All Commentary
Monday, October 1, 1962

A Reviewer’s Notebook – 1962/10


From Henry Hazlitt’s recent The Failure of the New Economics, the reputation of the late John Maynard Keynes emerged in a sorry state of disarray. Professor David McCord Wright does not directly take issue with Mr. Haz­litt’s estimate of Keynes in his The Keynesian System (Fordham University Press, $3.00). But un­like Mr. Hazlitt, Professor Wright insists, by implication at least, that in spite of all his faults Keynes remains one of the tower­ing figures of economics. It is the “Keynesians” to whom Professor Wright objects. Lord Keynes, in his view, was not a “Keynesian.”

The “Keynesians,” says Profes­sor Wright, have been guilty of selecting that portion of the fa­mous General Theory of Employ­ment, Interest, and Money that was elaborated to fit the peculiar condition of England in the twen­ties and thirties and making it do duty as an “explanation” to fit any time and place under conditions of advanced capitalist machine production. For this aberration on the part of his many disciples Keynes himself was admittedly to blame. In the first place, says Pro­fessor Wright, the “general theory” which the title of the book is supposed to cover is not general, it is a particular theory designed to fit a special instance. Keynes, however, corrected him­self in the course of writing his book. His own actual “general theory” is larger than the theory that is indicated by the title.

Professor Wright arrives at his conclusions by taking careful note of Keynes’s qualifying phrases. The General Theory is spangled with sentences that have a tenta­tive flavor. Thus Keynes says, “In contemporary conditions the growth of wealth, so far from be­ing dependent on the abstinence of the rich… is more likely to be impeded by it.” Or : “Interest today rewards no genuine sacri­fice, any more than does the rent of land.” The italics have been added by Professor Wright.

To clear the long-term elements of the Keynesian system from the misunderstandings that have been cultivated by those who have failed to note the sort of thing that Professor Wright chooses to italicize, one must first take Keynes as a man of the twenties and thirties who was interested in immediately practical solutions. The England of the twenties was a deeply crippled country. Its pro­ductive plant was old, the price of its exports was high. What was needed was modernization of pro­ductive equipment. But an “in­tensely job-conscious, and very powerful” labor movement re­sisted modernization, on the short­sighted theory that it would up­set union boundary lines and ex­ploit the worker. Meanwhile, crushing taxation helped to stifle whatever initiative business did manage tentatively to put forth.

The restoration of the gold standard, which was undertaken to save the third of England’s balance of payments abroad that were met by the “export” of banking and insurance services, did not help to revive the export market for British manufactured goods. Picking the story up “in the middle,” Lord Keynes took the decline of the “marginal ef­ficiency” of British capital for granted. Since there seemed to be no expectation of profit in a stag­nant world where savings were not flowing into investment, Lord Keynes started elaborating a “general theory” for a “frozen” economic system.

There followed all the famous “Keynesian” proposals: let wages remain where they were, let the government “tax and spend” to spread purchasing power to the unemployed, let deficit finance create “government investment,” let everyone have his bit of Bever­idgean social insurance. The “eu­thanasia of the rentier” would be rendered painless of letting the impoverished capitalist come un­der the general welfare provisions along with the rest of the coun­try. The nation, in Wright’s words, could “become happily stagnant.”

A Very Special Situation

Professor Wright thinks Keynes’s proposals might have made sense on their own rather craven terms for a New Zealand or a France, which were countries that “could have fed themselves and become peacefully poor.” But England, unlike New Zealand or France, is in no position to feed itself. “England then and now,” says Professor Wright, “can only eat by selling abroad and can only sell abroad by producing better and cheaper goods. The problem of relative efficiency inexorably presents itself.”

Sooner or later, Keynes would have had to confront the need for thoroughgoing capitalist innova­tion in the English economic sys­tem. But the war came and “government investment” took over temporarily.

