Freeman

ARTICLE

Paradigms, Contrarians, and Keynes

NOVEMBER 01, 2002 by NELSON HULTBERG

In the field of ideas, why are dramatic new visions of truth so often met with vehement opposition from a society’s intellectuals-the very men of the mind who are most dedicated to the pursuit and demonstration of truth? How can today’s intellectuals-so acutely aware of humanity’s bigoted resistance in the past to Galileo, Semmelweis, Pasteur, and other radical discoverers-succumb to the same blind obstinacy in the face of the new truths confronting them?

There are several reasons why this propensity for intolerance to new thinking has prevailed throughout history among intellectuals. As the physicist Fred Hoyle reminds us, scientists are human. They are, far more often than the lay public perceives, victims of dogmatism and the tendency of all humans to argue from preset ideas.

Despite their much-heralded pledge to objective inquiry, scientists are quite capable of bias and suppression in order to preserve their long-standing beliefs. When a large portion of one’s life has been passionately devoted to the validation of an idea, it becomes most difficult to accept the invalidity of that idea. Therefore, truth, the most highly prized goal of all, is often forsaken to protect fragile egos and support previous convictions.

This tendency of scientists to be obstinate in the face of new truth manifests itself through the paradigm shift. As Thomas S. Kuhn demonstrated in The Structure of Scientific Revolutions, all science is based on the establishment of paradigms, or what can be termed an overall "way of viewing things" in a particular field. And once a paradigm is established, it becomes difficult for most thinkers to dispute its basic premises even when that paradigm is found to be in error.

For example, the first-century Egyptian astronomer Ptolemy established the Ptolemaic paradigm of the solar system, which depicted the earth as its center with the sun revolving around the earth instead of vice versa. Even after Copernicus made it obvious around 1500 that the Ptolemaic concept was a fallacy, it still prevailed in intellectual circles for another 180 years until Galileo drove the final nails into its coffin.

Herein lies one of the great human dilemmas: Once a way of viewing things is entrenched in any given field, even when new knowledge comes along to refute the paradigm, it becomes practically impossible (because of the flaws of human nature) for most intellectuals to think outside that paradigm’s constraints. They will defend the entrenched view even when its basic conception is shown to be foolish and impossible, especially if they have devoted a vital part of their lives to the teaching and promotion of that way of viewing things.

This is our situation in many intellectual fields today. Like the medieval dogmatists, today’s academic community also clings to some irrational paradigms in face of overwhelming evidence that their views are as untenable as the geocentric theories of old.

Let’s take one of the most entrenched paradigms of our day as an example: Keynesian demand theory in economics. Despite its demonstrable weaknesses, our establishment scholars cling to it. When presented with strong, logical refutations, 80 percent of our academic community reacts with bemused scorn.

Evidence is rife throughout the world that the Keynesian model is a false and dangerous way to approach political economy. Inflating demand with fiat currency is not some kind of "new economics" as Keynes and Franklin Roosevelt’s Brain Trust of the 1930s claimed. It is not legitimate economics at all, but just another excuse for powerful governments to debase the currency in order to confiscate their citizens’ wealth.

Neo-Keynesian Variants

Original orthodox Keynesianism may be dead as a viable theory, but just as neo-Ptolemaic theories prevailed for almost 200 years after Copernicus, neo-Keynesian variants still control government policy today, well after Ludwig von Mises explained how markets work. They are still entrenched as the basis for statism and are the reasons for the exacerbated boom-bust cycles in our economy over the past decades.

Keynesian economics, of course, got its start during the Great Depression. In essence, Keynes’s message to a bewildered 1936 world was this: Vast amounts of government investment must be created to stimulate and perpetually maintain consumer demand at a high level. If this is done, the problems of poverty and business cycles will be alleviated. The weakness of free enterprise is that it can’t produce enough purchasing power, that is, demand, among the people. The government must take control of the monetary system, for Say’s Law of Markets is no longer valid.

Say’s Law is the brainchild of J.B. Say, the nineteenth-century French economist. It states that production is the cause of consumption, or that the people’s productivity determines their purchasing power. For example, if a man plants and harvests a ten-acre field of corn, his purchasing power in the marketplace will be whatever that corn is worth in trade to his fellow man. His production of corn has created the level of his demand for clothes, transportation, entertainment, and so on.

When Say’s Law is considered along with Mises’s theory of money and credit, one can easily see the fallacy of Keynes, for no amount of paper money injected into an economy in excess of the growth of goods and services will increase the purchasing power of the people. This is because the prices of those goods and services will rise in response to the increase in the money supply, which negates the effect of the extra paper money in the people’s pockets.

If Say’s Law is valid, then the Great Depression should have been handled by letting prices and wages seek their own level and allowing Say’s Law to operate. If this had been done, the natural productivity of the people would have created the necessary purchasing power to climb out of the Depression. The reason it wasn’t handled this way is that Keynes supposedly showed that Say’s Law was unworkable under modern-day conditions.

But as Mark Skousen has pointed out, Keynes gravely distorted Say’s Law in order to refute it.1 He created a straw man and then knocked it down. Such intellectual legerdemain allowed Keynes to pose as some sort of super-savant with a brilliant new theoretical insight into how the world works.

Many years ago, Henry Hazlitt also saw the foolishness of Keynes and pointed out that his allegedly brilliant refutation consisted of declaring Say’s Law invalid because it is invalid.2 This is akin to a physicist suddenly declaring that the law of gravity is no longer applicable to humans because it is no longer applicable.

