­tuted for voluntary action. Where there is coercion, the market econ­omy no longer functions; disorder results in the production and the marketing of the articles subject to the governmental decree. Then the spokesmen of the authorities point to the inefficiency of the market system and ask for more government meddling with the price system.

The Market Economy

Professor Hutt analyzes point by point all the alleged shortcom­ings of the free market about which people complain. He pre­sents a comprehensive analysis of all aspects of the Keynesian in­terpretation of the market econ­omy. Most of the rising genera­tion of economists were taught Keynesianism and ignore all that economic theory has brought for­ward for an elucidation of what is going on in production and in the marketing of the products. Acareful study of Professor Hutt’s new volume will lead them back to a correct grasp of the problems of the market economy.

Professor Hutt’s contributions to economic science were long since highly appreciated by all serious students of social prob­lems. His rank among the out­standing economists of our age is not contested by any competent critic. Yet, what he has written up to now has appealed only to those specializing in the study of economics. This new volume on Keynesianism is addressed not only to specialists, but to all those who want to form a well-grounded opinion concerning the most burn­ing problems of social policies. It is not only a refutation of er­roneous doctrines. It is no less an exposition of the fundamental principles and ideas of up-to-date economic theory. It is not merely a treatise for the specialist. It is no less a book for all those eager to learn what sound economic doc­trine has to say about the great problems of our age.

 

***

Liberty vs. Liberty

They make a rout about universal liberty without considering that all that is to be valued, or indeed can be enjoyed by indi­viduals, is private liberty. Political liberty is good only so far as it produces private liberty.

SAMUEL JOHNSON, Bowell’s Life. 

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January 1964

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