That Keynes himself was not a “Keynesian” for all times and places was proved during the war. Foreseeing that the war might create both scarcity and inflation (in other words, bring about a condition that was a negation of the twenties and thirties), Keynes went back on his prewar pro­posals for the establishment of indiscriminate credit. His How To Pay for the War was a scheme for drastic taxation of consumption “coupled with certificates which could be cashed when (or if) un­employment returned.” In other words, Keynes had “set upon a more orthodox track in his think­ing.” Professor Wright doesn’t think Keynes was guilty of incon­sistency in stressing the need to face different times with different economic policy. For Keynesian analysis, even on the basis of sug­gestions in the General Theory, recognizes that when full employ­ment is a fact, a government “would want to be able to ‘pull in its horns’ without having created too much extra credit.”

This being the case, “we see that Keynes and Keynesianism be­comes no longer a revolutionary bogey but a very moderate and re­spectable school of thought.” If Keynes had lived, so Professor Wright says in a quietly malicious footnote directed at the “Keynesi­ans,” he “would have tried to bal­ance stability versus pressure groups about where the Eisen­hower administration did—ex­cept that Keynes would probably have tried to be more conserva­tive!”

A Fundamental Error

What particularly annoys Pro­fessor Wright about Keynes’s American and Canadian “dis­ciples” is that they are thinking of present-day North America as constituting a post-World War II version of the Britain of the twenties and the thirties. We are supposedly “glutted” with produc­tion. “Innovation” is not needed. What is important is “purchasing power,” which should be spread among the workers by granting them nine-tenths of the gains from “productivity.” Thus the “Keynesians” in their stuck rec­ord left over from 1938.

Maybe the United States and Canada, like France or New Zea­land, could become “happily stag­nant” by following such advice from the “Keynesians.” But North America, outmaneuvered in world markets because of a failure to let increases in productivity flow into lower prices, would soon be drained of its gold. And the penalty for “happy stagnation” would assuredly be a controlled economy. As Professor Wright puts it, quoting from Schumpeter, we would have “capitalism in the oxygen tent.” The shadow of pri­vate property might remain, but there would be no freedom to ex­periment and little social mobility save through government chan­nels. The young, of course, would try to succeed by becoming bu­reaucratic courtiers.

Keynes died before he could see where the “Keynesians” were headed. On the basis of his cor­respondence with Keynes, Profes­sor Wright undertakes to “broaden the model” left by the dead mas­ter. He notes that Keynes himself actually used two models of the economic system, one a mechanical one with mechanical outlook, and the other a “dynamic, subjective model.” If Keynes had lived, he would almost certainly have stressed the need for savings, for innovation, for profits, and for lower prices in a world that is in dire need of an expanding eco­nomic system to feed the “explod­ing” millions of Asia, Africa, and tropical America.

Europe has responded to the changed situation by rejecting the counsels of the “Keynesians.” And North America, if it is not to be outdistanced, will have to follow suit. The Lord Keynes who, in a thoughtful moment, praised Professor F. A. Hayek’s The Road to Serfdom, would hardly have urged more “government spend­ing” as the cure for the ills of 1962. Professor Wright shows why.

Much of the middle part of Pro­fessor Wright’s book consists of a technical analysis of the Keynes­ian “tool box.” Unlike Henry Hazlitt, Professor Wright is will­ing to grant logical value to the Keynes system, provided the postulate of a “frozen” economic world is accepted. In Keynes’s General Theory the “apparent” contradictions disappear, accord­ing to Professor Wright, as soon as one realizes the points at which Keynes has tacitly “unfrozen” the system. It is the continual switch­ing of assumptions that “forms a continual trap for the careless or biased reader.”

Out of step–The Autobiogra­phy of an Individualist, by Frank Chodorov (New York: Devin­Adair Company, 1962). 261 pp. $4.50.

Reviewed by Robert M. Thornton

No ONE today takes his life in his hands when he expounds the con­cepts of individual liberty, limited government, and free enterprise. His audience may be small but its growth rate is sufficient to war­rant publication of more and more conservative or libertarian books and magazines. Fifteen, twenty years ago this was not the case.