One can almost imagine FDR’s reply to his Brain Trust when informed of the wonders to be worked with Keynes’s "new economics." If capitalism has reached its mature stage and can no longer produce enough purchasing power, we in Washington must step in and get the system going again. If people don’t have enough money, all we have to do is print up more and our problems will be solved. We can usher in an unbounded future of government-managed prosperity. Stripped of all the eloquent conceptualizations and slick technical jargon, that was Keynes’s great "innovation" and "revolutionary insight."

Falling for the Lure

The folly of such a proposal and the willingness of learned men to fall for its lure are terribly embarrassing when one thinks through the basic principles involved and projects the long-run ramifications. Nevertheless, the most powerful office of the most powerful country in the world accepted such fiscal flimflammery as valid economic theory. And every administration since FDR’s has been doing the same thing-printing up more money to make us all more "prosperous."

Neo-Keynesians justify their monetary inflation with the claim that such policy is necessary to "create economic growth." But this is readily seen for the lie that it is by simply investigating our economic history.

As recorded in The Statistical History of the United States, real wages for the workingman tripled in the years 1850-1913, and the GDP increased over 500 percent, averaging 4.3 percent annual growth from 1870-1913-all without any inflationary infusions of fiat money from the Fed because there was no Fed.3 This highly productive era, based on the "barbarous relic" of gold, was accompanied by an actual deflation of prices. From 1800 to 1913 there was an overall 30 percent reduction in the Consumer Price Index from 43 to 30.4

Despite these irrefutable facts, Keynesians still maintain that government inflation of the money supply is mandatory for a productive economy. This in the face of the total destruction of the dollar since 1913. This in face of the fact that average GDP growth is only 2.5 percent annually today. This in face of the fact that growth in real wages has been impeded for the past 30 years because the combine of inflation and taxes diminishes the workingman’s increased wage income.

It is easy to understand why the Washington establishment does not want to face the economic facts of reality regarding this issue. It would mean that its Keynesian and neo-Keynesian paradigms are (and have been for 65 years) theoretically wrong. Accepting such a truth would mean the same thing that accepting Copernicus’s discoveries meant to the Catholic Church in the sixteenth century-relinquishment of substantial power. In this case, Washington’s neo-Keynesian bankers and politicians would have to relinquish substantial power to the private sector, which government establishments naturally hate to do.

Therefore, Keynesian and neo-Keynesian irrationality is not dead by any means. The idea that governments can direct their economies for the betterment of the citizenry by manipulating interest rates and levels of liquidity continues to hold sway over today’s intellectuals, even though such a centralized-planning paradigm is insidiously evolving into economic fascism. The paradigm lives in the minds of statists everywhere as the ruling economic dogma of modern times, and they cannot (or will not) think their way out of it. As a result, mankind continues to suffer needlessly.

Sadly, this is the inevitable nature of the discovery of truth. The great majority of any society’s intellectual community becomes locked into its established paradigms even when they are false. Only a select few who are contrarian thinkers can see the truth and are willing to promote it.

It is to these minds that the world owes its advances (its paradigm shifts)-socially, politically, morally, and scientifically-for the contrarian is possessed of the vision to see beyond his fellows and the courage to challenge firmly entrenched error. Most important, the contrarian is not plagued with the desire to be popular and acclaimed in his own time. He cares little for establishment acceptance. Not that he will shun acclaim if it happens to come to him, but it is not the primary motivation driving him. Herein lies his strength and one of the important reasons for his acute clarity.

Open and Creative Minds

There is a law of life that is identifiable here, and it can be stated thus: Truth will always reveal itself only to the contrarian, for his is the only mind open enough and creative enough to see it. Not that all contrarians speak truth. But the truth will always come to us only through contrarian minds-thinkers like Socrates, Galileo, Pasteur, Einstein, Mises. Establishment intellectuals are needed to solidify and disseminate already confirmed truths, but they are not willing to promote new truths. And because of the flaws in human nature, they invariably become roadblocks to those contrarians who are willing.

Such is the condition of our scientific and philosophical fields today. As always, the contrarians are at war with the establishment, and there are profound revolutions going on. Old established paradigms are being shattered. New discoveries and visions in economics, physics, philosophy, biology, medicine, and more are pouring forth to stir up elemental debates presumed to be settled by those who argue from preset ideas.

Every advance that mankind makes throughout history is accomplished because small groups of contrarian thinkers are willing to challenge the old order. In doing so, they foment a mental revolution and teach their fellow men a new way of thinking.

This is the paradigmatic nature of intellectual progress. If one wishes to know truth, he must understand that the established order will seldom provide it for him. He must possess the power to think for himself, or as Ayn Rand put it, "see through his own eyes." He must cultivate a totally independent curiosity, and he must be desirous of whatever the truth turns out to be-even when it spoils his fondest, previous convictions.

The reason human civilization advances so haltingly and laboriously is that there are only a few intellects capable of such independence in any given generation.

Nelson Hultberg is a freelance writer in Dallas, Texas.


Notes

  1. 1. Mark Skousen, "Say’s Law Is Back," The Freeman: Ideas on Liberty, August 1999, pp. 54-55.
  2. 2. Henry Hazlitt, The Failure of the "New Economics": An Analysis of the Keynesian Fallacies (Princeton, N.J.: D. Van Nostrand, 1960).
  3. 3. The Statistical History of the United States from Colonial Times to the Present (Stamford, Conn.: Fairfield Publishers, 1960), pp. 91, 141, 409, 413.
  4. 4. The World Almanac 2002 (New York: World Almanac Books, 2002), p. 103.

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