In the forties little was heard from fellows who held to such be­liefs. One of the few who did speak up for the good cause in those dark days for liberty was one Frank Chodorov. Untroubled by the odds against him Mr. Chod­orov started publishing a monthly broadsheet, analysis, which was destined to last over a half-dozen years, thanks to a few thousand faithful subscribers. We can, I think, understand the spirit un­derlying Mr. Chodorov’s grand efforts by a careful reading of his statement in the first issue, November 1944:

“It’s fun to fight—when what you are fighting for stirs your imagination. Fondly adhering to the ideal of individual dignity, striving to keep alive the embers of that hope which was fired by the American Declaration of In­dependence, those who are mak­ing this paper possible expect only a measure of enjoyment in return. It is in that spirit that I, while I manage to rub along by other means, assume my editorial duties.

“For, to point up the state’s encroachment upon social power, to expose the insidious economic forces which are robbing the in­dividual of his will to resist the trend, to suggest a way by which this degradation of man might be stopped short of state-slavery, seems, in the light of what is hap­pening, a fatuous undertaking. What of it? There is a lot of spir­itual profit in being true to one’s self.

“In carrying on for principle, self-respect at least is preserved. The loser is he who quits; what material advantages or conven­iences he might gain by compro­mise is paid for with the currency of manhood. A pig accommodates himself to the environment im­posed on him, and that is why we ascribe to the pig no soul worth speaking about.

“There is further ‘profit’ which this voice-of-individualism hopes to render its supporters. It is that imponderable value which is de­rived from communion with kin­dred spirits. Every reader of this highly opinionated journal be­comes ipso facto a member of a fraternity of individualists, held together by the greatest of human bonds—a common ideal, a com­mon hope. To know that one has the moral support of a host who, in their hearts at least, protest and proclaim with him, is a real comfort.”

Some of analysis has rubbed off on this book, and it is radical stuff. It will make delicious read­ing for the libertarians among us, but some right-wingers—not to mention so-called “liberals”—will find it pretty powerful medicine, much too strong to take under any circumstances. For Mr. Chodorov, being a consistent individualist, does not advocate sacrificing in­dividual liberty in order to do battle with those who would de­stroy freedom. Nor is he con­cerned with telling people how they should live. His aim is to establish the context of freedom—a society in which men may do as they see fit as long as they do not prohibit others from doing the same.

Mr. Chodorov does not cham­pion the cause of businessmen. Nor does he speak for labor unions, or farmers, or intellec­tuals, or veterans, or elderly peo­ple, or any other group, large or small. He is one hundred per cent for ending all privileges—to all individuals or organizations! He is as strongly opposed to subsi­dies for businessmen as he is to government-bestowed privileges for labor unions.

Frank Chodorov is a practicing individualist, it should be noted, and as such he has been willing throughout a long life to accept—nay, demand—personal responsi­bility. Unlike so many who merely talk about freedom, Mr. Chodorov has actually lived by his principles as well as any fallible being can—even when it hurt. He recognized early in his life that no true liber­tarian could look on security as anideal for it is, in a real sense, a false idol.

Mr. Chodorov devotes a full chapter of his “autobiography” to his good friend, Albert Jay Nock, who has recorded his own view of our author: “Mr. Chodo­rov has a social philosophy that is fundamental and his command of it is so complete that he can express his critical view of a large subject in the fewest and simplest terms. In his last issue, for ex­ample, he wrote one page on The Unimportance of Yalta and an­other on Mr. Wallace’s Compe­tence. He took these subjects en­tirely away from the conventional line of approach, applied a new and competent measure to them in the simplest kind of language, and when he ended there was nothing left for anyone to say; he had said it all…. Mr. Chodo­rov has the kind of humor that keeps him always superior to his subject. If the aspiring pamphle­teer hasn’t that, he had better sweat blood to cultivate it. Much of our controversial and hortatory literature is sound and good enough; but dear Lord, how dull, dogged, dreary it is, and how dis­mally it plods along on the dead-level of platitude!”

Mr. Chodorov is a colorful per­sonality who could hardly write a dull line if he tried. The reader has a treat in store.


  • John Chamberlain (1903-1995) was an American journalist, business and economic historian, and author of number of works including The Roots of Capitalism (1959). Chamberlain also served as a founding editor of The Freeman magazine.